2009 (8) TMI 34 - HC - Income Tax

Court rules penalty under Section 271B canceled if audit report timely obtained

The High Court ruled in favor of the assessee, holding that the penalty imposed under Section 271B of the Income-tax Act was correctly canceled. The Court ... Failure to get its account audited – penalty u/s 271B – Audit report obtained before specified date but submitted after the specified date - Tribunal cancelled the penalty of Rs.1,00,000/- levied u/s 271B in spite of the fact that the assessee was under obligation to get his accounts audited and to file the audit report within the stipulated time as provided under section 139 (1) of the I.T. Act - held that - the penalty under Section 271B of the Act, as it stood at the relevant point of time prior to its amendment by the Finance Act, 1995, which came into existence with effect from 1st July, 1995, was not exigible in case the audit report has been obtained within the specified date and the return of income has been filed beyond time – order of tribunal maintained. Issues:Whether the Appellate Tribunal was legally correct in canceling a penalty imposed under Section 271B of the Income-tax Act, 1961 due to the timing of obtaining and filing the audit report within the specified date but not within the time allowed for filing the return under Section 139(1) of the Act.Analysis:The case involved a reference made by the Income-tax Appellate Tribunal, Allahabad to the High Court regarding the cancellation of a penalty of Rs.1 lac imposed under Section 271B of the Income-tax Act, 1961. The issue arose from the assessee obtaining the Tax Audit Report before the specified date for the Assessment Year 1990-91 but filing it along with the return after the allowed time under Section 139(1) of the Act. The Assessing Officer imposed the penalty, which was later canceled by the Commissioner of Income Tax (Appeals) and upheld by the Tribunal on appeal by the Revenue.The High Court referred to a previous decision in the case of Commissioner of Income-tax Vs. Jai Durga Construction Co., (2000) 245 ITR 857, where it was held that the penalty under Section 271B of the Act, prior to its amendment by the Finance Act, 1995, was not applicable if the audit report was obtained within the specified date, even if the return was filed late. The Court, following this precedent, concluded that the penalty was rightly deleted in the present case.In its judgment, the High Court answered the question referred to it in favor of the assessee and against the Revenue, citing the previous decision and the provisions of the Income-tax Act. The Court did not award any costs in this matter. The judgment provided clarity on the interpretation of the law regarding penalties under Section 271B in cases where the audit report is obtained within the specified date but the return is filed after the allowed time under Section 139(1) of the Act.