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Issues Involved:
1. Whether the assessee had a reasonable cause for the delay in obtaining audit reports for the assessment years 1987-88 and 1988-89 under section 44AB of the Income Tax Act. 2. Whether the penalties levied under section 271B of the Income Tax Act were justified. Detailed Analysis: 1. Reasonable Cause for Delay in Obtaining Audit Reports: Assessment Years 1987-88 and 1988-89: - The audit reports were due by 31-7-87 and 31-7-88 respectively, but were actually signed on 2-8-88 and 20-10-89, resulting in delays. - The assessee argued that the delays were due to the illness of their Chartered Accountant, Shri H.P. Lala, and the departure of the firm's accountant. - It was also submitted that the main partner died on 16-11-84, which disrupted the management and led to delays in statutory formalities. - The CIT(A) found merit in these explanations and held that there was a reasonable cause for the delays, cancelling the penalties. 2. Justification of Penalties under Section 271B: Department's Appeal: - The Department argued that the assessee could have employed another auditor or accountant if the original auditor was unwell. - The Department's representative emphasized that the provisions of section 271B are absolute and penalties should be levied for non-compliance. Assessee's Defense: - The assessee reiterated that changing the auditor was not easy and the illness of the Chartered Accountant was a significant factor. - It was noted that for assessment year 1986-87, the audit report was delayed but no penalty was initiated, indicating the Department's acceptance of reasonable cause. - The assessee also pointed out that penalty proceedings for assessment years 1989-90 and 1990-91 were dropped, showing the genuineness of the explanation. Tribunal's Findings: - The Tribunal acknowledged the struggles faced by the assessee due to the illness and subsequent death of the main partner and the Chartered Accountant. - It was noted that normalcy was restored by assessment year 1991-92, indicating that the duration of disruption was not excessive. - The Tribunal held that there was a reasonable cause for the delay in finalizing the audit reports for the two years under consideration and confirmed the orders of the CIT(A), dismissing the Department's appeals. Dissenting Opinion: - A dissenting opinion was provided, arguing that the provisions of section 271B are absolute and the assessee failed to discharge the onus of proving reasonable cause under section 273B. - The dissenting member emphasized that the explanation provided by the assessee was vague and unsubstantiated, and the penalties should be confirmed. Third Member's Decision: - The Third Member agreed with the majority view that the illness of the Chartered Accountant and the death of the main partner constituted reasonable cause for the delays. - It was held that the penalties should be deleted as the assessee had proved the existence of reasonable cause under section 273B. Conclusion: - The majority view held that the assessee had a reasonable cause for the delay in obtaining the audit reports due to the illness and death of key personnel. - The penalties under section 271B were not justified, and the orders of the CIT(A) cancelling the penalties were confirmed.
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