HATHISING MFG. CO. LTD.

Facts

The assessee, Hathising Mfg. Co. Ltd., filed its return for AY 1993-94 on 31.12.1993, declaring a loss. Defects in the return were pointed out under Section 139(9), which were not rectified within the time limit. A revised return was filed on 04.10.1994. The assessee failed to obtain a Tax Audit Report by the due date as required by Section 44AB. Consequently, a penalty of Rs. 1,00,000/- was imposed under Section 271B by the Assessing Officer (AO) on 30.09.1996. The CIT(A) allowed the assessee's appeal, quashing the penalty. The Revenue appealed to the Tribunal, which allowed the Revenue's appeal, thereby confirming the penalty. The assessee then filed this appeal before the High Court.

Held

The High Court held that the Tribunal ought not to have reversed the order of the CIT(A) which had quashed the penalty. The Court noted that the Tax Audit Report was signed by the Statutory Auditor on 24.03.1994 and obtained on 31.03.1994, making it impossible to file prior to 24.03.1994. The fact that the assessee was a "sick unit" before the BIFR was considered a significant factor for the delay. The Court relied on decisions from the Gujarat High Court in CIT v. Kashiram Textile Mills (P) Ltd., Allahabad High Court in CIT v. U.P. Rajya Sahkari Evam Bhoomi Vikas Bank Ltd., and Punjab and Haryana High Court in CIT v. Punjab State Leather Development Corpn. Ltd., which advocate for a liberal approach in determining reasonable cause for delay in filing audit reports. Consequently, the impugned judgment and order of the Tribunal were quashed and set aside, and the order of the CIT(A) was restored. The substantial question of law was answered in the negative, in favour of the assessee.

Key Issues

1. Whether, in the facts and circumstances of the case, the Tribunal is right in law in confirming the levy of penalty of Rs. 1,00,000/- under Section 271B of the Income Tax Act, 1961? Assessee's Contention: The assessee argued that it was a "sick unit" registered with the BIFR and could not finalize its accounts and obtain the Tax Audit Report by the due date. The original return was filed based on provisional accounts, and the revised return, along with the Tax Audit Report, was filed on 04.10.1994. Therefore, there was a sufficient cause for the delay, and the AO should not have imposed the penalty under Section 271B. Revenue's Contention: The Revenue contended that the assessee was granted sufficient opportunities to file the Tax Audit Report but failed to avail them. The assessee also did not respond to the notice issued under Section 139(9). Therefore, the penalty under Section 271B was rightly imposed.