Commissioner of Income Tax vs Prabhu Dayal and Brothers

The Income Tax Appellate Tribunal, Allahabad, has referred the following question of law u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), for the opinion of this Court:

(i) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that in view of the assessee filing the return of income within the time up to which extension had been sought and making the payment of tax u/s 140A within that extended time, the assessee had satisfied the condition of the Central Board of Direct Taxes circular for payment of self-assessment tax within the normal period prescribed u/s 139(1) of the Act for filing the return of income and thereby cancelling the penalty imposed u/s 271B of the Income Tax Act?

Briefly stated the facts giving rise to the present reference are as follows:

The reference relates to the assessment year 1985-86. In terms of the provisions of Section 44AB of the Act, the assessee was required to get its account audited and to obtain an audit report by July 31, 1985. The same was, however, obtained only on September 27, 1985. For failure to comply with the provisions of Section 44AB of the Act, a penalty of Rs. 1,00,000 was imposed vide order dated August 28, 1989 u/s 271B of the Act. In appeal before the Commissioner of Income Tax (Appeals), the assessee referred to a circular of the Central Board of Direct Taxes (Circular No. 422, dated June 19, 1985), in terms of which considering the facts that the assessment year 1985-86 was the first year of the operation of Section 44AB and that the relevant rule was notified only on January 31, 1985, penalty proceedings u/s 271B were not required to be initiated for the assessment year 1985-86, in cases where:

(i) the audit report prescribed u/s 44AB read with Rule 6G has been obtained by 30th September, 1985; and

(ii) the self-assessment tax u/s 140A of the Act has been paid within the normal period prescribed u/s 139(1) of the Act for filing return of income.

It was submitted that the return of income was due to be filed on or before July 31,1985, but the assessee had filed several applications seeking extension of time to file the return up to March 31, 1986. The return was filed on March 7, 1986, and the self-assessment tax u/s 140A was paid on February 4, 1986. On the facts the learned Commissioner of Income Tax (Appeals) held that the audit report prescribed u/s 44AB having been obtained before September 30, 1985, the first condition of the Central Board of Direct Taxes circular was satisfied. Further, the learned Commissioner of Income Tax (Appeals) observed that under the proviso below Section 139(1), the Assessing Officer had discretion to extend the date of furnishing the return, which in the present case could be deemed to have been extended till March 31, 1986, in view of extension applications filed by the assessee. Payment of tax u/s 140A(1) have been made on February 4, 1986, before filing the return of income on March 7, 1986, it was held that the second condition of the Board''s circular was also fulfilled. Accordingly, vide order dated March 19, 1990, the learned Commissioner of Income Tax (Appeals) cancelled the penalty imposed u/s 271B of the Act.

The Department came in appeal before the Tribunal against the aforesaid order of the learned Commissioner of Income Tax (Appeals) and the Tribunal, after referring to the facts recorded in the order of the learned Commissioner of Income Tax (Appeals) found itself in agreement with the decision of the learned Commissioner of Income Tax (Appeals), in view of the facts that it had taken a similar view in some other appeal. Vide order dated October 31, 1996, rendered in I.T.A. No. 1523 (Alld.) of 1990, the Department''s appeal was dismissed.

We have heard Sri A. N. Mahajan , learned standing counsel for the Revenue, nobody appeared on behalf of the respondent-assessee.

It is not in dispute that in terms of the circular dated June 19, 1985, issued by the Central Board of Direct Taxes which is binding upon all the authorities u/s 119 of the Act, the respondent-assessee had obtained the audit report on September 27, 1985. The assessee had filed several applications from time to time seeking extension of time for filing the return up to March 31, 1986, and the return was filed on March 7, 1986, and the tax u/s 140A of the Act was paid on February 4, 1986. This Court in the case of Commissioner of Income Tax Vs. Jai Durga Construction Co., has held that penalty u/s 271B of the Act was not imposable where the audit report has been obtained within the stipulated period. As in the present case, in view of the circular of the Board the audit report has been obtained on September 30, 1985, that would be sufficient compliance with Section 44AB of the Act. Thus, the Tribunal was justified in deleting the penalty.

In view of the aforesaid discussion we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Department. The reference is accordingly answered. There shall be no order as to cost.