1991 (6) TMI 254 - AT - Income Tax

Summary

Issues Involved:
1. Whether the CIT(A) erred in cancelling the penalty of Rs. 1,00,000 levied by the IAC under section 271B of the Income-tax Act, 1961.
2. Whether the assessee's explanation for the delay in obtaining the tax audit report was reasonable.
3. Whether there was any contradiction in the reasons provided by the assessee for seeking extensions of time.
4. Whether the levy of penalty was justified given the circumstances and evidence presented by the assessee.

Issue-wise Detailed Analysis:

1. Cancellation of Penalty by CIT(A):
The department appealed against the CIT(A)'s decision to cancel the penalty of Rs. 1,00,000 levied under section 271B. The CIT(A) accepted the assessee's explanation for the delay in obtaining the tax audit report, citing labour problems and the complexity of auditing 18 units spread across India. The CIT(A) noted that the assessee had communicated these issues to the authorities at the earliest possible stage, supported by a letter from their auditors, M/s. Ferguson & Co.

2. Reasonableness of Assessee's Explanation:
The assessee argued that this was the first year the tax audit report was required, and the delay was due to serious labour problems at their Bombay unit, which accounted for almost 50% of their turnover. The CIT(A) found this explanation reasonable, supported by documentation showing continuous labour issues from December 1984 to November 1985. The CIT(A) observed that the delay in obtaining the tax audit report was due to the need for numerous clarifications and reworkings from various units, which took longer than expected due to the labour issues.

3. Contradictions in Reasons for Extensions:
The IAC had initially found contradictions in the reasons provided by the assessee in their various applications for extensions. However, the tribunal noted that the IAC had granted extensions based on these reasons, indicating his satisfaction with the explanations provided. The tribunal found no contradictions in the explanations, stating that the reasons given were consistent with the circumstances faced by the assessee, including the labour issues and the complexity of auditing multiple units.

4. Justification of Penalty Levy:
The tribunal considered whether the levy of penalty was justified. It noted that the IAC had granted extensions up to 22nd November 1985, and the return was filed on that date. The tribunal found it surprising that the IAC, after granting extensions, would levy a penalty for what was essentially a technical lapse. The tribunal emphasized that the assessee had paid self-assessment tax in September 1985 and had communicated their difficulties consistently. The tribunal concluded that the levy of penalty was wholly misconceived and upheld the CIT(A)'s decision to delete the penalty.

Conclusion:
- The appeal by the department was dismissed.
- The cross-objection by the assessee was also dismissed, as it was contingent on the reversal of the CIT(A)'s order, which was not reversed.

The tribunal found that the CIT(A) was justified in cancelling the penalty, given the reasonable cause shown by the assessee and the lack of any contradictions in their explanations. The tribunal also noted that no prejudice to the revenue was caused by the delay.