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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
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.
There was a delay of 71 days in filing the appeal before the Tribunal. The Ld.
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
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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.
The assessee has raised the following grounds of appeal:
The learned Commissioner of Income-tax(Appeals) erred in confirming the penalty of Rs.1 lakh levied u/s. 271B of the Income Tax Act.
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The learned Commissioner of Income-tax(Appeals) erred in rejecting the explanation of the appellant that the cause for delay in filing the audit report u/s. 44AB was due to delay in finalization and consolidation of account. He ought to have held that it is a reasonable cause for the delay in filing the audit report.
The learned Commissioner of Income-tax(Appeals) went wrong in rejecting the explanation of the appellant on the ground that the appellant failed to state the reasonable constraint which prevented the appellant from finalizing the accounts.
At any rate, the explanation of the appellant that this being the first year of the new concern ought to have been accepted as a reasonable cause for the delay in filing the audit report.
The facts of the case are that the assessee is engaged in the business of
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.
I.T.A. No.265/Coch/2018
On appeal, the CIT(A) referred to the provisions of sec. 271B which reads as
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."
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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
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order of the Assessing Officer under section 271B levying penalty of
Rs.1,00,000/-.
Against this, the assessee is in appeal before us. The assessee reiterated the
submissions made before the CIT(A).
On the other hand, the Ld. DR relied on the order of the lower authorities.
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 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).
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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.
I.T.A. No.265/Coch/2018
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on this 1st August, 2019
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