Case Note & Summary
The petitioner, a partnership firm registered under the Indian Partnership Act, 1932, challenged orders of the Commissioner of Income Tax, Kolhapur dated 28 September 1995 and 25 March 1996. The first order rejected the petitioner's application under Section 264 of the Income Tax Act, 1961 against imposition of penalty under Section 271B for assessment years 1990-91 to 1993-94. The second order dismissed a rectification application. The facts were narrow: the petitioner filed returns of income for the four assessment years along with audit reports under Section 44AB on various dates in 1993. It was undisputed that the tax audit reports were obtained before the specified dates (31 October of each relevant year) and were filed with the returns. However, the Commissioner held that under Section 271B, it is obligatory to get accounts audited, obtain the audit report, and furnish it. The petitioner argued that prior to the amendment by the Finance Act, 1995 (effective 1 July 1995), Section 44AB only required obtaining the audit report by the specified date, not furnishing it. The court examined Section 44AB as it stood before the amendment and noted that it required every person carrying on business to get his accounts audited by an accountant before the specified date. The court held that the requirement to furnish the audit report was introduced only by the Finance Act, 1995. Since the assessment years in question were prior to that amendment, the petitioner had complied with the law by obtaining the audit reports before the specified dates. The court found that the Commissioner erred in imposing penalty for delayed filing. The court allowed the writ petition, quashed the impugned orders, and set aside the penalty imposed under Section 271B for all four assessment years.
Headnote
A) Income Tax - Tax Audit - Penalty under Section 271B - Prior to amendment by Finance Act, 1995, Section 44AB required only obtaining audit report by specified date, not furnishing it - Petitioner obtained audit reports before due dates but filed returns later - Commissioner erred in imposing penalty for delayed filing - Held that penalty under Section 271B cannot be imposed for failure to furnish report before amendment (Paras 1-6).
Issue of Consideration
Whether the failure to furnish the tax audit report under Section 44AB by the specified date, as opposed to merely obtaining it, attracts penalty under Section 271B of the Income Tax Act, 1961, for assessment years prior to the amendment introduced by the Finance Act, 1995 with effect from 1 July 1995.
Final Decision
The court allowed the writ petition, quashed the orders dated 28 September 1995 and 25 March 1996, and set aside the penalty imposed under Section 271B for assessment years 1990-91 to 1993-94.
Law Points
- Section 44AB
- Section 271B
- Tax Audit Report
- Penalty
- Finance Act 1995
- Retrospective Amendment
- Strict Interpretation of Penal Provisions
Case Details
2010 LawText (BOM) (06) 39
Writ Petition No.3794 of 1996
Dr. D.Y. Chandrachud, J.P. Devadhar
Mr. Hemant P. Ghadigaonkar for petitioner, Mr. Vimal Gupta for respondents
N.C. Tewari, Commissioner of Income Tax, Kolhapur; T.G. Jadhav, Income-tax Officer; Union of India
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Nature of Litigation
Writ petition challenging orders of Commissioner of Income Tax rejecting application under Section 264 and dismissing rectification application, relating to penalty under Section 271B.
Remedy Sought
Petitioner sought quashing of orders dated 28 September 1995 and 25 March 1996 and setting aside of penalty imposed under Section 271B.
Filing Reason
Petitioner was subjected to penalty under Section 271B for assessment years 1990-91 to 1993-94 for alleged failure to furnish tax audit report by specified date, though audit reports were obtained before specified dates.
Previous Decisions
Commissioner of Income Tax rejected petitioner's application under Section 264 on 28 September 1995 and dismissed rectification application on 25 March 1996.
Issues
Whether the requirement under Section 44AB prior to the Finance Act, 1995 amendment was only to obtain the audit report by the specified date, and not to furnish it.
Whether penalty under Section 271B can be imposed for delayed filing of audit report when the report was obtained before the specified date.
Submissions/Arguments
Petitioner argued that prior to amendment by Finance Act, 1995 with effect from 1 July 1995, Section 44AB only required obtaining the tax audit report by the specified date, which was complied with.
Respondents contended that under Section 271B, it is obligatory to get accounts audited, obtain audit report, and furnish the report.
Ratio Decidendi
Prior to the amendment by the Finance Act, 1995 with effect from 1 July 1995, Section 44AB of the Income Tax Act, 1961 required only that the assessee get his accounts audited and obtain the audit report before the specified date. There was no requirement to furnish the report by that date. Since the petitioner had obtained the audit reports before the specified dates for the assessment years in question, no penalty under Section 271B could be imposed for delayed filing of the returns.
Judgment Excerpts
The petitioner had obtained the tax audit reports under Section 44AB before the specified date.
Prior to the amendment the requirement was to obtain the tax audit report by the specified date under Section 44AB.
The requirement to furnish the tax audit report under Section 44AB by the date specified was inserted by the Finance Act, 1995 with effect from 1 July 1995.
Procedural History
Petitioner filed returns for assessment years 1990-91 to 1993-94 with audit reports obtained before specified dates. Penalty under Section 271B was imposed. Petitioner filed application under Section 264 before Commissioner, which was rejected on 28 September 1995. Rectification application dismissed on 25 March 1996. Petitioner then filed Writ Petition No.3794 of 1996 before Bombay High Court.
Acts & Sections
- Income Tax Act, 1961: 44AB, 271B, 264
- Finance Act, 1995:
