E. Padmanabhan, J.

The petitioner, the Handloom Weavers Co-operative Production and Sales Society, prays for the issue of a writ of certiorari to call for the records pertaining to the proceedings of the third respondent, Income-tax Officer, Ward-I(l), Thanjavur, in file No. GIR No. 613-TI(1))/TNJ and the consequential order passed by the second respondent Commissioner of Income-tax, Tiruchirappalli, in C. No. 2026/25/96-97/TN-V, respecdvely, dated November 26, 1996, and October 21, 1997, and quash the same.

Heard Mr. G. Jayachandran, learned counsel appearing for the petitioner, and Ms. Chitra Venkataraman, learned standing counsel appearing for the respondents.

The petitioner, a co-operative society governed by the provisions of the Tamil Nadu Co-operative Societies Act, 1983, and the rules framed thereunder and is administered through the Commissioner of Handlooms and Textiles, Government of Tamil Nadu, exercising powers of the Registrar of Societies. The object of the society being to promote the traditional and ancient art of weaving, a cottage industry. All the co-operative societies in the State are subject to audit as provided under the Tamil Nadu Co-operative Societies Act and separate set of auditors are appointed for each and ever}' type of society separately. Under the statutory provisions of the Co-operative Societies Act, auditors are appointed by the Director of Co-operative Audit or the Registrar and not by the petitioner-society.

Under section 44AB of the Income-tax Act, every assessee, whose turnover is more than Rs. 40 lakhs, is obliged to audit the accounts and file an audited report in the prescribed form. The said auditor's report could be under any other enactment and no separate audit need be carried out under the Income-tax Act. The petitioner-society, took up the matter with the Director of Cooperative Audit to appoint auditors at an early date so that the audit could be completed and necessary returns could be filed in time.

For the financial year 1994-95 and the previous years and for the year 1995-96, auditors were appointed and circulars were issued only on June 14, 1995. The petitioner-society was instructed to get ready with the documents such as profit and loss account, trial balance, drawing account and income and expenditure statement and break-up of the miscellaneous expenditure.

The petitioner apprehended that the audit may not be completed within the due date and, hence, it decided to file the return of income so that the audit report could be filed on any later date as and when it is furnished. The return was filed on July 14, 1995, before the third respondent, who is the assessing authority on July 14, 1995. By letter dated July 14, 1995, the third respondent required the petitioner to state as to whether the accounts have been audited under section 44AB to which the petitioner sent a reply that the auditors have been appointed and audit is nearing completion and that it would file a revised return of income before December 15, 1995.

On November 24, 1995, the third respondent issued a show cause notice as to why penalty should not be levied under section 271B of the Income-tax Act for the contravention of section 44AB. With the revised return, the petitioner-society filed the audit report on December 11, 1995, besides the petitioner explained the circumstances for the delay. Notwithstanding the filing of the audit report, though it is belated, the third respondent proceeded further. The third respondent, by the proceedings dated March 23, 1996, despite valid objections offered, levied a penalty of Rs. 30, 947 summarily rejecting the explanation offered by the petitioner.

Being aggrieved, the petitioner moved the second respondent. The second respondent declined to cancel the penalty imposed by the third respondent. Hence, the present writ petition challenging the proceedings of respondents Nos. 3 and 2 herein. Counsel for the petitioner raised a number of contentions, while challengi