2000 (1) TMI 140 - AT - Income Tax

Summary

Issues Involved:
1. Cancellation of penalty under section 271B of the Income-tax Act.
2. Compliance with section 44AB regarding tax audit report.
3. Reasonable cause for failure to comply with section 44AB.
4. Appointment of statutory auditors by Comptroller and Auditor General (CAG).

Detailed Analysis:

1. Cancellation of Penalty under Section 271B:
The Department appealed against the first appellate authority's decision to cancel a penalty of Rs. 1 lakh levied under section 271B of the Income-tax Act. The penalty was initially imposed by the Assessing Officer due to the assessee's failure to submit a complete tax audit report as required by section 44AB.

2. Compliance with Section 44AB:
The assessee, a Government Corporation, filed its return on 31-12-1990, which included a tax audit report prepared by Chartered Accountants M/s. Sushil K. Singla & Co. The Assessing Officer noted that the tax audit report was based on unaudited accounts, which did not meet the requirements of section 44AB. Consequently, a show-cause notice was issued, but the assessee did not respond, leading to the imposition of the penalty.

3. Reasonable Cause for Failure to Comply with Section 44AB:
On appeal, the assessee argued that the delay in appointing statutory auditors by the CAG was beyond its control. The first appellate authority agreed, citing section 273B, which provides that no penalty shall be imposed if the assessee proves a reasonable cause for the failure. The CIT(A) observed that the delay was not intentional and that the assessee had made efforts to comply by appointing private auditors. The CIT(A) referenced the Supreme Court decision in Hindustan Steel Ltd. v. State of Orissa, which held that penalties should not be imposed unless there is a deliberate defiance of law or dishonest conduct.

4. Appointment of Statutory Auditors by CAG:
The Departmental Representative argued that the assessee should have appointed a private auditor to comply with section 44AB. However, the assessee's counsel contended that the delay in appointing statutory auditors by the CAG was a reasonable cause. The counsel cited several case laws supporting the view that the failure to appoint statutory auditors due to delays by the CAG constitutes a reasonable cause.

Judgment:
The Tribunal upheld the CIT(A)'s decision, stating that the assessee had a reasonable cause for not complying with section 44AB due to the delay in the appointment of statutory auditors by the CAG. The Tribunal noted that the provisions of section 44AB and rule 6G do not obligate a Government Corporation to appoint private auditors if statutory auditors are delayed. The Tribunal distinguished the case from U.P. Nalkoop Nigam Ltd., emphasizing that the basic scheme of legislation did not require a Government Corporation to go for private audit in such circumstances. The Tribunal concluded that the assessee had done more than what was contemplated by law by appointing private auditors and filing the audit report within the due date. Therefore, the penalty under section 271B was rightly canceled.

Conclusion:
The appeal by the Department was dismissed, and the order of the CIT(A) to cancel the penalty of Rs. 1 lakh under section 271B was upheld. The Tribunal recognized the reasonable cause for the delay in obtaining the statutory audit report due to the CAG's delay in appointing auditors.