SHAHBAD PRIMARY COOP. AGRI & RURAL DEV. BANK LTD. vs. C I T, KARNAL

Facts

The appellant, The Shahbad Primary Coop. Agri. & Rural Development Bank, is in appeal against the order of the Income Tax Appellate Tribunal (ITAT) dated 01.04.2008. The ITAT had set aside the order of the Commissioner of Income Tax (Appeals) which had deleted a penalty imposed by the Assessing Officer (AO) under Section 271B of the Income Tax Act, 1961. The penalty was levied for failure to furnish the audit report under Section 44AB by the due date. The bank's audit report was completed on 20.10.2005. The return was filed on 24.01.2006 without the audit report, which was required by 31.10.2005. The audit report was eventually filed on 19.06.2006, after the AO issued a notice for penalty. The AO imposed a penalty of Rs. 60,254/-.

Held

The High Court held that the explanation provided by the appellant bank for not filing the audit report within the stipulated time did not constitute a "reasonable cause" as contemplated by Section 273B of the Act. The bank's explanation cited a change in incumbent and misplacement of the report. The Court found this explanation unacceptable, especially as the audit report was obtained in time and the bank had a turnover of over a crore, making it improbable that they were unaware of the filing requirement. The Court distinguished the present case from the Haryana Agro Services case, noting that in that case, the audit report was filed along with the return, indicating substantial compliance, whereas here, the report was filed only after the AO issued a notice for penalty. The Court concluded that the appellant's explanation was an afterthought to escape the penalty. Consequently, the substantial questions of law were answered in favour of the revenue, and the appeal was dismissed.

Key Issues

The High Court had to decide the following substantial questions of law: 1. Whether the Tribunal was justified in confirming the penalty under Section 271B by treating the lapse as negligence, despite the CIT(A) accepting it as a reasonable cause? 2. Whether the Tribunal was justified in confirming the penalty under Section 271B, which was imposed by the AO without regard to the discretion provided by the word "may" in Section 271B and the provision of Section 273B allowing for waiver of penalty in case of reasonable cause? 3. Whether the order of the Tribunal is perverse and against the provisions of law? Assessee's contentions: The appellant bank argued that the imposition of penalty under Section 271B is not mandatory and that Section 273B provides discretion to the AO not to impose penalty if there was a reasonable cause for the failure. The appellant relied on the decision in Commissioner of Income Tax Vs. Haryana Agro Services (2005) 279 ITR 113. Revenue's contentions: The judgment does not explicitly record the revenue's contentions, but it addresses the arguments presented by the appellant.