2015 (1) TMI 664 - HC - Income Tax

High Court rules in favor of company in tax penalty case, emphasizing challenges faced by 'sick unit'

HATHISING MFG. CO. LTD. Versus CIT

The High Court overturned the Tribunal's decision and ruled in favor of the assessee, a Public Limited Company, in a tax penalty case under section 271B ... Penalty u/s.271B - Tax Audit Report not submitted within the due date - Held that:- Appellant-assessee is a 'sick unit' under the BIFR and could not finalize its Accounts and obtain the Tax Audit Report before 31.03.1994. The assessee had submitted the original Return on the basis of the provisional Balance Sheet and P & L Accounts and revised Return was filed on 04.10.1994 along with the Tax Audit Report. Therefore, there was sufficient cause behind the delay. Tribunal ought not to have reversed the order of CIT(A) whereby, the penalty u/s.271B imposed by the Assessing Officer was quashed and set aside. Therefore, the question of law as to whether the Tribunal is right in law in confirming the levy of penalty of ₹ 1,00,000/- u/s.271B of the Act is answered in the negative. - Decided in favour of the assessee. Issues:- Appeal against the order passed by the Income Tax Appellate Tribunal allowing the appeal filed by the Revenue.- Imposition of penalty under section 271B of the Income Tax Act, 1961 due to failure to file Tax Audit Report within the prescribed time limit.- Appeal filed by the assessee against the order of the CIT(A) which was allowed by the CIT(A) but reversed by the Tribunal.- Whether the Tribunal was right in confirming the levy of penalty of Rs. 1,00,000/- under section 271B.Analysis:1. The appellant, a Public Limited Company, filed its Return of income for the A.Y. 1993-94 declaring a loss. Notice u/s.139(9) was issued due to defects in the Return, and a revised Return was filed after the due date. Subsequently, a penalty u/s.271B was imposed for failure to obtain the Tax Audit Report on time.2. The CIT(A) allowed the appeal of the assessee, but the Revenue appealed to the Tribunal, which allowed the Revenue's appeal. The substantial question of law for the Tax Appeal was whether the Tribunal was correct in confirming the penalty under section 271B.3. The assessee argued that being a 'sick unit' under BIFR, it faced difficulties in finalizing accounts and obtaining the Tax Audit Report on time. The Revenue contended that the assessee had sufficient opportunities to comply but failed to do so, justifying the penalty imposition.4. The High Court noted that the assessee, being a 'sick unit,' faced challenges in meeting the deadline for filing the Tax Audit Report. Referring to relevant case laws, the Court emphasized adopting a liberal approach in determining reasonable cause for the delay in filing the audit report.5. Relying on precedents, the Court concluded that the Tribunal erred in reversing the CIT(A)'s order that had set aside the penalty imposed by the Assessing Officer. The Court held in favor of the assessee, quashing the Tribunal's decision and restoring the CIT(A)'s order, thereby allowing the appeal against the penalty under section 271B.