1998 (9) TMI 104 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalties under section 271B for not filing audit reports under section 44AB along with returns of income for the assessment years 1989-90, 1990-91, and 1991-92.
2. Whether the returns filed under section 139(4) could be treated as returns filed under section 139(1).
3. Whether there was a reasonable cause for the failure to file the audit reports along with the returns.
4. Whether the Assessing Officer was obligated to give an opportunity to rectify the defect under section 139(9).

Detailed Analysis:

1. Levy of penalties under section 271B for not filing audit reports under section 44AB:
The appeals were directed against the levy of penalties under section 271B for not filing audit reports under section 44AB along with the returns of income for the assessment years 1989-90, 1990-91, and 1991-92. The assessee, a co-operative bank, argued that its income was exempt under section 80P since its inception and that there was a common belief in the co-operative bank circles that section 44AB was not applicable to them. The Assessing Officer, however, did not accept this explanation, stating that even if the income was exempt under section 80P, the bank was still required to file the audit reports to ensure proper maintenance of accounts and to check fraudulent practices.

2. Whether the returns filed under section 139(4) could be treated as returns filed under section 139(1):
The assessee contended that penalty under section 271B was not leviable as there was no obligation to file audit reports along with returns filed under section 139(4). The CIT(A) disagreed, stating that returns filed under section 139(4) should be treated as returns filed under section 139(1), relying on various judicial precedents. However, the Tribunal found that the CIT(A)'s opinion was not according to law, as established by the Hon'ble Supreme Court in the case of Kumar Jagdish Chandra Sinha v. CIT [1996] 220 ITR 67.

3. Whether there was a reasonable cause for the failure to file the audit reports along with the returns:
The assessee argued that there was a bona fide belief that audit reports were not required to be filed with returns of income for co-operative banks. The Tribunal found that this belief was reasonable, given the Finance Minister's speech and the departmental Circular No. 387 dated 6-7-1984, which suggested that accounts audited under other laws did not need further audits under section 44AB. The Tribunal also noted that the assessee's failure to file the audit reports was a technical default and not a substantive one, and thus, no penalty should have been levied.

4. Whether the Assessing Officer was obligated to give an opportunity to rectify the defect under section 139(9):
The assessee contended that the Assessing Officer should have given an opportunity to rectify the defect under section 139(9). The CIT(A) opined that it was not obligatory for the Assessing Officer to do so. However, the Tribunal disagreed, citing the Hon'ble Calcutta High Court's decision in CIT v. RaiBahadur Bissesswarlal Motilal Malwasie Trust [1992] 195 ITR 825, which held that the Assessing Officer should provide an opportunity to submit the audit report if the return was defective.

Conclusion:
The Tribunal concluded that the penalty under section 271B should not have been levied, as the assessee's failure to file the audit reports was due to a reasonable cause and was a technical default. The appeals were allowed.