1992 (10) TMI 127 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under Section 271B of the Income Tax Act, 1961.
2. Compliance with Section 44AB of the Income Tax Act, 1961.
3. Validity of audit under Section 227(4A) of the Companies Act, 1956 as compliance with Section 44AB.
4. Requirement of obtaining and furnishing further reports in prescribed forms.
5. Bona fide impression and reasonable cause for non-compliance.
6. Interpretation of penal provisions under the Income Tax Act.

Detailed Analysis:

1. Levy of Penalty under Section 271B of the Income Tax Act, 1961:
The primary issue in this case revolves around the levy of a penalty of Rs. 1,00,000 under Section 271B of the Income Tax Act, 1961. The Income Tax Officer (ITO) imposed this penalty on the grounds that the assessee failed to get its accounts audited as required by Section 44AB and did not file the prescribed Forms 3CA and 3CD.

2. Compliance with Section 44AB of the Income Tax Act, 1961:
The assessee argued that it had complied with the audit requirements by getting its accounts audited under Section 227(4A) of the Companies Act, 1956, before the stipulated date. The CIT(A) accepted this argument and held that the proviso to Section 44AB was satisfied, thereby canceling the penalty order. The Revenue contended that the audit under the Companies Act was not sufficient, as the assessee also needed to obtain a further report in the prescribed forms under Section 44AB.

3. Validity of Audit under Section 227(4A) of the Companies Act, 1956 as Compliance with Section 44AB:
The assessee maintained that the audit under Section 227(4A) of the Companies Act, 1956, fulfilled the requirements of Section 44AB. The CIT(A) concurred with this view, noting that the audit was completed before the specified date. The Tribunal upheld this interpretation, emphasizing that the audit under the Companies Act was sufficient compliance with Section 44AB.

4. Requirement of Obtaining and Furnishing Further Reports in Prescribed Forms:
The Revenue argued that the assessee failed to obtain and furnish the further report in the prescribed forms, which was a requirement under Section 44AB. The Tribunal found that for the assessment year 1985-86, there was no statutory requirement to submit these forms along with the return of income. The Tribunal noted that this requirement was introduced only from 1st April 1989.

5. Bona Fide Impression and Reasonable Cause for Non-Compliance:
The assessee contended that it was under a bona fide impression that the audit under the Companies Act was sufficient and that it was not required to obtain the further report in the prescribed forms. The Tribunal accepted this argument, noting that the assessee had a reasonable cause for this belief. Additionally, the books of account were impounded by the ITO, which further complicated the situation. The Tribunal concluded that the default was unintentional and technical, and thus, no penalty should be imposed.

6. Interpretation of Penal Provisions under the Income Tax Act:
The Tribunal emphasized that penalties under the Income Tax Act are penal in nature and must be strictly construed. The Tribunal observed that Section 271B did not explicitly include the failure to obtain the further report in the prescribed forms as a punishable offense. The Tribunal reiterated that if a statutory provision is capable of two interpretations, the interpretation favoring the assessee should be adopted. The Tribunal concluded that the provisions of Section 271B were not attracted in this case, as the assessee had complied with the audit requirements under the Companies Act.

Conclusion:
The Tribunal upheld the order of the CIT(A), canceling the penalty imposed by the ITO under Section 271B. The Tribunal found that the assessee had complied with the audit requirements under the Companies Act and that there was no statutory requirement to submit the further report in the prescribed forms for the assessment year 1985-86. The Tribunal also accepted the assessee's bona fide impression and reasonable cause for non-compliance. Consequently, the Revenue's appeal was dismissed, and the assessee's cross-objection was rendered infructuous.