1998 (6) TMI 108 - AT - Income Tax

Penalty, Failure To Get Accounts Audited, Tax Audit Report, Investigations, Delay, Jurisdiction

Summary

Issues Involved:
1. Initiation of penalty proceedings u/s 271B after the assessment proceedings.
2. Delay in obtaining the audit report due to the sickness of the auditor.
3. Jurisdiction of the Assessing Officer to levy penalty exceeding Rs. 10,000.

Summary:

1. Initiation of Penalty Proceedings u/s 271B:
The assessee challenged the penalty levied u/s 271B on the grounds that penalty proceedings were not initiated during the course of assessment proceedings but at a subsequent date, which is bad in law. The Tribunal noted that the penalty proceedings for the assessment year 1986-87 were initiated 34 months after the completion of the assessment, and for the assessment year 1987-88, the penalty proceedings were initiated 7 months after the assessment. The Tribunal held that penalty proceedings should be initiated during the course of assessment proceedings or within a reasonable period of time. Citing the decision in Sibonarayan Patro & Bros., the Tribunal observed that the delay in initiating the proceedings was unreasonable and thus invalidated the penalty.

2. Delay in Obtaining the Audit Report:
The assessee contended that the delay in obtaining the audit report was due to the sickness of the auditor. The Tribunal admitted additional evidence in the form of a confirmation letter from the Chartered Accountant, which corroborated the claim of illness. The Tribunal referenced the Special Bench decision in Gayatri Traders, emphasizing that the discretion to levy penalty should be exercised judicially and not for trivial or venial breaches. The Tribunal found the delay to be nominal and supported by reasonable cause, thus not warranting the imposition of penalty.

3. Jurisdiction of the Assessing Officer:
The assessee argued that the penalty imposed exceeded Rs. 10,000, and u/s 274(2) of the Act, the Assessing Officer lacked jurisdiction to impose such a penalty. The Tribunal did not explicitly address this issue in the judgment but focused on the procedural lapses and the reasonableness of the cause for delay.

Conclusion:
The Tribunal concluded that the initiation of penalty proceedings was delayed unreasonably and that the delay in obtaining the audit report was due to a reasonable cause. Therefore, the levy of penalty u/s 271B was canceled for both assessment years.