1998 (9) TMI 146 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee failed to comply with the provisions of Section 44AB of the IT Act, 1961.
2. Whether the penalty under Section 271B of the IT Act, 1961, was justifiably imposed on the assessee.

Detailed Analysis:

1. Compliance with Section 44AB:
The assessee filed a return for the assessment year 1993-94 on 21st December 1994, admitting a loss and agricultural income, along with a tax audit report dated 21st September 1993. The Assessing Officer (AO) initiated penalty proceedings under Section 271B, asserting the audit report should have been filed by 31st October 1993. The assessee argued the audit report was obtained within the stipulated time but could not be filed earlier due to the delayed filing of the IT return. The AO did not accept this argument and imposed the penalty, stating the audit report should have been filed in time. The Deputy Commissioner of Income Tax (Appeals) [Dy. CIT(A)] confirmed the penalty, quoting the amended provisions of Section 44AB, which required the audit report to be furnished by the specified date.

2. Justification of Penalty under Section 271B:
The assessee's authorized representative contended that Section 44AB was amended effective 1st July 1995, changing the requirement from "obtained before" to "furnished by." The representative argued that the assessee complied with Section 44AB by obtaining the audit report before the specified date, and since the return was filed late under Section 139(4), the audit report was enclosed with it as required by Section 271B. The Departmental Representative supported the penalty, arguing that Section 271B read with Section 44AB required the audit report to be furnished along with the return filed under Section 139(1) or in response to a notice under Section 142(1)(i). The representative emphasized that the assessee failed to furnish the audit report by the stipulated date, thus defaulting under Section 271B.

Tribunal's Findings:
The Tribunal examined the purpose of Sections 44AB and 271B, as outlined in CBDT Circular No. 387, which emphasized ensuring proper maintenance of books of accounts and accurate reflection of income. The Tribunal noted that Section 271B, applicable for the assessment year 1993-94, contemplated three situations for penalty imposition: failure to get accounts audited, failure to obtain an audit report, and failure to furnish the audit report along with the return filed under Section 139(1) or in response to a notice under Section 142(1)(i). The Tribunal found that the assessee's case did not fall under the first two situations, as the audit report was obtained within the stipulated time. Since the return was filed under Section 139(4) and not in response to a notice under Section 142(1)(i), the third situation also did not apply.

The Tribunal concluded that there was no obligation under Section 139 or any other IT Act provision to file the audit report within the time stipulated under Section 139(1). The amendment to Section 44AB effective from 1st July 1995, which required furnishing the audit report by the specified date, was not applicable retrospectively. The Tribunal emphasized that Section 271B could not impose an obligation to file the audit report within the time stipulated under Section 139(1) unless explicitly stated by the legislature.

Conclusion:
The Tribunal held that no penalty was imposable under Section 271B, as there was no legislative obligation for the assessee to furnish the audit report within the time stipulated under Section 139(1) for the assessment year 1993-94. Consequently, the penalty imposed under Section 271B was deleted, and the appeal was allowed.