2010 (1) TMI 25 - HC - Income Tax

Penalty u/s 271B AO imosed the penalty but CIT(A) deleted the penalty imposed u/s 271B of the I.T. Act, 1961, on the ground that (a) the audit report was obtained before the specified date, and (b) the penalty proceedings were initiated after several months of passing of assessment order held that - for both the assessment years 1989-90 and 1990-91, the assessee has obtained the audit reports on 31.10.1989 and 30.11.1990 respectively. However, both the audit reports were filed along with the belated returns on 31.1.1990 and 15.4.1991 respectively. In terms of Section 44AB of the Act, as it existed at the relevant time, the assessee was required to get its accounts audited and to obtain the audit reports for the assessment years 1989-90 and 1990-91 on 31.10.1989 and 30.11.1990 respectively and there was no requirement to furnish the same independently. Thus, the provision was duly complied with and there was no violation of Section 44AB and, therefore, Section 271B was not attracted penalty not to be imposed

Summary

Issues:
1. Justification of confirming the order of the CIT (A) canceling the penalty imposed under section 271B of the I.T. Act, 1961.
2. Applicability of penalty proceedings initiated after the passing of the assessment order.
3. Existence of reasonable cause for the default.

Analysis:
1. The issue of confirming the order of the CIT (A) canceling the penalty under section 271B of the I.T. Act, 1961 was raised based on the timeline of obtaining audit reports and filing belated returns. The assessee obtained audit reports before the specified dates but filed them along with belated returns. The CIT (A) accepted the appellant's contention citing decisions of the ITAT and the genuine reasonable cause provided. The Tribunal upheld the cancellation of penalties, emphasizing that the audit reports were obtained before the specified dates, as required by section 44AB, and penalty proceedings were initiated after a considerable delay following the assessment order. The Tribunal dismissed the Revenue's appeals, supporting the CIT (A)'s decision.

2. The question of the penalty proceedings being initiated after the passing of the assessment order was crucial in this case. The Tribunal referred to the ITAT decision in another case to justify the cancellation of penalties based on the delay in initiating penalty proceedings. The Tribunal did not delve into the reasonable cause for the default due to the aforementioned justifications. The Tribunal's decision was based on the procedural aspects of penalty imposition, emphasizing compliance with the law's requirements regarding the timeline of audit reports and penalty initiation.

3. The existence of a reasonable cause for the default was also considered in the case, where the partner responsible for income tax matters was seriously ill, constituting a valid reason for the delay in compliance. However, the Tribunal did not extensively analyze this aspect as the cancellation of penalties was primarily supported by the timely obtaining of audit reports and the delayed initiation of penalty proceedings. The legal position regarding the obligation to furnish audit reports before the specified date was clarified, reinforcing the Tribunal's decision to delete the penalties for non-compliance with section 271B.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing compliance with the law's requirements, the timing of penalty proceedings, and the lack of substantial legal questions justifying the penalties. The judgment favored the assessee, ruling against the Revenue's appeals and in favor of canceling the penalties under section 271B of the I.T. Act, 1961.