SURAJMAL HEERALAL,MADURAI vs. ITO, NCW-2(1), MADURAI

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ITA 1053/CHNY/2026Status: DisposedITAT Chennai21 April 2026AY 2020-216 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the delay in filing the audit report was due to bonafide reasons (COVID-19 pandemic) and the report was available to the AO before assessment completion. Therefore, the penalty under Section 271D was not warranted.

What were the facts?

The assessee filed a belated tax audit report due to the COVID-19 pandemic. The Assessing Officer (AO) initiated penalty proceedings under Section 271D for failure to get accounts audited and furnish the report on time. The CIT(A) confirmed the penalty.

What were the issues?

Whether penalty under Section 271D is leviable for belated filing of tax audit report when there is a reasonable cause and the report is available before assessment completion.

Which sections of the Income-tax Act were involved?

Section 271D,Section 147

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI GEORGE GEORGE KAND MS. PADMAVATHY.S

Hearing: 20.04.2026Pronounced: 21.04.2026

आदेश / O R D E R

PER PADMAVATHY.S, A.M: This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") dated 30.12.2025 for Assessment Year (AY) 2020-21.

2.

The assessee is an individual and filed the return of income for AY 2020-21 declaring total income of Rs. 29,44,560/-. The A.O reopened the assessment for the reason that the assessee had made certain cash deposits and there are variants in the sales reported by the assessee in the GST return. The

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A.O completed the assessment after considering the various details furnished by the assessee accepting the income returned by the assessee. Subsequently, the A.O initiated penalty proceedings u/s. 271D of the Act stating that the assessee has failed to get the accounts audited and failed to furnish the audit report in time. The assessee submitted that though the due date for filing the audit report was extended up to 15.01.2021 the assessee could furnish the audit report only on 31.05.2021 due to Covid pandemic and subsequent lock down. The A.O however did not accept the submissions of the assessee and levied penalty of Rs. 1,50,000/-. Aggrieved, the assessee filed further appeal before the CIT(A), who confirmed the penalty.

3.

We have heard the parties, and perused the material available on record. The Ld. Authorized Representative (AR) of the assessee submitted that though the assessee has filed the audit report beyond the time limit, it was filed well before the completion of the assessment and the A.O has considered the same while completing the assessment u/s. 147 of the Act. The Ld. AR further submitted that the A.O has accepted the income returned by the assessee after considering the various details including the audit report. The Ld. AR accordingly submitted that the penalty u/s. 271D of the Act is not warranted in the present case. We, in this regard notice that the Hon'ble Madras High court in the case of P. Senthil Kumar vs. PCIT [2018] 100 taxmann.com 534 (Mad.) has considered an identical issue where it has been held that:

“10. Admittedly, the reasons assigned by the assessee have not been found to be false nor with any mola fide intention, the reasons were assigned. Therefore, this Court is of the view that the explanation offered by the assessee can be taken as a reasonable cause for his failure to file the audit

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report within time. We are also aware that the assessment was completed under Section 143(3) of the Act only on 29.3.2015 and on that date, the audit report was very much available with the Assessing Officer.

11.

The Hon'ble Apex Court, in the case of Hindustan Steel Limited v. State of Orissa [1972] 83 ITR 26 (SC)), considered the validity of levy of penalty under the provisions of the Orissa Sales Tax Act, 1947. One of the questions, which was framed for consideration was as to whether imposition of penalty for failure to register as a dealer was justified. The Hon'ble Apex Court pointed out that the liability to pay penalty does not arise merely upon proof of default in registering as a dealer, that an order imposing penalty for failure to carry out a statutory obligation is the result of quasi criminal proceeding and that penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. It was further held that whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances and that even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.

12.

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 30.9.2012 is a technical breach and admittedly, the assessee filed the audit report along with the return of income on 31.3.2013 and that the assessment was framed by the Assessing Officer only on 29.3.2015, 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.

13.

For the above reasons, the above tax case appeal filed by the assessee is allowed and the substantial questions of law raised are answered in favour of the assessee. The penalty imposed on the assessee vide order dated 29.9.2015 shall stand deleted. No costs.”

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4.

