2005 (1) TMI 83 - HC - Income Tax

Filing of the audit report - Assessing Officer issued notice under section 271B proposing to impose penalty on the ground of violation of section 44AB Held that AO may not impose penalty if he is satisfied with the explanation given by the assessee for not getting its accounts of previous year audited by an accountant before the specified date and/or filing thereof along with the return further merely delay in filing the audit report could not be made a ground for passing an order adverse to the assessee - Penalty is not imposable

Summary

Issues:
Interpretation of provisions of section 271B regarding penalty imposition for failure to comply with section 44AB.

Analysis:
The judgment revolves around the interpretation of the provisions of section 271B of the Income-tax Act, 1961, specifically concerning the penalty imposition for non-compliance with section 44AB. The case involved an assessee who had its accounts audited but filed the audit report after the specified date, leading to a penalty imposition under section 271B. The Commissioner of Income-tax (Appeals) set aside the penalty order, stating that the assessee had substantially complied with the filing requirement. The Tribunal upheld this decision, prompting the Revenue to appeal the matter.

The court referred to various precedents to analyze the legislative intent behind sections 44AB and 271B. It was highlighted that prior to April 1, 1989, failure to furnish the return of income within the specified time attracted penalties under different sections. However, amendments made in 1995 plugged any gaps in the legislation, making it obligatory for an assessee to furnish the audit report before the specified date. The court emphasized that penalty provisions must be strictly construed and can only be imposed for specified defaults.

The court also cited judgments from different High Courts, such as the Madhya Pradesh and Calcutta High Courts, which emphasized that penalty imposition under section 271B is not automatic and the Assessing Officer has discretion based on the explanation provided by the assessee. The court further clarified that the word 'may' in section 271B gives the Assessing Officer the discretion to impose a penalty or not, based on whether a reasonable cause for the failure is proven.

Additionally, the court discussed the distinction between civil and quasi-criminal proceedings in penalty imposition cases. It was noted that if a penalty is meant to secure compliance through a coercive process, it remains a civil liability. However, if there is an element of criminality involved in the default, the proceeding can be deemed quasi-criminal. The court applied the principles from previous judgments to the present case and held that the Commissioner of Income-tax (Appeals) did not err in setting aside the penalty order, which was rightly confirmed by the Tribunal. Therefore, the question referred by the Tribunal was answered in favor of the assessee, leading to the disposal of the reference accordingly.