1997 (2) TMI 161 - AT - Income Tax

Summary

Issues Involved:
1. Compliance with Section 44AB of the Income-tax Act, 1961.
2. Validity and acceptance of provisional audit report.
3. Imposition of penalty under Section 271B of the Income-tax Act, 1961.
4. Reasonable cause for delay in obtaining the final audit report.
5. Interpretation of "reasonable cause" under Section 273B of the Income-tax Act, 1961.

Detailed Analysis:

1. Compliance with Section 44AB of the Income-tax Act, 1961:
The primary issue was whether the assessee complied with Section 44AB by filing a provisional audit report dated 30-7-1986. The Income Tax Officer (ITO) found that the final tax audit report was submitted only on 29-9-1986 and rejected the provisional report, leading to the imposition of a penalty under Section 271B.

2. Validity and Acceptance of Provisional Audit Report:
The ITO rejected the provisional audit report on the grounds that there were several variations between the provisional and final reports, and there is no provision in the Act for a provisional audit report. The CIT(A) vacated the penalty, accepting the provisional report as sufficient compliance with Section 44AB, which was contested by the revenue.

3. Imposition of Penalty under Section 271B:
The ITO imposed a penalty of Rs. 1,00,000 under Section 271B due to the delay in obtaining the final audit report. The CIT(A) vacated the penalty, but the revenue appealed, arguing that the provisional report should not be accepted and the penalty should be reinstated.

4. Reasonable Cause for Delay:
The assessee argued that the delay was due to voluminous work and non-receipt of bank statements in time, which were accepted by the CIT(A) as reasonable cause. The Judicial Member supported this view, stating that the delay was beyond the assessee's control and was a reasonable cause under Section 273B.

5. Interpretation of "Reasonable Cause" under Section 273B:
The Judicial Member emphasized a liberal interpretation of "reasonable cause" to advance substantial justice. The delay was attributed to the statutory audit under the Companies Act not being completed in time, which was accepted as a reasonable cause. The Third Member agreed with this interpretation, leading to the conclusion that the penalty should not be imposed.

Separate Judgments:

Majority Decision:
The Third Member agreed with the Judicial Member, concluding that the penalty under Section 271B should not be imposed as the assessee had a reasonable cause for the delay. The CIT(A)'s order vacating the penalty was upheld.

Dissenting Opinion:
The Accountant Member disagreed, holding that the delay was not properly explained and that the provisional audit report could not be accepted as compliance with Section 44AB. He argued that the penalty was exigible and should be restored.

Conclusion:
The majority decision, supported by the Third Member, held that the CIT(A) was right in vacating the penalty imposed by the Assessing Officer. The appeal by the revenue was dismissed, and the penalty of Rs. 1,00,000 under Section 271B was not reinstated.