2005 (4) TMI 17 - HC - Income Tax

1. Whether the Tribunal is correct in vacating the confirmation of the penalty imposed under section 271B? 2. Whether the Tribunal is correct in law in holding that the penalty order is also required to be vacated on account of being excessive in the quantum without appreciating that the quantum of penalty is fixed by the provisions of section 271B of the Act? - we answer the first question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. In view of our answer to the first question the second question has been rendered academic and is being returned unanswered

Summary

Issues:
1. Penalty imposed under section 271B for assessment year 1987-88
2. Excessiveness of penalty and quantum of penalty under section 271B for assessment year 1987-88 and 1988-89

Analysis:
The High Court of Allahabad addressed the issues raised by the Income-tax Appellate Tribunal regarding the penalty imposed under section 271B of the Income-tax Act, 1961 for the assessment year 1987-88. The Tribunal questioned the correctness of vacating the penalty confirmation at Rs. 32,548 and whether the penalty order needed to be vacated due to excessive quantum without appreciating the fixed penalty provisions of section 271B of the Act. The reference also covered the assessment years 1987-88 and 1988-89.

The facts leading to the reference involved the late filing of income tax returns and audit reports for both assessment years. The penalty proceedings were initiated under section 271B due to the failure to obtain audit reports before the due dates. The Assessing Officer imposed penalties, which were upheld by the Commissioner of Income-tax (Appeals). However, the Tribunal later deleted the penalties citing reasonable cause for the delay in obtaining audit reports and excessive penalty amounts in relation to the assessed income.

During the hearing, the Revenue argued that the penalty was justified as the assessee failed to get the accounts audited before the due date, leading to a default under section 44AB and exposure to penalty under section 271B. The Revenue contended that the penalty quantum was statutory and could not be reduced solely for being excessive. On the other hand, the respondent's counsel argued that the Tribunal correctly deleted the penalty based on the accepted explanation for the delay in audit report submission.

The High Court analyzed the provisions of section 273B, which exempt penalties if reasonable cause for failure is proven by the assessee. The Tribunal's acceptance of the explanation provided by the assessee for the delay in audit report submission was crucial. The Court found that the Tribunal's decision to delete the penalty was valid as the explanation constituted a reasonable cause, supported by evidence such as medical certificates and the illness-related death of a senior partner.

Ultimately, the Court ruled in favor of the assessee, affirming that no penalty under section 271B was imposable due to the reasonable cause established. The first question regarding the penalty for the assessment year 1987-88 was answered in favor of the assessee, rendering the second question on penalty excessiveness academic and left unanswered. No costs were awarded in the judgment.