High Court cancels penalty under Section 271B for delayed tax return if audit report obtained on time

The High Court of Allahabad ruled in favor of the assessee, holding that the penalty of Rs.1,00,000/- imposed under Section 271B of the Income-tax Act, 1961 for delayed submission of audit report and return was rightfully canceled. The Court emphasized that as long as the audit report was obtained within the specified date, even if the return was filed late, the penalty under Section 271B was not applicable. The decision was based on a precedent establishing that the penalty was not warranted in such circumstances, resulting in the cancellation of the penalty without imposing any costs on the assessee.

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Issues:
1. Interpretation of penalty under Section 271B of the Income-tax Act, 1961 for failure to submit audit report and return within stipulated time.

Analysis:
The High Court of Allahabad was tasked with deciding whether the Income-tax Appellate Tribunal was justified in canceling a penalty of Rs.1,00,000/- imposed under Section 271B of the Income-tax Act, 1961. The case pertained to the Assessment Year 1991-92. The assessee had filed the return after the due date of 31.10.1991 along with the audit report dated 22.10.1991. The Assessing Officer issued a notice for imposing the penalty under Section 271B due to the delayed submission. The assessee argued that the penalty was not applicable as it was related to not obtaining the audit report under Section 44AB, rather than delayed filing. However, the Assessing Officer disagreed, emphasizing the importance of filing the audit report within the specified time under Section 139(1) of the Act.

The Commissioner of Income-tax (Appeals) later canceled the penalty based on certain Tribunal decisions. The Revenue appealed to the Tribunal, which upheld the cancellation. 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 was not applicable if the audit report was obtained within the specified date, even if the return was filed late. Relying on this precedent, the High Court ruled in favor of the assessee, stating that the penalty under Section 271B had been rightfully deleted. The Court answered the question in the affirmative, favoring the assessee and against the Revenue, with no costs imposed.

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