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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: SHRI GEORGE GEORGE K.
Per GEORGE GEORGE K.,JUDICIAL MEMBER:
These two appeals at the instance of the assessee is directed against the consolidated order of the CIT(A) dated 22.08.2019. The relevant assessment years are 2007-08 and 2009-10.
Common issue is raised in these appeals, hence, they were heard together and are being disposed off by this consolidated order.
The solitary issue raised in these appeals is whether the CIT(A) is justified in confirming the penalty imposed u/s. 271B of the I.T. Act amounting to Rs.40,937/- and Rs.79,114/- for the assessment years 2007-08 and 2009-10 respectively.
Briefly stated, the facts of the case are as follows:
The assessee is the proprietor of M/s. Fathima Hospital, Kannur. For the assessment years 2007-08 and 2009-10, the returns of income were filed belatedly on 31-03-2009 and 23-06-2010 respectively. Subsequently, there was survey u/s. 133A of the I.T. Act. Consequent to the survey, the assessments for AYs 2007-08 and 2009-10 were completed. The Assessing Officer noted that the turnover for the assessment years 2007-08 and 2009-10 exceeded Rs.40 lakhs and since the assessee did not submit the audit reports within the due date for submitting the same, the assessee was show caused as to why penalty u/s. 271B of the I.T. Act ought not to be imposed for both the assessment years. Since no reply was filed by the assessee’s chartered accountant to the penalty notice u/s. 271B of the I.T. Act, the Assessing Officer was of the view that the assessee did not have any objection. Therefore, the Assessing Officer imposed penalty u/s. 271B of Rs.40,937/- and Rs.79,114/- for the assessment years 2007-08 and 2009-10 respectively.
Aggrieved by the orders passed by the Assessing Officer imposing penalty u/s. 271B of the I.T. Act, the assessee preferred the appeals before the first appellate authority. Before the CIT(A), it was submitted that the delay was on account of reasons beyond the control of the assessee. According to the assessee, the accountant who was familiar with the accounts of the assessee, got employment in Kerala Government Service and had left the services of the assessee abruptly. It was submitted that the accountant could not be contacted to complete the work and therefore, the assessee had to trace out and identify a suitable hand which involved delay in filing the audit report. Further, the Ld. AR relied on the decision of the ITAT, Cochin Bench in the case of Attinkara Electronics vs. ITO in (order dated 01-03-2019). The CIT(A) rejected the contentions of the assessee and confirmed the view taken by the Assessing Officer for imposing penalty u/s. 271B of the I.T. Act for both the assessment years. The relevant finding of the CIT(A) reads as follows:
“6. I have considered the submissions of the Appellant. The theory of ‘reasonable cause’ is always a matter of facts and no precedence can be cited by the Appellant in his favour, the reasons were ill health of the partner supported by certificate and damage of computer where the entire data was lost supported by certificate and damage of computer where the entire data was lost supported by certificate of system maintenance. The case of the Appellant can be distinguished on many grounds. Firstly, the Appellant is a repeated defaulter and no audit report had been furnished for the assessment years 2007-08 and 2009-10 within the prescribed date. Secondly, the explanation or reasons furnished by the Appellant are also not convincing. The Appellant has cited leaving of one Satheesan from his service at the time of audit. This cause cannot be a cause for both the years, i.e. asst. year 2007-08 and 2009-10 which spans across 3 years. Moreover, the cause itself is very sketchy and not supported by any evidence and appears to be an after thought on the part of the Appellant. Thirdly, the audit was conducted for asst. year 2009-10 only pursuant to survey conducted by the department and does not appear to be a voluntary compliance on the part of the Appellant.
7. In one of the grounds, the Appellant pleads that notice of hearing was served only on 30.05.2012 on Appellant and order was passed on 31.05.2012 by A.O. This contention is not correct as A.O. has noted in his orders that case was posted on 25.05.2012 for which Appellant had filed an adjournment petition. Thus plea of Appellant is dismissed. In these circumstances, I find no reason to accept the explanation of reasonable cause furnished by the Appellant and therefore penalty order u/s. 271B of IT Act for both these years, i.e., asst. years 2007-08 and 2009-10 is sustained.”
Aggrieved by the orders of the CIT(A), the assessee has preferred the appeals before the Tribunal. The Ld. AR reiterated the submissions made before the Income Tax authorities. The Ld. DR on the other hand strongly supported the orders of the Assessing Officer as well as of the CIT(A).
I have heard the rival submissions and perused the material on record. For the assessment years 2007-08 and 2009-10, the returns of income were filed belatedly on 31-03-2009 and 23-06-2010 respectively. Admittedly, the audit reports in compliance with the provisions of section 44AB were furnished alongwith the returns of income to the Assessing Officer before the date of survey or before the completion of assessments u/s. 143(3) r.w.s. 147 of the I.T.
Act for the assessment years 2007-08 and 2009-10 respectively. The reasons stated for belatedly filing the audit reports alongwith the returns of income is that the assessee’s accountant who was familiar with the accounts of the assessee had abruptly left the services of the assessee, hence, there was delay in finding a suitable person which has resulted in belatedly filing the audit reports for the assessment years 2007-08 and 2009-10.
