2010 (6) TMI 67 - HC - Income Tax

Rejection of application for revision by the CIT u/s 264 rejection of rectification application u/s 254 penalty for failure to get accounts audited u/s 44AB - The petitioner was subjected to a penalty under Section 271B for the aforesaid four assessment years. The Commissioner while rejecting the representation filed by the petitioner has held that under Section 271B it is obligatory to get the accounts audited to obtain a report of audit as required under Section 44AB and to furnish the report Held that n his application for rectification the petitioner had drawn the attention of the Commissioner to the fact that the requirement of furnishing the tax audit report by the specified date was introduced only with effect from 1 July 1995. The application was rejected on 25 March 1996 without recording any reasons. orders rejected the application for revision / rectification set aside.

Summary

Issues:
Challenge to orders passed by Commissioner of Income Tax under Section 264 and Section 271B, and dismissal of rectification application.

Analysis:
1) The petitioner challenged orders passed by the Commissioner of Income Tax, Kolhapur on 28 September 1995 and 25 March 1996. The first order rejected an application under Section 264 questioning the penalty imposed under Section 271B, while the second order dismissed an application for rectification. The petitioner filed income tax returns for assessment years 1990-91 to 1993-94 along with audit reports under Section 44AB before the specified dates. The Commissioner imposed a penalty under Section 271B, stating that it is mandatory to obtain and furnish tax audit reports under Section 44AB.

2) The petitioner argued that the obligation to furnish tax audit reports by the specified date was introduced by the Finance Act, 1995, effective from 1 July 1995. Before this amendment, the requirement was to obtain the audit report by the specified date. Section 44AB mandates businesses with sales turnover exceeding forty lakh rupees to get their accounts audited by a specified date. The Finance Act of 1995 replaced "obtain before" with "furnish by" regarding the audit report submission. Section 271B now requires the tax audit report to be furnished as per Section 44AB, effective from 1 July 1995.

3) The Court noted that at the relevant time, the obligation to furnish tax audit reports by the specified date was not in place and was introduced later by the Finance Act, 1995. As the petitioner had obtained and filed the tax audit reports within the specified dates, the jurisdictional condition for imposing a penalty under Section 271B was not met. The rectification application highlighting the introduction of the furnishing requirement from 1 July 1995 was rejected without reasons on 25 March 1996.

4) Consequently, the Court made the Rule absolute by quashing the orders dated 28 September 1995 and 25 March 1996 passed by the Commissioner of Income Tax, Kolhapur. No costs were awarded in this matter.