1996 (2) TMI 176 - AT - Income Tax

Summary

Issues Involved:
1. Validity of penalty proceedings initiated u/s 271B.
2. Applicability of amended provisions of s. 275.
3. Reasonableness of delay in obtaining the audit report.

Summary:

1. Validity of Penalty Proceedings Initiated u/s 271B:
The assessee argued that the penalty proceedings initiated in 1992 were invalid as they were not initiated "in the course of any proceeding" as required by s. 275 of the IT Act. The assessment proceedings were completed on 31st Jan., 1989, and no penalty proceedings were initiated during that time. The Tribunal held that the penalty proceedings must be initiated during the assessment proceedings, and since they were not, the penalties levied were invalid and without jurisdiction.

2. Applicability of Amended Provisions of s. 275:
The AO and CIT(A) applied the amended provisions of s. 275(1)(c) effective from 1st April, 1989, which state there is no time-limit for initiating penalty proceedings. However, the Tribunal held that the amended provisions could not be applied retrospectively to cases where the limitation period under the unamended provisions had already expired. The Tribunal concluded that the amended provisions of s. 275 were not applicable to the given facts, and the penalties levied were barred by limitation.

3. Reasonableness of Delay in Obtaining the Audit Report:
The assessee cited the illness of the partner responsible for taxation and accounts as the reason for the delay in obtaining the audit report. The Tribunal noted that the audit reports were filed voluntarily before the completion of the assessment and that the delay was a technical or venial breach. The Tribunal found the illness of the partner to be a reasonable cause for the delay, especially since the subsequent years' audits were completed shortly after the previous years' audits. Consequently, the penalties levied for the asst. yrs. 1986-87 to 1988-89 were cancelled.

Conclusion:
The Tribunal allowed the appeals, holding that the penalties levied u/s 271B were invalid due to the improper initiation of penalty proceedings and the reasonable cause for the delay in obtaining the audit reports.