1993 (1) TMI 106 - AT - Income Tax

Assessing Officer, Assessment Order, Assessment Proceedings, Delay In Submission, Levy Of Penalty, Penalty Proceedings, Reasonable Cause, Show-cause Notice

Summary

Issues Involved:
1. Levy of penalty under section 271B for delayed submission of tax audit reports.
2. Validity of initiation of penalty proceedings after completion of assessment proceedings.
3. Whether reasonable cause existed for the delay in obtaining the tax audit reports.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271B for Delayed Submission of Tax Audit Reports:
The assessee-firm, a wholesale cloth dealer, filed income returns declaring losses for assessment years 1986-87 and 1987-88. The returns were accepted without any mention of penalty proceedings. The firm was required to obtain tax audit reports by 30-6-1986 and 30-6-1987 respectively, but the reports were delayed. The Assessing Officer issued show-cause notices for penalty under section 271B, which were served on 1-3-1990. The assessee argued that the delay was due to the time-consuming process of settling accounts with customers and the workload at the Chartered Accountant's office. However, the Assessing Officer levied penalties of Rs. 30,972 and Rs. 25,842 for the respective years. The CIT (Appeals) confirmed these penalties, stating that the levy of penalty under section 271B is obligatory upon default.

2. Validity of Initiation of Penalty Proceedings After Completion of Assessment Proceedings:
The assessee contended that penalty proceedings should be initiated during the course of assessment proceedings as per section 275. The Tribunal noted that the penalty proceedings under section 271B were not initiated until after the completion of the assessment proceedings. The Tribunal highlighted that section 275 implicitly requires that penalty proceedings under section 271B should be initiated before the completion of the assessment proceedings. This view is supported by various judicial precedents, which emphasize that penalty proceedings must be initiated during the assessment proceedings. Consequently, the Tribunal concluded that the Assessing Officer could not validly initiate penalty proceedings under section 271B after the completion of the assessment proceedings.

3. Whether Reasonable Cause Existed for the Delay in Obtaining the Tax Audit Reports:
The Tribunal examined whether the delay in obtaining the tax audit reports was due to reasonable cause. The assessee argued that the delay was due to substantial losses, the closure of Ambica Mills, difficulties in recovering dues, and the need to reconcile accounts with customers. The Tribunal noted that the assessee suffered heavy losses and voluntarily submitted returns without any notice. The Tribunal emphasized that the Assessing Officer has discretion to impose or not impose penalties based on the facts and circumstances of each case. The Tribunal found that the short delays of 3 months and 20 days for 1986-87 and 7 days for 1987-88 were covered by reasonable cause due to the explained circumstances. Therefore, the Tribunal concluded that the penalties should be canceled.

Conclusion:
The Tribunal allowed both appeals, ruling that the penalties levied under section 271B were not sustainable due to the invalid initiation of penalty proceedings after the completion of assessment proceedings and the existence of reasonable cause for the delays in obtaining the tax audit reports.