1994 (2) TMI 93 - AT - Income Tax

Summary

Issues Involved:
1. Penalty u/s 271B for failure to comply with section 44AB.
2. Reasonable cause for delay in audit and filing returns.
3. Interpretation of section 271B regarding belated compliance.

Summary:

Issue 1: Penalty u/s 271B for failure to comply with section 44AB

The appeals relate to penalties levied by the Income-tax Officer (ITO) u/s 271B for the assessee's failure to comply with section 44AB. The Department found during a survey that the assessee's turnover exceeded Rs. 40 lakhs for three successive years, but the audit report required u/s 44AB was not filed. The ITO imposed penalties at the minimum levels for each year.

Issue 2: Reasonable cause for delay in audit and filing returns

The assessee argued that the delay was due to the negligence of their auditors, M/s. Singhvi & Associates, and not due to any fault of their own. The assessee claimed that their partners were not well-educated and relied entirely on their auditors for compliance. The assessee provided affidavits and other evidence to substantiate their claim. The Tribunal considered these factors and determined that the assessee was prevented by reasonable cause from timely compliance with section 44AB.

Issue 3: Interpretation of section 271B regarding belated compliance

The Tribunal examined whether section 271B penalizes belated compliance. Section 271B mentions failure to get accounts audited or obtain an audit report "as required under section 44AB" but does not specify a penalty for delay. The Tribunal compared this with section 271(1)(a), which explicitly penalizes delayed filing of returns. The Tribunal concluded that section 271B does not penalize belated compliance but only absolute failure to comply. The Tribunal also referred to the "mischief rule" and the principle of strict construction of penal laws, concluding that the assessee's belated compliance did not warrant a penalty.

Conclusion:

The Tribunal held that the penalties u/s 271B were not imposable as the assessee was prevented by reasonable cause from timely compliance and that section 271B does not penalize belated compliance. The appeals filed by the assessee were allowed, and the penalties for all three years were canceled.