2006 (7) TMI 142 - HC - Income Tax

Court overturns Tribunal decision on tax penalty, citing lack of consideration for delay explanation. Remanded for further review.

Biaora Constructions P. Limited Versus Commissioner Of Income-Tax And Another.

Biaora Constructions P. Limited Versus Commissioner Of Income-Tax And Another. - [2006] 287 ITR 112, 205 CTR 396, 156 TAXMANN 11 Issues Involved:1. Justification of penalty under section 271B of the Income-tax Act, 1961.2. Interpretation of section 271B in relation to the requirement of section 44AB for the assessment year 1995-96.Issue-Wise Detailed Analysis:1. Justification of Penalty under Section 271B:The appellant, engaged in the business of constructing roads and bridges, failed to furnish an audit report by the specified date as required under section 44AB of the Income-tax Act, 1961, for the assessment year 1995-96. The Assessing Officer issued show-cause notices and subsequently imposed a penalty of Rs. 1,00,000 under section 271B, as the appellant could not provide cogent evidence of compliance. The appellant's appeals to the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal (ITAT) were dismissed, leading to the current appeal.The court examined whether the Tribunal was justified in confirming the penalty. The appellant argued that the audit report was obtained by November 29, 1995, and sent by registered post on November 30, 1995. The appellant contended that the law applicable on April 1, 1995, did not require furnishing the audit report by the specified date, only obtaining it. The change requiring furnishing the report came into effect on July 1, 1995, and should not apply to the assessment year 1995-96. The appellant cited Supreme Court and High Court decisions to support this contention.The appellant also argued that section 271B uses the word 'may,' indicating discretion for the Assessing Officer to impose or not impose a penalty, considering the facts and circumstances. The appellant claimed that the delay was due to the need for directors' signatures on the audit report, as required by section 215 of the Companies Act, 1956, and that the Tribunal did not properly consider this explanation.2. Interpretation of Section 271B in Relation to Section 44AB:The respondent argued that the amendments to section 44AB and section 271B, effective from July 1, 1995, required the appellant to furnish the audit report by November 30, 1995. The Tribunal found the appellant's explanation unconvincing, noting that the auditor should have furnished the report directly to the Department instead of sending it for directors' signatures. The Tribunal emphasized that the delay was not beyond the appellant's control and was not satisfactorily explained.The court found that the Tribunal did not adequately consider the requirement of section 215 of the Companies Act, which mandates directors' signatures on the balance-sheet and profit and loss account. The Tribunal's approach suggested that penalty must be imposed unless the assessee shows good reason for non-compliance. The court referred to the Supreme Court's decision in Hindustan Steel Ltd. v. State of Orissa, which held that penalty should not be imposed unless the party acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct.Conclusion:The court set aside the Tribunal's order, noting that the Tribunal failed to consider whether the appellant acted in deliberate defiance of section 44AB or was guilty of dishonest conduct. The court remanded the matter back to the Tribunal to reconsider the appellant's explanation in light of section 215 of the Companies Act and the Supreme Court's guidance on imposing penalties. The appellant was allowed to raise the contention regarding the applicability of the amendment to section 44AB for the assessment year 1995-96 before the Tribunal. The appeal was allowed, with each party bearing its own costs.