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Facts
The assessee company did not file its return of income for AY 2015-16. After a notice under Section 148, a return was filed and the assessment was completed. The AO later initiated penalty proceedings under Section 271B for failure to get accounts audited under Section 44AB. The assessee cited a dispute between its directors as the reason for this failure.
Held
The Tribunal held that the dispute between the directors, leading to the inability to get accounts audited and signed, constituted a reasonable cause under Section 273B. Therefore, the penalty under Section 271B was deleted.
Key Issues
Whether the dispute between directors preventing statutory and tax audit constitutes a reasonable cause for deleting penalty under Section 271B.
Sections Cited
271B, 273B, 44AB, 148, 147, 143(3), 134, 139(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI RAJ KUMAR CHAUHAN, JM
(Assessment Year: 2015-16) Blue Sky Brandcomm Asia Pvt. Ltd, Commissioner of Income Tax 165, A-Z Industrial Premises, (Appeals)-Circle-6(1)(2), Ganpat Rao Marg, Lower Parel Vs. Aayakar Bhavan, M.K. Road, (West), Mumbai-400013. Mumbai-400020. PAN: AAICS2346A Appellant) : Respondent) Appellant /Assessee by : Shri Gunjan Kakkad, AR Revenue / Respondent by : Shri Leyaqat Ali Aafaqui, Sr. DR Date of Hearing : 17.07.2025 Date of Pronouncement : 14.08.2025 O R D E R
Per Padmavathy S, AM:
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 under section 250 of the Income Tax Act, 1961 (the Act) dated 19.03.2025 for Assessment Year (AY) 2015-16. The assessee raised the following grounds of appeal:
2 ITA 3301/Mum/2025 Blue Sky Brandcomm Asia Pvt. Ltd. “PENALTY SHOULD NOT BE LEVIED UNDER THE PROVISIONS OF SECTION 271B R.W.S 273B OF THE ACT 1. On the facts and circumstances of the case and in law, the Hon'ble Commissioner of Income-tax (Appeals), Income-tax Department (hereinafter referred to as "the CIT(A)" for brevity) has erred in upholding the order of the Assessing Officer imposing penalty under section 271B of the Act.
2. On the facts and circumstances of the case and in law, the CIT(A) ought to have appreciated that the Appellant was prevented from getting its books of account audited and consequently, it could not comply with provisions of section 44AB of the Act.
3. On the facts and circumstances of the case and in law, the CIT(A) erred in holding that sufficient cause was not established despite the Appellant submitting the details of the numerous cases which are pending inter se the directors.”
The assessee is a company and did not file the return of income for AY 2015-16. The AO reopened the assessment by issuing notice under section 148 of the Act and the assessee filed the return of income declaring income of Rs. 8,53,199/-. The assessment under section 147 of the Act was completed accepting the income retuned by the assessee. The AO subsequently issued a notice under section 271B of the Act to show-cause why penalty could not be levied since the assessee failed to comply with the requirement to get the account audited under section 44AB in spite of having business receipts of Rs. 4,74,52,920/-. In response the assessee submitted that the accounts could not be audited for the following reasons: “1. The Directors of the Assessee are Mr. Yashraj Mahendra Gala and Mr. Jigar Vasant Gala. Both the gentlemen are related to each other and part of various other common entities.
2. In 2015, a dispute arose between two of them regarding various the handling/ affairs of various companies/entities. There are cases pending inter- se between them in various forums viz:- the Hon'ble Bombay High Court as well as before the Arbitral Tribunal etc.
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That Mr. Yashraj Mahendra Gala had been regularly complying with all the norms of Statutory Authorities but due to the non co-operation on the part of the director looking after the affairs of the company namely Mr. Jigar Vasant Gala and the pending litigation between the directors of the company a situation occurred resulting failure to submit Income Tax Returns and annual returns with the Registrar of Companies.
4. Last Balance Sheet signed by both of them of above companies was for the year2013-14. After the year 2013-14 none of directors signed Balance Sheet. In the absence of availability of directors' signed Balance Sheet, the auditors refused to carry out the Statutory Audit and Tax Audit.
