1992 (10) TMI 113 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the penalty imposed under section 271B of the Income-tax Act, 1961.
2. Accuracy of the sales turnover computation.
3. Applicability of section 44AB of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Legitimacy of the penalty imposed under section 271B of the Income-tax Act, 1961:

The appellant, a partnership firm, was penalized Rs. 20,373 under section 271B for not auditing its accounts as mandated by section 44AB of the Income-tax Act, 1961. The DC(Appeals) upheld this penalty, although he reduced the amount from Rs. 25,182 to Rs. 20,373. The appellant argued that the penalty was unwarranted as their sales turnover did not exceed the threshold of Rs. 40 lakhs specified in section 44AB. The Tribunal considered the appellant's reliance on professional advice from their Chartered Accountants, who had certified the firm's accounts and advised that section 44AB was inapplicable. The Tribunal cited precedents from the Bombay High Court and Orissa High Court, which held that acting on professional advice constitutes reasonable cause for non-compliance. Consequently, the Tribunal concluded that the appellant had reasonable cause for not filing the tax audit report and thus was not liable for the penalty under section 271B.

2. Accuracy of the sales turnover computation:

The appellant contended that the DC(Appeals) incorrectly computed their sales turnover at Rs. 40,74,706 by including trade discounts and the cost of raw materials supplied to Master Weavers. The appellant maintained that the actual sales turnover was Rs. 39,07,709, below the Rs. 40 lakhs threshold. The Tribunal examined the appellant's Trading and Profit & Loss Account and found that the sales at the Calcutta head office and Madras branch amounted to Rs. 37,45,700 and Rs. 1,62,008, respectively, totaling Rs. 39,07,708. The Tribunal agreed that the trade discounts of Rs. 86,016 and the cost of yarn supplied to Master Weavers amounting to Rs. 80,981 should not be included in the sales turnover. The Tribunal concluded that the DC(Appeals) erred in including these amounts, and the correct sales turnover was indeed Rs. 39,07,708.

3. Applicability of section 44AB of the Income-tax Act, 1961:

The Tribunal noted that section 44AB requires an audit for firms with a sales turnover exceeding Rs. 40 lakhs. Given the accurate sales turnover of Rs. 39,07,708, the Tribunal determined that section 44AB was inapplicable to the appellant. The Tribunal emphasized that the appellant's compliance with professional advice and the acceptance of their accounts by the Assessing Officer further supported the non-applicability of section 44AB. The Tribunal referenced the case of Ramniklal D. Mehta, where it was held that penalties should not be imposed for technical or venial breaches, especially when there is no contumacious conduct or willful disregard of legal obligations. Therefore, the Tribunal concluded that the appellant did not default under section 271B and canceled the penalty.

Conclusion:

The Tribunal allowed the appeal, canceling the penalty of Rs. 20,373 and ordering a refund if the amount had already been collected from the appellant.