8. Admittedly, the audit reports were available on record as on date of filing of the returns of income and no prejudice is caused to the Revenue. The assessee has only committed a technical breach which does not result in any loss to the exchequer, as the audit reports were available to the Assessing Officer before the completion of the assessment proceedings. In such circumstances, I am of the view that penalty imposed u/s. 271B of the I.T. Act is to be deleted. The same view has been taken by the Cochin Bench of the Tribunal in the case of Johns Biwheelers vs. ACIT in dated 05/02/2019 wherein it was held as under:
“7. We have heard the rival submissions and perused the record. In this case, the assessee was required to get his books of account audited and filed along with the return of income u/s. 44AB within the due date of 30/09/2012 for the assessment year 2012-13.. However, the audit report was furnished only on 28/03/2014. The contention of the Ld. AR was that the delay in filing the return of income was due to damage to computer system due to virus infection which is a reasonable cause as prescribed u/s. 273B of the I.T. Act. The Ld. AR relied on the following judgments in support of his contentions: i) CIT vs. Malayalam Plantations Ltd. (1976) (103 ITR 835) (Ker.) ii) ACIT vs. Amar Chand Raj Kumar (2004) (89 ITD 96)(ITAT, Chandigarh) iii) Prem Prakash Senapati vs. ITO (ITA No.459&185/CTK/2017 dated 17/04/2018) )(ITAT, Cuttack).
7.1 From the material available on record, we are of the view that the assessee got his books of accounts audited on 28/03/2014 which was made available to the Assessing Officer and no prejudice has been caused to the Revenue. Now the short question that arises is whether in this scenario, penalty u/s. 271B of the Act can be levied or not. In our considered opinion, the assessee had only committed technical venial breach which does not create any loss to the exchequer as the audit report was available to the Assessing Officer before the completion of the assessment proceedings. The Madras High Court in the case of CIT vs. A.N. Arunachalam (208 ITR 481) in the context of filing of audit report for claiming deduction u/s. 80J of the Act, observed that once audit report has been made available before the Ld. Assessing Officer before the completion of assessment proceedings, the assessee should be granted deduction u/s. 80J of the Act. We observe that this judgment was rendered in the context of adjudication of quantum of deduction claimed by the assessee. Hence, the said analogy can very well be drawn and used in the penalty proceedings like that of the assessee. To sum up, we hold that the assessee had committed only technical venial breach for which he cannot be penalized. In view of the above, we are inclined to delete the penalty made by the assessee u/s. 271B of the Act.
In the result, the appeal of the assessee is allowed.
The Hon’ble Madras High Court in the case of P. Senthil Kumar vs. Pr. CIT (2019) 416 ITR 336 had held that when audit report is available with the Assessing Officer on the date of completion of assessment, penalty imposed u/s. 271B of the Act is not warranted since it is only a technical breach and no loss to the exchequer is caused. The relevant finding of the Hon’ble Madras High Court reads as follows:
“Though the above decision arises under the Orissa Sales Tax Act, 1947, the ratio decidendi of the said decision could very well be applied to the assessee’s case. We find that the non-filing of the tax audit report before September 30, 2012 is a technical breach and admittedly, the assessee filed the audit report along with the return of income on March 31, 2013 and 2015, on which date, the audit report was very much on the file of the Assessing Officer. Thus, we are of the view that the explanation offered by the assessee can be accepted as a reasonable cause for his failure to file the audit report within time and the case on hand is not a fit case for imposing penalty on the appellant.”
In view of the explanation of the assessee that the assessee’s accountant had abruptly left his services and it took time for the assessee to find a suitable hand and coupled with the fact that assessee has only committed a technical breach without any loss to the exchequer, I am of the view that there is ‘reasonable cause’ as mandated u/s. 273B of the I.T. Act in the facts and circumstances of the case. For the aforesaid reasoning and the judicial pronouncements cited supra, I delete the penalty imposed u/s. 271B of the I.T.
Act for the assessment years 2007-08 and 2009-10. It is ordered accordingly.
In the result, the appeals of the assessee are allowed. Pronounced in the open court on 28th -01-2020. sd/- (GEORGE GEORGE K.) JUDICIAL MEMBER Place: Kochi Dated: 28th January, 2020 GJ Copy to:
1. 1. Shri K.P. Musthafa, M/s. Fathima Hospital, South Bazar, Kannur. 2. The Assistant Commissioner of Income-tax, Circle-1, Kannur Range, Kannur. 3. The Commissioner of Income-tax(Appeals), Kozhikode. 4. The Pr. Commissioner of Income-tax, Kozhikode. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order (ASSISTANT REGISTRAR) I.T.A.T., Cochin
Date 1. Draft Order dictated on 23/01/20120 Sr.PS 2. Draft Order placed before author 28/01/2020 AM 3. Approved draft comes back Sr. PS 4. Fair order placed before the author. AM 5. Fair order placed before the Second JM Member for signature 6. Pronouncement on 7. File sent to the Bench Clerk 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order.