2017 (3) TMI 905 - HC - Income Tax

Penalty proceeding under Section 271B - reason for the delay in auditing the accounts - Held that - The Commissioner (Appeals), rightly considered the documents placed by the assessee on record to hold that the explanation tendered by the assessee sufficiently explained the delay in not auditing the accounts before the specified date. It appears that on the first date of hearing when time was sought by the assessee as the chartered accountant was ill, the tribunal went in to the niceties of the matter to observe that there was no written authority from the assessee for seeking the adjournment and the adjournment application was not signed by the chartered accountant and was signed by the clerk working in the firm of the chartered accountant. At least on the first date of hearing, the tribunal could not have rejected the application of the assessee for an adjournment by recording the aforesaid reasons. The tribunal has casually observed that the cause of illness of the accountant, resignation of the employees of the firm and the difference in trial balance are casual and routine excuses and the assessee had not substantiated or proved the cause as aforesaid. We find that the assessee had produced documents on record to show that the accountant and the other employees had resigned during the relevant period and had also produced the original trial balance and ledger to point out that there was a huge difference in the trial balance and the same could not be reconciled. Though there were documents on record to substantiate the cause for the delay, the tribunal has erroneously held that the cause were not substantiated or proved. - Decided in favour of assessee

Summary

Issues:
Penalty imposition under Section 271B of the Income Tax Act based on rejected explanation by the assessee for delay in auditing accounts.

Analysis:
The case involved a partnership firm engaged in trading that failed to audit its accounts before the due date, leading to penalty proceedings under Section 271B of the Income Tax Act. The firm explained the delay, citing the illness and resignation of its accountant, manual maintenance of accounts, and a significant difference in the trial balance. The assessing officer imposed the penalty, but the Commissioner of Income Tax (Appeals) allowed the firm's appeal, acknowledging the valid reasons for the delay. However, the Income Tax Appellate Tribunal, without granting an adjournment, favored the revenue's appeal, rejecting the firm's explanation. The firm argued that the tribunal overlooked crucial evidence, including resignation letters and original trial balance, supporting their explanation for the delay. The High Court noted that the firm adequately explained the delay, attributing it to the ill accountant and staff resignations, which impacted the accounting process significantly. The court criticized the tribunal's dismissal of the firm's evidence and upheld the Commissioner (Appeals) decision, emphasizing that the penalty should not have been imposed based on the rejected explanation.

The High Court found that the firm's explanation for the delay was substantiated by documentary evidence, such as resignation letters and original trial balance, which the tribunal disregarded. The court criticized the tribunal's casual dismissal of the firm's valid reasons as routine excuses, emphasizing that the material on record supported the firm's position. The court highlighted the tribunal's error in concluding that the firm failed to prove the cause for the delay, contrary to the evidence presented. Ultimately, the court ruled in favor of the firm, setting aside the tribunal's order and upholding the Commissioner (Appeals) decision, highlighting that the penalty imposition based on the rejected explanation was unjustified. The court's decision favored the firm, emphasizing the importance of considering all evidence and circumstances before imposing penalties under the Income Tax Act.