2007 (4) TMI 137 - HC - Income Tax

Penalty Revenue contended that assessee is liable for penalty on the ground that he has not furnish the audit report along with their return Held that revenue contention was not valid and penalty set aside

Summary

Issues:
1. Legality of canceling penalty for failure to furnish audit report along with the return under section 139(1) of the Income-tax Act, 1961.

Analysis:
The Income-tax Appellate Tribunal, Allahabad, referred a question of law under section 256(1), (2) of the Income-tax Act, 1961 regarding the cancellation of penalties totaling Rs. 59,126, Rs. 78,376, and Rs. 82,633 for the assessment years 1990-91, 1991-92, and 1992-93, respectively. The issue revolved around the requirement for an assessee with turnover exceeding Rs. 40 lakhs to get its accounts audited, obtain audit reports under section 44AB, and file them along with the return of income under section 139(1) of the Act. However, in this case, the assessee filed the audit report along with the return furnished under section 139(4) instead of section 139(1).

In response to the default of not furnishing the audit report along with the return under section 139(1), the Assessing Officer initiated penalty proceedings under section 271B. Despite the explanation provided by the assessee, the Assessing Officer imposed penalties of Rs. 59,126, Rs. 78,376, and Rs. 82,633 for the respective assessment years. The Commissioner of Income-tax (Appeals) upheld the penalties, finding no reasonable cause.

Upon appeal to the Tribunal, the penalties were canceled. The Tribunal based its decision on previous decisions and the ratio of the Supreme Court in cases like Hindustan Steel Ltd. v. State of Orissa and CIT v. Vegetable Products Ltd. The Tribunal considered the obligation created by section 44AB and the requirement to furnish the audit report before the Assessing Officer before the specified date.

In a similar case, the High Court had previously held that the obligation under section 44AB was merely to get the accounts audited before the specified date, without the necessity to furnish the audit report before the Assessing Officer. As the audit report was obtained by the assessee before the specified date under section 44AB, the penalty under section 271B was deemed inapplicable. Consequently, the court ruled in favor of the assessee and against the Revenue, answering the question in the affirmative.

No costs were awarded in the judgment.