M/S.JEENA HOTEL & UDAYA BAR,ALAPPUZHA vs. THE ACIT, CIRCLE-1, ALAPPUZHA

Per CHANDRA POOJARI, AM:

This appeal filed by the assessee is directed against the order of the CIT(A),

Kottayam dated 26/12/2017 and pertain to the assessment year 2008-09.

AR has filed condonation petition accompanied by an affidavit stating that the

order of the penalty u/s. 271B was served on the assessee on 17/01/2018 and

an appeal ought to have been filed on or before 18/03/2018. It was submitted

that at that time, the assessee approached a chartered accountant at Alleppey and being the end of March, the office of the chartered accountant was busy in

filing the returns, which were getting barred by limitation in March, 2018.

Thereafter it appeared that the chartered accountant was not keeping good

health and was often indisposed. Meanwhile, it was submitted that on account

of termite attack in the office of the chartered accountant, there was a

temporary shifting resulting in the disruption of the papers and file from the

table of the Principal partner which had to be done immediately and the

premises was subject to pesticide treatment to prevent loss of documents. By

the time normalcy was restored, some time had elapsed and a delay of 71 days

had occurred and the delay in filing the appeal was unavoidable and due to

reasons beyond the control of the assessee. Therefore, it was prayed that the

delay may be condoned and the appeal admitted.

2.1 We have heard the rival submissions and gone through the reasons

advanced by the assessee for filing the appeal belatedly before this Tribunal.

Since the delay was on account of the chartered accountant’s inability to file the

appeal before the Tribunal in time and the concerned CA, Shri R. Krishnan has

filed affidavit to this effect, we condone the delay of 71 days in filing the appeal

and admit the appeal for adjudication.

running hotel and retail sales of Indian made foreign liquor. The assessee's

turnover for the AY 2008-09 was Rs. 2,31,73,825/- and therefore, required to get

accounts audited within the specified date provided under section 44AB of the

Act. However, the Assessing Officer noticed that the specified date for filing the

audit report u7s 44AB for the Asst. Year 2008-09 was 30.09.2008 and the

assessee firm filed its audited accounts only on 20.3.2009. Therefore, there was

a delay of 5 months and 20 days in filing its Audited Report u/s. 44AB of the Act.

The Assessing Officer was not satisfied with the reply filed by the assessee and

levied penalty u/s. 271B of the Act and directed the assessee to pay a sum equal

to one half per cent of the total sales of Rs. 2,31,73,825/- restricted to Rs.

1,00,000/- as penalty u/s 271B of the Act.

under:-

“Failure to get accounts audited”

271B. If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB. the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one- half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred fifty thousand rupees, whichever is less."

5.1 According to the CIT(A), as per section 271B, penalty is leviable on failure

to get account audited before the specified date under section 44AB, i.e. due

date for filing return of income u/s 139(1) of Income Tax Act, 1961. However,

this is subject to the provisions of section 273B of Income Tax Act, 1961. Section

273B reads as under:

"Penalty not to be imposed in certain cases”

273B. Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271, section 271A, section 271AA, section 271B, section 271BA, section 271BB, section 271C, section 271CA, section 271D, section 271E, section 271F, section 271FA, section 271 FAB, section 271FB, section 271G, section 271GA,section 271GB, section 271H, section 271-1, section 271J, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA or section 272B or sub-section (1) or sub-section (1A) of section 272BB or sub-section (1) of section 272BBB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure."

5.2 According to the CIT(A), as per the provisions of section 273B, it is for the

assessee to prove that there was reasonable cause for failure to get the account

audited as required under section 44AB and as the assessee failed to show any

reasonable cause before the Assessing Officer for the delay in getting its

accounts audited, the Assessing Officer levied penalty under section 271B of the

Act.

5.3 Before the CIT(A), the assessee submitted that the delay in obtaining/filing

the tax audit report was on account of delay in finalization of consolidation of

accounts. The assessee also submitted that even though the book results show

huge net loss the assessee estimated its income at Rs. 3,00,000/- and filed the

return of income. Further, it was submitted that it had also not filed any appeal

against the order u/s. 143(3) wherein an addition of Rs. 15 lakhs was made and

there was no revenue loss to the government on account of its failure to get the

accounts audited. However, the CIT(A) observed that neither the fact that the

assessee did not dispute the additions made in the assessment nor the fact that

there was no revenue loss to government can be held to be reasonable cause

under section 273B of the Act and the only other reason the assessee placed

reliance on is that there was delay in finalization and consolidation of accounts.

But, the assessee failed to state the reasonable constraint which prevented the

assessee from finalizing the accounts. In view of this, the CIT(A) confirmed the order of the Assessing Officer under section 271B levying penalty of

Rs.1,00,000/-.

submissions made before the CIT(A).

the assessee was required to get his books of account audited and filed along

with the return of income u/s. 44AB with the due date of 31/10/2008 for the

assessment year 2008-09. However, the audit report was furnished only on

20/03/2009. The contention of the Ld. AR was that the delay of 5 months and

20 days in filing its Audited Report u/s. 44AB of the Act was due to delay in

finalization of consolidation of accounts which took place more time than

expected and also this was the initial year of the new concern 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).

8.1 From the material available on record, we are of the view that the assessee

got his books of accounts audited on 11/03/2009 which was made available to

the Assessing Officer before passing the assessment order on 09/12/2010 u/s.

143(3) of the Act 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.

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: August, 2019 GJ Copy to: 1. M/s. Jeena Hotel & Udaya Bar, Danapady, Harippad, Alappuzha. 2. The Assistant Commissioner of Income-tax, Circle-1, Alappuzha. 3. The Commissioner of Income-tax(Appeals), Kottayam. 4. The Pr. Commissioner of Income-tax, Kottayam. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin