2013 (7) TMI 423 - HC - Income Tax

Penalty u/s 271B - delay in filing an audit report u/s 44AB - The fact that the surgery was performed in the year 1993 does not mean that the case of the assessee put forth through the chartered accountant that the chartered accountant was unwell to complete the tax audit in time could not be lightly rejected on the mere fact that the chartered accountant produced records as to his hospitalization for surgery in the year 1993 - going by the nature of illness that the chartered accountant had and considering the fact that he had been in-charge of the auditing of the assessee s accounts and had filed the tax audit report promptly for the earlier years which fact could not be controverted. The delay of 29 days in filing of the tax audit report under section 44AB merited to be condoned court did not agree with the Tribunal on the question of reasonable cause and that going by the materials explaining the delay the condonation should be allowed order of the tribunal set aside penalty imposed upon the assessee to be cancelled - appeal allowed in the favour of assessee.

Summary

Issues:
1. Jurisdiction of the respondent to initiate penal action under section 271B.
2. Non-initiation of penalty under section 271B during assessment under section 143(1).
3. Confirmation of penalty under section 271B by the Appellate Tribunal.

Analysis:

Issue 1:
The penalty was imposed due to a delay in obtaining the audit report under section 44AB of the Income-tax Act. The assessee argued that the delay was due to the sudden illness of the auditor, beyond their control. The Deputy Commissioner of Income-tax levied a penalty of Rs. 1,00,000, which was confirmed by the Commissioner of Income-tax (Appeals). The assessee then appealed to the Income-tax Appellate Tribunal, providing details of the auditor's health issues, including undergoing open heart surgery. The Tribunal rejected the plea, stating that the hospital report did not substantiate the illness claim. However, the High Court disagreed, considering the history of the auditor's heart problems and surgery, concluding that the delay was justified due to the auditor's health issues.

Issue 2:
The High Court found that the nature of the auditor's illness, as evidenced by medical records, justified the delay in filing the tax audit report. The Court noted that the auditor had a history of heart problems, underwent surgery, and had been promptly filing reports in previous years. Therefore, the delay of 29 days in filing the report under section 44AB was deemed reasonable and beyond the control of the assessee. Consequently, the Court reversed the Tribunal's decision and set aside the penalty, canceling the levy.

Issue 3:
The High Court's decision to set aside the penalty imposed under section 271B by the Appellate Tribunal was based on the auditor's documented health issues and the history of timely compliance in previous years. The Court concluded that the delay in filing the audit report was justified by the circumstances, leading to the cancellation of the penalty. As a result, the appeal by the assessee was allowed, and the penalty was revoked. The Court did not award any costs in this matter.

In conclusion, the High Court's judgment focused on the justifiability of the delay in filing the tax audit report under section 44AB due to the auditor's health issues, ultimately leading to the cancellation of the penalty under section 271B.