2001 (3) TMI 263 - AT - Income Tax

Summary

Issues:
1. Challenge to the cancellation of penalty imposed under s. 271B of the IT Act, 1961.
2. Interpretation of reasonable cause for not getting accounts audited within the specified time.
3. Application of s. 275 of the IT Act regarding the time limit for passing a penalty order.

Analysis:
1. The Department challenged the cancellation of a penalty of Rs. 1 lakh imposed under s. 271B of the IT Act, 1961. The AO initiated penalty proceedings as the assessee, a Government Corporation, failed to get its accounts audited under s. 44AB of the Act. The AO found no reasonable cause for the delay in audit, attributing it to negligence on the part of the assessee. The CIT(A) canceled the penalty, considering the delay in auditor appointment beyond the assessee's control. However, the Tribunal held that the assessee failed to prove diligence in ensuring compliance with statutory provisions, leading to gross negligence. Thus, the Department's challenge was upheld, reversing the CIT(A)'s order.

2. The Tribunal analyzed the concept of reasonable cause for the delay in getting accounts audited. While the assessee claimed the delay was due to the C & A.G. not appointing auditors, the Tribunal emphasized that reasonable cause must be beyond the assessee's control to justify exoneration. It was noted that the assessee did not demonstrate proactive steps to meet audit deadlines or furnish evidence of timely actions. Consequently, the Tribunal agreed with the AO's assessment of gross negligence on the part of the assessee, leading to the reversal of the CIT(A)'s decision to cancel the penalty.

3. The Tribunal addressed the application of s. 275 of the IT Act concerning the time limit for passing a penalty order. It was observed that the penalty order in question was passed after more than two years from the initiation of penalty proceedings, exceeding the prescribed time limit. Citing precedents, the Tribunal emphasized that the penalty order must be completed within the timeframe stipulated by s. 275. Consequently, the Tribunal allowed the additional ground raised by the assessee in the cross-objection, leading to the cancellation of the penalty imposed under the orders due to the violation of the time limit specified under s. 275.

In conclusion, the Tribunal upheld the Department's appeal, reversed the CIT(A)'s decision to cancel the penalty, and allowed the additional ground raised by the assessee in the cross-objection regarding the time limit for passing the penalty order under s. 275 of the IT Act.