1996 (3) TMI 155 - AT - Income Tax

Summary

Issues:
- Deletion of penalty under section 271B of the I.T. Act, 1961 for assessment years 1988-89 and 1989-90.
- Interpretation of legal grounds for deleting the penalty.
- Existence of a reasonable cause for not getting account books audited.

Analysis:
1. The appeals were filed by the department challenging the deletion of penalties imposed under section 271B for the assessment years 1988-89 and 1989-90. The assessee maintained separate accounts for the head office and branch office, claiming that since sales were below the statutory limit of Rs. 40 lakhs, they were not required to audit their accounts. The CIT(A) deleted the penalties citing non-initiation of penalty proceedings during the assessment proceedings.

2. The department argued that the initiation of penalty during assessment proceedings was not required for penalties under section 271B. They contended that section 275 of the Act related to the completion of proceedings, not the initiation of penalties. The CIT(A) relied on a previous case but the Tribunal found that the legal basis for deleting the penalty was incorrect.

3. The Tribunal analyzed the provisions of section 275 and highlighted the distinction between penalties under section 271 and 271B. While section 271 mandates the initiation of penalties during proceedings, section 271B does not have such a requirement. The Tribunal clarified that the previous case cited by the CIT(A) did not apply to the current situation due to different penalty provisions and timelines.

4. Regarding the reasonable cause for not auditing accounts, the Tribunal found the assessee's argument unconvincing. Despite exceeding the turnover limit, the assessee failed to audit their accounts without a valid reason. The Tribunal noted that the belief of the assessee was not based on expert advice and the applicable law had been in effect for several years. The Tribunal overturned the CIT(A)'s decision and reinstated the penalties imposed by the Assessing Officer.

5. In conclusion, the Tribunal allowed the appeals, setting aside the CIT(A)'s decision and restoring the penalties imposed by the Assessing Officer under section 271B of the I.T. Act, 1961 for the assessment years 1988-89 and 1989-90.