2005 (3) TMI 47 - HC - Income Tax

Imposition of penalty under section 271B - Whether the provisions of section 44AB which requires furnishing of the audit report on the specified date was mandatory so as to attract penalty under section 271B. If so whether the order passed by the Tribunal is justiciable? - In our opinion the explanation offered by the assessee in this case ought to have been accepted being a sufficient one. The delay in filing certain form was not inordinate. It was hardly of two months. Secondly there was an explanation offered for such delay. The delay thus did not have any deliberate intention on the part of the assessee nor could their conduct be regarded as contumacious or with a view to evade payment of tax. If at all there is any breach it was technical or venial in nature. In the facts of this case no case of penalty under section 271B was made out

Issues:
1. Interpretation of section 44AB of the Income-tax Act regarding mandatory audit report submission.
2. Imposition of penalty under section 271B for non-compliance with section 44AB.
3. Discretion of the Assessing Officer in imposing penalties.
4. Assessment of the explanation provided for the delay in compliance.

Analysis:

1. The appeal before the High Court concerned the interpretation of section 44AB of the Income-tax Act, specifically focusing on the mandatory requirement of furnishing an audit report by a specified date. The central question was whether the failure to comply with this provision warranted the imposition of penalties under section 271B.

2. The assessment year in question was 1995-96, and it was acknowledged that the assessee was legally obligated to adhere to the provisions of section 44AB. However, the audit report was submitted late, leading to a delay of approximately two months. Subsequently, a penalty of Rs. 51,470 was imposed by the Assessing Officer, which was later restored by the Tribunal, prompting the appeal by the assessee.

3. The High Court observed that the use of the term "may" in section 271B granted discretion to the Assessing Officer in penalizing breaches of section 44AB. While compliance with section 44AB was deemed mandatory, the Assessing Officer had the authority to consider explanations provided by the assessee for non-compliance. The discretion allowed for the possibility of condoning delays and relieving the assessee from penalty obligations based on the circumstances of each case.

4. In evaluating the explanation put forth by the assessee, the High Court determined that the delay of two months in filing the required form was not significant. Moreover, a reasonable explanation was provided for the delay, indicating the absence of deliberate intent or contumacious behavior on the part of the assessee. The court concluded that the delay was technical or venial in nature, and did not warrant the imposition of penalties under section 271B.

5. Consequently, the High Court allowed the appeal, setting aside the Tribunal's order and relieving the assessee from the penalty imposed. The court emphasized that the facts of the case did not support the imposition of penalties under section 271B, given the reasonable explanation provided for the delay in compliance.

6. Both judges, A.M. Sapre and Ashok Kumar Tiwari, concurred with the decision to allow the appeal, highlighting the discretionary power of the Assessing Officer in penalizing non-compliance and the importance of assessing explanations provided by the assessee in such cases.

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