2013 (12) TMI 767 - AT - Income Tax

Penalty u/s 271B - assessee has failed to audit its books of account as required u/s.44AB - Held that - The assessee was exempt from tax upto A.Y. 2002-03 and the law was amended w.e.f. 01-04-2003 - As per the amended provision the definition of local authority was restricted by the Finance Act, 2002 w.e.f. 01-04-2003 and APMC was excluded from the local authority - There was bona fide belief on the part of assessee for not getting its accounts audited u/s.44AB and obtain such audit report before the specified date although the assessee maintains books of accounts and such books of accounts are duly audited by the auditors appointed by the cooperative department - Following Hindustan Steel Ltd. Vs. State of Orissa 1969 (8) TMI 31 - SUPREME Court - There is a rule that ignorance of law is no excuse but there is no presumption that every one knows the law - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271B of the Income Tax Act for Assessment years 2004-05 and 2005-06.

Analysis:

Issue 1: Penalty for Assessment Year 2004-05
The appellant, a statutory body, was issued a notice for not filing the income tax return as required by law. The Assessing Officer initiated penalty proceedings under section 271B for failure to audit its books of account as per section 44AB. The appellant argued that as a local authority, it was exempt from filing returns under section 10(20) until the law was amended in 2003. The appellant claimed ignorance of the law due to the amendment and that its accounts were maintained and audited by cooperative auditors. The Assessing Officer, however, imposed the penalty, which was upheld by the CIT(A) citing that ignorance of the law is not a valid excuse. The Tribunal noted that the appellant's belief was bona fide due to the confusion caused by the legal changes, and hence set aside the penalty, emphasizing that the appellant was exempt from tax until the law changed in 2003.

Issue 2: Penalty for Assessment Year 2005-06
The grounds for this year's penalty were identical to the previous year. Following the same reasoning and decision for the penalty of 2004-05, the Tribunal also canceled the penalty imposed for the Assessment Year 2005-06. The Tribunal allowed both appeals filed by the appellant, emphasizing the bona fide belief of the appellant due to the legal changes and the exemption from tax until 2003.

In conclusion, the Tribunal set aside the penalties imposed for both Assessment Years 2004-05 and 2005-06, highlighting the appellant's bona fide belief and the legal changes affecting its tax obligations. The appellant's exemption from tax until 2003 was a crucial factor in the Tribunal's decision to cancel the penalties.