2011 (1) TMI 1052 - AT - Income Tax

Penalty u/s 271BA - assessee-company had entered into for the first time an international transaction for export of sale of its products with one of its associated enterprise M/s Spin International Inc., a company incorporated in USA and some other unrelated parties as mentioned in the audit report in Form No. 3CEB read with s. 92E of the IT Act - It is thus evident that penalty under section 271BA can be levied if any person fails to furnish a report from the accountant as required under section 92E of the Act - It is a well-settled principle as laid down by the various Courts that the word may employed in penal provisions of the Act may be interpreted as discretionary and that discretion is limited within the meaning of such provisions providing the procedure thereof - assessee s accounts are duly audited under section 44AB of the Act and there is no such default as occurred in respect of international business - Held that delay in submission of the report under section 92E of the Act within the prescribed time by the assessee was due to a reasonable cause and, therefore, penalty is not sustainable on this ground - Decided in favor of the assessee

Summary

Issues:
Penalty imposition under section 271BA for failure to furnish audit report under section 92E of the IT Act.

Detailed Analysis:
1. The appellant, engaged in manufacturing and export, failed to file the statutory report in Form 3CEB under section 92E of the IT Act before the due date of filing the return of income. The Assessing Officer (AO) imposed a penalty of Rs. 1,00,000 under section 271BA for the violation. The appellant contended that the delay was unintentional due to lack of awareness and technical mistake, but the AO found the explanation insufficient and initiated penalty proceedings.

2. The Commissioner of Income Tax (Appeals) upheld the penalty, stating that the appellant should have been aware of the provisions and obtained the report before the due date. The appellant's argument of reasonable cause due to the accountant's health issues was dismissed, and the penalty was deemed justified. The appellant then appealed against this decision.

3. During the appeal, the appellant argued that it was the first year of international transactions, and there was no intention to evade taxes. The audit report was eventually filed during assessment proceedings, and subsequent years saw timely filing of reports. The appellant emphasized the lack of intention to conceal information and cited health-related issues of the accountant as a reasonable cause for the delay.

4. The Tribunal analyzed sections 92E and 271BA of the IT Act, emphasizing that penalty for failure to furnish the report is discretionary. The appellant's compliance during assessment proceedings and subsequent years, coupled with the unique circumstances of the first year of international business, led to the conclusion that the delay was due to reasonable cause. The Tribunal noted that no penalty should be imposed for technical or venial defaults.

5. The Departmental Representative relied on previous orders and case law to support upholding the penalty. However, the Tribunal found that the appellant's case was distinguishable, and the penalty was deleted based on the reasonable cause for the delay in filing the audit report under section 92E.

6. The Tribunal's decision to delete the penalty of Rs. 1,00,000 under section 271BA was based on the appellant's reasonable cause for the delay, the discretionary nature of the penalty provisions, and the lack of intention to evade taxes. The appeal of the assessee was allowed, overturning the penalty imposed by the AO and upheld by the CIT(A).