2006 (10) TMI 119 - HC - Income Tax

Court Upholds Penalty for Late Audit Reports under Income-tax Act

The High Court upheld the penalty under section 271B of the Income-tax Act for belated audit reports for most assessment years, except for the assessment ... - Issues involved: The judgment deals with the imposition of penalty under section 271B of the Income-tax Act for belated audit reports and the existence of reasonable cause for such delays.Issue 1: Penalty under section 271B for belated audit reportsThe appellant-assessee filed returns for assessment years 1991-92 to 1994-95 along with belated audit reports. The assessing authority initiated penalty proceedings under section 271B of the Act. The Tribunal upheld the penalty, leading to the appellant challenging the decision. The High Court considered various judgments on the levy of penalty under section 271B and noted the requirement for the Department to establish a lack of reasonable cause for the default. The court examined the facts and reasons provided by the appellant for the delay in obtaining audit reports. The court upheld the penalty for the earlier assessment years but set aside the penalty for the assessment year 1994-95 due to a marginal delay in obtaining the audit report.Issue 2: Existence of reasonable cause for delay in obtaining audit reportsThe court analyzed the reasons cited by the appellant for the delay in obtaining audit reports, including non-availability of accounts clerk, lack of familiarity with the Income-tax Act, and ignorance of the audit report filing requirements. The Assessing Officer found these reasons unacceptable and imposed the penalty. The court agreed with the Assessing Officer's decision, emphasizing that ignorance of the Income-tax Act cannot justify the failure to maintain proper accounts and file audit reports on time. The court considered case law where reasonable cause was accepted, but in this case, upheld the penalty for most assessment years except for 1994-95, where a marginal delay was deemed acceptable based on the circumstances.Separate Judgment:The High Court partially accepted the appeal, answering the questions of law against the assessee. The penalty for the assessment year 1994-95 was set aside based on a marginal delay in obtaining the audit report. The decision was in line with a previous binding judgment of the court. No costs were awarded in this matter.