1990 (6) TMI 121 - AT - Income Tax

Issues Involved:

1. Imposition of penalty under Section 271B of the Income Tax Act, 1961.
2. Non-completion of statutory and tax audits.
3. Compliance with Section 44AB of the Income Tax Act, 1961.
4. Validity of reasons for audit delay.
5. Retention of books of accounts by the Income Tax Officer (ITO).
6. Issuance of fresh show-cause notice by the ITO.

Detailed Analysis:

1. Imposition of Penalty under Section 271B of the Income Tax Act, 1961:

The appeal concerns the penalty of Rs. 29,742 imposed under Section 271B of the Income Tax Act, 1961 for the assessment year 1986-87. The penalty was levied because the assessee, a private limited company, failed to complete its audit within the stipulated time frame as required by law.

2. Non-completion of Statutory and Tax Audits:

The company had not submitted its income returns for the assessment years 1986-87 and 1987-88 due to pending statutory and tax audits. The statutory audit and tax audit for the years ending 30th September 1985 and 30th September 1986 were not completed by the auditor, Mr. S.A. Bhatt, despite receiving fees in advance till February 1987.

3. Compliance with Section 44AB of the Income Tax Act, 1961:

As per Section 44AB, the audit should have been completed by 30th June 1986. However, the audit was delayed due to the auditor's failure to complete the work despite being paid in advance. The Board of Directors discussed this issue in their meeting on 24th October 1987 and resolved to call upon Mr. Bhatt to complete the pending audit work.

4. Validity of Reasons for Audit Delay:

The assessee argued that the delay was due to the auditor's sudden resignation and failure to complete the audit despite being paid. The ITO, however, considered that this reason was not sufficient cause for the delay. The penalty notice issued on 10th December 1987 required the assessee to show cause for the audit not being completed by 30th June 1986.

5. Retention of Books of Accounts by the Income Tax Officer (ITO):

The ITO retained the books of accounts under Section 131(3) on 14th January 1988 and sought the Commissioner's permission to retain them until 31st December 1988. The books were eventually returned to the assessee on 11th July 1989. The delay in returning the books was cited as a reason for the continued non-completion of the audit.

6. Issuance of Fresh Show-Cause Notice by the ITO:

The Tribunal concluded that the penalty imposed should be set aside due to the need for further inquiries to ascertain whether the assessee was prevented by sufficient cause from completing the audit. The ITO is allowed to re-examine the case and, if necessary, issue a fresh show-cause notice specifying the default and allowing the assessee to present its case.

Conclusion:

The Tribunal set aside the penalty imposed under Section 271B, noting that further inquiries were needed to determine whether the delay in completing the audit was justified. The ITO may re-examine the case and issue a fresh show-cause notice if any default is found. The appeal is treated as allowed for statistical purposes.

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