High Court of Kerala declines to answer income-tax reference on penalty imposition under section 271B. Assessing Officer to reevaluate assessee's explanation.

The High Court of Kerala declined to answer the income-tax reference regarding the imposition of a penalty under section 271B for failure to get accounts audited during the assessment year 1985-86. The Court directed the Assessing Officer to reevaluate the explanation provided by the assessee, emphasizing the need to determine if a "reasonable cause" existed for the failure to submit audited accounts. The case was disposed of with this direction for further action by the Income-tax Appellate Tribunal, Cochin Bench.

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Issues:
Imposition of penalty under section 271B for failure to get accounts audited during the assessment year 1985-86.

Analysis:
The High Court of Kerala was presented with an income-tax reference regarding the imposition of a penalty under section 271B of the Income-tax Act. The assessee had failed to get its accounts audited for the assessment year 1985-86, resulting in a penalty of Rs. 40,162. The assessee contended that there was a reasonable cause for the failure, as the relevant provisions mandating audit were newly inserted in the statute. The Court noted that the obligation to get accounts audited came into force from April 1, 1985, and the assessee had made efforts to comply but faced difficulties in securing an accountant for auditing. The assessee requested additional time to fulfill the audit requirement, citing potential hardship if penalized. The Court observed that the explanation provided by the assessee had not been properly evaluated by the authorities below. It emphasized the need for the Assessing Officer to determine whether a "reasonable cause" existed for the failure to submit audited accounts during the relevant year. As the matter required fresh consideration, the Court declined to answer the question referred and directed the Assessing Officer to reevaluate the explanation provided by the assessee. The case was disposed of with this direction, and a copy of the judgment was to be sent to the Income-tax Appellate Tribunal, Cochin Bench for further action.

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