1992 (7) TMI 139 - AT - Income Tax

Tribunal cancels penalty for late audit report filing due to partner's illness

Auto Square. Versus Income-Tax Officer.

Auto Square. Versus Income-Tax Officer. - ITD 043, 259, Issues:Penalty under section 271B for failure to file audit report under section 44AB within stipulated time under section 139(1) - Reasonable cause for delay in filing audit report - Interpretation of provisions of section 271B and 44AB.Analysis:The appeal was against the penalty levied under section 271B for not filing the audit report under section 44AB within the time stipulated under section 139(1) for the assessment year 1989-90. The Assessing Officer (AO) imposed a penalty as the audit report was not filed on time, despite being ready before the due date, due to the illness and subsequent death of the partner responsible for tax matters. The penalty was confirmed by the Deputy Commissioner of Income-tax (Appeals) (DC (Appeals)).The counsel for the assessee argued that there were reasonable causes for the delay in filing the audit report, which were not properly considered by the authorities. He referenced Circular No. 387, which highlighted the importance of proper audit for tax purposes. The counsel contended that the audit report being ready before the due date and filed with the return before assessment fulfilled the purpose of section 44AB, and hence, no penalty should be imposed. The counsel cited various decisions in support of the argument.The Departmental Representative argued that the assessee did not comply with the provisions regarding filing the audit report under section 44AB within the prescribed time. He emphasized the abolition of the term 'reasonable cause' from section 271B from 1-4-1989, making the delay arguments irrelevant.The Tribunal analyzed section 271B and concluded that the penalty was not lawfully levied in this case. The section required either failure to get accounts audited under section 44AB or failure to furnish the report with the return under section 139(1) or 142(1)(i) to impose a penalty. Since the audit report was ready before the due date and the return was not filed on time, the penalty did not apply. The Tribunal clarified the confusion regarding the liability for penalty under section 271B in such cases.The Tribunal also referred to Circular No. 582, which stated that penalty under section 271B is leviable only for non-compliance with the provisions of section 44AB and not for the delay in payment of self-assessed tax. The Tribunal emphasized the word 'only' in the Circular, aligning with the view that if the audit report was obtained before the due date and filed with the return, no penalty should be imposed. The Tribunal highlighted that the deletion of 'without reasonable cause' did not render reasonable cause redundant, and in this case, the partner's illness and subsequent death constituted a reasonable cause for the delay.Ultimately, the Tribunal allowed the appeal, canceling the penalty imposed under section 271B, considering the circumstances and interpretation of the relevant provisions and circulars.