2010 (9) TMI 887 - HC - Income Tax

Penalty u/s 271B for delayed filing of the audit report - appellant submitted that the accounts of the assessee were audited on 8.6.1991, i.e. before the filing of the return, but the audit report was misplaced and, therefore, the same could not be filed along with the return - return declaring an income was filed on 3.9.1991 which was processed under Section 143(1)(a) on 4.2.1992 and the Assessing Officer had not initiated any penalty proceedings under Section 271B of the Act - audit report dated 8.6.1991 was filed by the assessee during reassessment proceedings, Tribunal was in error in reversing the order of the CIT(A) while upholding penalty under Section 271B, against the revenue and in favour of the assessee, appeal allowed Kaysons India s case (2000 - TMI - 14797 - PUNJAB AND HARYANA High Court - Income Tax)

Summary

Issues:
Levy of penalty under Section 271B for delayed filing of audit report in response to proceedings under Section 148 before completion of assessment.

Analysis:
1. The appellant filed a return on 3.9.1991, and a search was conducted on 7.9.1993, leading to a notice under Section 148 for not disclosing income from the supply of milk. The assessment was completed on 27.3.1997, estimating income due to the absence of the tax audit report. Penalty proceedings under Section 271B were initiated for failure to obtain and furnish the report, resulting in a penalty of Rs.1 lac imposed by the Assessing Officer. The CIT(A) allowed the appeal and deleted the penalty, but the Tribunal reversed this decision, prompting the appellant to appeal to the High Court.

2. The appellant argued that the audit report was audited before filing the return but was misplaced, leading to its late submission during reassessment proceedings. They contended that Section 271B did not apply to cases where the audit report was not filed with the return in response to a notice under Section 148. Citing the decision in ITO v. Kaysons India, the appellant sought relief.

3. The revenue contended that the failure to file the audit report with the return made the appellant liable for penalty under Section 271B. They supported the Tribunal's decision.

4. The Court examined Section 271B, which required the audit report to be furnished with the return under Section 139(1) or in response to a notice under Section 142(1). Referring to the Kaysons India case, the Court highlighted that the default of not filing the audit report along with the return before the specified date was not covered under Section 271B. As the penalty proceedings were initiated during assessment proceedings in response to a notice under Section 148, and the audit report was filed during reassessment, the Court concluded that the Tribunal erred in upholding the penalty under Section 271B.

5. Consequently, the substantial question of law was answered in favor of the appellant, and the appeal was allowed, setting aside the Tribunal's order dated 20.1.2003.