TMI Blog2001 (10) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... the show-cause notice, the assessee-company submitted before the AO as follows: "that there was difference of opinion between the company and the statutory auditors. The matter was referred to Registrar of Companies. As per the decision of the ROC auditors of the company finalised their statutory audit on 29th May, 1998. The company could not undertake their tax audit as the statutory audit of the company was not finalised. The tax audit was, therefore, finalised on 3rd Aug., 1998." The AO was not satisfied with the explanation furnished and levied the impugned penalty observing as under: "As per the provisions of s. 44AB of the IT Act, 1961, the assessee-company was required to file the tax audit report with the AO on or before 30th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors on 12th Sept., 1997, and requested for completion of the remaining audit. In reply, the auditors informed that they had raised certain points for which there was no reply. They also asked for increase in the fees. The company replied to the auditors refuting the charges, offered to pay Rs. 25,000 as audit fee (as against Rs. 5,000 for financial year 1995-96) and once again requested to resume the audit. The company also wrote to the Regional Director, Company Law Board, Bombay, asking for permission to remove the statutory auditors. On this, the CLB asked the auditors to complete the audit. It was only after these happenings that the statutory auditors finalised the audit and gave a report on 28th May, 1998. The learned counsel submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , default must be wilful and not merely accidental. The imposition of penalty under s. 271B is within the discretion of the AO as the language of the section States: ".......the AO may direct that such person shall pay by way of penalty..." However, the exercise of discretion is not to be arbitrary but is dependent on the facts and circumstances of the case. It is also clear from the provisions of s. 271B that penalty is not automatically attracted in case of default in not getting the audit report within the statutory time-limit and the same is to be imposed if the facts and circumstances on which discretion is to be exercised justify imposition of penalty. In the case before me, there was certainly the reasonable cause. The delay in non-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expectation in every citizen to be treated fairly in his interaction with the State and its instrumentalities with this element forming a necessary component of the decision-making process in all State actions. To satisfy this requirement of non-arbitrariness is a State action, it is therefore, necessary to consider and given due weight to the reasonable or legitimate expectations of the persons likely to be affected by the decision or else that unfairness in the exercise of the power may amount to an abuse or excess of power apart from affecting the bona fides of the decision in a given case. The decision so made would be exposed to challenge on the ground of arbitrariness. Rule of law does not completely eliminate discretion in the exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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