ITAT Rules Penalty Inapplicable Due to Reasonable Cause for Delay in Filing Return; Assessee Favored Over Penalty u/s 271B.

The ITAT's final decision favored the assessee, concluding that the penalty u/s 271B was not applicable. The Third Member supported Vice President Mehta's dissenting opinion, emphasizing that the audit report was completed on 30-10-1992, corroborated by the C.A.'s certificate. The regular Bench decided based on the majority opinion, determining that the short delay in filing the return constituted reasonable cause, thereby justifying the cancellation of the penalty.

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Issues Involved:
1. Whether the penalty u/s 271B of the Income-tax Act, 1961 was rightly imposed for not complying with the provisions of section 44AB within the stipulated period.

Summary:

Issue 1: Penalty u/s 271B for Non-compliance with Section 44AB

The revenue appealed against the CIT(A)'s order deleting the penalty imposed u/s 271B for not complying with section 44AB within the stipulated period. The assessee-firm was required to obtain an audit report as per section 44AB by 30-10-1992 and file it with the return within the period stipulated u/s 139(1). The Assessing Officer (AO) visited the assessee's premises on 4-11-1992 and recorded a statement from Raj Kumar, a partner, who stated that the audit report had not been obtained. Consequently, the AO imposed a penalty of Rs. 1 lakh u/s 271B.

The assessee appealed to the CIT(A), arguing that Raj Kumar, being educated only up to the 10th standard, misunderstood the term "obtain." The CIT(A) accepted the assessee's explanation, supported by a certificate from the C.A., and deleted the penalty, reasoning that the audit was completed on 30-10-1992 and the penalty was a result of a misunderstanding by the AO.

The revenue, dissatisfied with the CIT(A)'s decision, appealed to the ITAT. The revenue argued that the audit report was antidated and that Raj Kumar's statement on 4-11-1992 should be taken at face value, indicating that the audit report was not obtained by the stipulated date.

The ITAT considered whether Raj Kumar's categorical statement to the AO should be accepted over the subsequent retraction. The ITAT found that the audit report was not obtained by 30-10-1992, as Raj Kumar's statement on 4-11-1992 indicated otherwise. The ITAT restored the AO's order and set aside the CIT(A)'s order, allowing the revenue's appeal.

Dissenting Opinion by Vice President Mehta:

Vice President Mehta disagreed with the Judicial Member's decision, emphasizing that the audit report was obtained on 30-10-1992, as supported by the C.A.'s certificate and the receipt dated 30-10-1992. Mehta argued that the penalty u/s 271B was not attracted as the audit report was obtained within the specified time, and the CIT(A) rightly canceled the penalty. He highlighted that the statement of Raj Kumar should be read as a whole and that the explanations provided by the assessee were plausible and acceptable.

Third Member Decision:

The Third Member, B.M. Kothari, agreed with Vice President Mehta, concluding that the penalty u/s 271B was not attracted both on facts and in law. The Third Member emphasized that the audit was completed on 30-10-1992, and the certificate from the C.A. confirmed this. The Third Member noted that the AO did not examine the auditors or bring any material to rebut the certificate's facts. The Third Member also considered the short delay of 8 days in filing the return along with the audit report as a reasonable cause, justifying the cancellation of the penalty.

Final Decision:

The matter was referred to the regular Bench for a decision according to the majority opinion, which favored the view that the penalty u/s 271B was not leviable.

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