2007 (12) TMI 138 - HC - Income Tax

Penalty u/s 271B for failure to obtain the audit report Application filed before AO for extension of time for filing return no reply to the application was given by officer assessee presumed that extended time has been granted held that assessee can well presume that his request for extension of time had been granted if AO don t give his refusal penalty not imposable U/S 260 HC is empowered to frame any substantial question of law if question raised before tribunal; is not heard

Issues Involved:
1. Limitation for imposing penalty under Section 271B of the Income-tax Act, 1961.
2. Whether the period for getting accounts audited stood extended when the application for extension of time for filing the return was not rejected by the Assessing Officer.

Detailed Analysis of the Judgment:

1. Limitation for Imposing Penalty under Section 271B:

The core issue was whether the penalty levied under Section 271B of the Income-tax Act, 1961, was barred by limitation under Section 275 of the Act. The assessee was required to get its accounts audited by July 31, 1986, but filed the audit report on August 28, 1986. The Assessing Officer initially did not initiate penalty proceedings under Section 271B but later issued a notice on March 15, 1990, and imposed a penalty of Rs. 1,00,000 on August 8, 1990.

The Tribunal restored the Assessing Officer's order, leading to the assessee's appeal. The assessee argued that the penalty proceedings were barred by the limitation period prescribed under Section 275, which mandates that penalties must be imposed within two years from the end of the financial year in which the proceedings were completed. Since the assessment was completed on March 23, 1989, the two-year period would have ended on March 31, 1991. The penalty order passed on August 8, 1990, was within this period.

The court held that Section 271B does not require initiation of penalty proceedings during the course of assessment proceedings. The penalty proceedings were validly initiated with the issuance of the notice on March 15, 1990. Thus, the penalty order dated August 8, 1990, was within the prescribed limitation period and not barred by Section 275.

2. Extension of Period for Getting Accounts Audited:

The alternative argument raised was whether the period for getting accounts audited stood extended when the application for extension of time for filing the return was not rejected by the Assessing Officer. The assessee had filed an application for extension on July 30, 1986, which was not explicitly rejected by the Assessing Officer. The court examined Section 139, which allows the Income-tax Officer to extend the date for furnishing the return upon application. The proviso to Section 139 indicates that the return can be filed after the specified date if the extension is granted, and interest would be chargeable under sub-section (8).

The court found that the application for extension impliedly extended the period for filing the return and, by extension, the period for getting the accounts audited. This interpretation was supported by precedents, including the Division Bench judgment in CIT v. Surinder Kumar Parmod Kumar, approved by the Supreme Court in CIT v. Ajanta Electricals. The court concluded that the delay in getting the accounts audited was condoned by the constructive acceptance of the extension application, and no penalty under Section 271B could be validly imposed.

Conclusion:

The court answered the substantial question of law regarding the limitation period in favor of the Revenue but ruled in favor of the assessee on the alternative argument. The order of the Tribunal imposing the penalty was set aside, and the penalty under Section 271B was quashed. There was no order as to costs.

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