We further notice that a similar view has been held by the Hon'ble Kerala High Court in the case of Chavakkad Service Cooperative Bank ltd. vs. ITO , where it has been held that:

“11. The Appellate Tribunal has chosen to confirm the penalty against the assessees before us by relying on the decision of a Division Bench of this Court in Peroorkkada Service Co-operative Bank Ltd. v. ITO [2020] 114 taxmann.com 18/270 Taxman 55/424 ITR 422 (Kerala), where a Division Bench of this Court sustained a penalty in almost similar circumstances by finding, as a matter of fact, that no reasonable cause had been shown by the assessee in that case for the delay occasioned in submitting the audit report. In our view, the factual situation that obtained in Peroorkkada Service Co-operative Bank Ltd. (supra) was different and distinguishable from the facts in the appeals before us. In the present appeals, the Assessing Authority, at first instance, did not even look into the aspect of "reasonable cause" and proceeded to confirm the penalty on the assessees on the assumption that the penalty under Section 271B of the I.T. Act was automatic whenever there was a delay in submission of the audit report beyond the prescribed due date. The First Appellate Authority and the Appellate Tribunal sustained the penalty order on assumptions made that had no basis from facts that were available before them in the records. In our view, the assessees had demonstrated reasonable cause for the delay occasioned in filing the audit report before the Assessing Authority for more reasons than one. At the outset, we find that notwithstanding the peremptory phraseology used in Section 44AB of the 1.T. Act with regard to furnishing of audit reports within the prescribed time limit, the assessees in these appeals had furnished the audit reports before the completion of assessment and the assessment was completed by the Assessing Authority by placing reliance on the said audit reports. There was therefore no prejudice caused to the Department while completing the assessment against the appellants/assessees. Secondly, there is no material on record to suggest that it was on account of any fault with the assessees Societies that a delay was occasioned in the preparation of the final audit report. The statutory provisions under the Kerala Co-operative Societies Act and Rules noticed above would reveal that the auditors had time that extended to six months after expiry of the financial year in question to submit their audit report, and if they took more time than was allowed under the Statute, then the assessees Societies had no option but to await the audit report, for, they had no manner of control over the preparation of those reports. Thirdly, the statutory provisions under the Kerala Co- operative Societies Act and Rules clearly provide for penal action against those Societies who do not maintain proper accounts and failed to get their accounts audited by the statutory auditors. There is no material on record that would suggest that any of the assessee Societies had been

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subjected to such penal proceedings, and hence, the Appellate Tribunal was not justified in assuming that some part of the delay in submitting the audit reports can be attributed to the assessee Societies. Fourthly, we find from a perusal of the CBDT Circular No.3/2009 dated 21.05.2009 issued in exercise of the powers under Section 139C of the I.T. Act that under certain circumstances, the Board has permitted a belated production of the audit reports by assessees such as the appellants before us, as and when called for by the Income Tax authorities. The said Circular would align with the Scheme of penalty under the Income Tax Act especially in the context of Sections 271B and 273B of the LT. Act that deal with penalty for non-compliance with the provisions of Section 44AB of the LT. Act. The Circular, in our view, suggests that a penalty need not be imposed on assessees if no prejudice is caused to the Department on account of any belated furnishing of an audit report. The Circular, being of a binding nature, insofar as the Department is concerned, the Assessing Authority, First Appellate Authority and the Appellate Tribunal ought to have taken due note of it while deciding on whether or not a penalty was called for in relation to the assessees before us.”

5.

From the perusal of the ratio laid down by the above judicial precedence, we notice that when the delay is due to bonafide reasons and if the audit report was available before the A.O while completing the assessment when no notice u/s. 271B of the Act is warranted. In the given case, we notice that the assessee has filed the audit report on 31.05.2021 and the assessment u/s. 147 of the Act was completed on 05.03.2025 by which time the audit report was very much available before the A.O. We further notice that the A.O has considered the details furnished along with audit report and accepted the income returned by the assessee. Considering the fact that the delay was due to covid pandemic situation, we are of the view that there is no malafide intention on the part of the assessee to file the audit report belatedly. Therefore, we are of the view that the ratio laid down in the above judicial, precedence is applicable to assessee's case also and accordingly we direct the A.O to delete the penalty levied u/s. 271D of the Act.

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6.

In the result, the appeal of the assessee is allowed.

Order pronounced on 21st day of April, 2026 at Chennai.

Sd/- Sd/- (जॉज� जॉज� के) (पदमावती यस) (Padmavathy.S) (George George K) उपा�� / Vice President लेखा लेखा सद�य लेखा लेखा सद�य सद�य /Accountant Member सद�य चे�नई/Chennai, �दनांक/Dated: 21st April, 2026. EDN, Sr. P.S आदेश क� �ितिल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF

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