5. In view of the aforesaid stalemate, Income Tax Returns for the Assessee were pending to be tiled FY 2014-2015 till FY 2019-2020. In view of the non- filing of tax returns by the Assessee, notice u/s 148 of the Act was issued to the Assessee, 6. In view of the aforesaid stalemate of litigation continuing and due to the non co-operation amongst the directors to sign balance sheets, being the necessary criterion for audit prior to filing the tax return, no income tax return could have been filed by the Assessee.
The Assessee has infact suffered on account of non-co-operation by its directors.”
3. The AO however did not accept the submissions of the assessee and proceeded to levy penalty under section 271B of the Act to the extent of Rs. 1,50,000/-. Aggrieved assessee filed further appeal before the CIT(A). The CIT(A) dismissed the appeal by holding that the assessee has not furnished any evidence showing that the directors were not ready to discharge their statutory duties and that the a dispute between the directors does not prevent the assessee from getting its books of account audited. Accordingly the CIT(A) held that there is no reasonable cause established in assessee's case to delete the penalty levied by the AO.
4 ITA 3301/Mum/2025 Blue Sky Brandcomm Asia Pvt. Ltd.
The ld. AR at the outset submitted that in one of the group company's cases on the identical issue the Co-ordinate Bench has given relief to the assessee by deleting the penalty stating that there is a reasonable cause. In this regard the ld AR drew our attention to the following relevant observation of the Co-ordinate Bench - “3. We have heard both the parties and also perused the relevant finding given in the impugned orders. As per Section 134 of the Companies Act, statutory audit is compulsorily to be carried out and both the Directors have to sign the audit report. Section 134(1) reads as under:- "134.((1) The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorised by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director for submission to the auditor for his report thereon.) (2) The auditors' report shall be attached to every financial statement. (3) There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include 4. Form 3CA which is audit report prescribed u/s.44AB clearly provides that without the statutory audit under the Companies Act, tax audit cannot be prepared. Rule 6G which is a report of audit of accounts to be furnished u/s.44AB provides that it is mandatory to get the audit done under the Companies Act. Thus, without the signature of the Directors of the company neither the statutory audit nor the tax audit u/s.44AB can be conducted. Here in this case, assessee did not file any return of income u/s.139(1), albeit, it has been filed in response to notice u/s.148 and the said return of income has been accepted by the ld. AO in the order passed u/s.147 / 143(3). Assessee had given explanation and also filed documents to prove that the Directors were in dispute with each other and none of the Directors were cooperating with each other and one of the Director has completely refused to sign, therefore, the assessee company could not get the statutory audit done nor tax audit report u/s. 44AB. Since these two Directors were major 5 ITA 3301/Mum/2025 Blue Sky Brandcomm Asia Pvt. Ltd. shareholder of the company, therefore, Board could not appoint any other Director to sign the statutory audit and tax audit report. Thus, so far as assessee company is concerned which is separate juridical person, it was impossible to get the tax audit report or accounts audited. Accordingly, we hold that not getting accounts audited was due to bonafide and genuine reasons therefore, in terms of Section 273B, it falls in the category of a reasonable cause and therefore, no penalty can be levied. In our view, penalty u/s.271B for both the years is to be deleted. We order accordingly.”
We heard the parties and perused the material on record. We notice that the reasons submitted by the assessee before the AO for not getting the accounts audited are identical to the facts in the above case. We further notice that the assessee is also part of the same group of companies where the Directors are in major dispute in each other since the year 2015 regarding the affairs of the various companies including the assessee and there are cases pending in various Forums/Court. In view of these facts in our considered view the impugned issue in the present appeal is covered by the above decision of the Co-ordinate Bench. Accordingly, we hold that there is a reasonable cause for not getting the accounts audited in terms of section 273B of the Act and therefore we direct the AO to delete the penalty levied under section 271B of the Act. It is ordered accordingly.
In result, appeal of the assessee is allowed.
Order pronounced in the open court on 14-08-2025. Sd/- Sd/- (RAJ KUAMR CHAUHAN) (PADMAVATHY S) Judicial Member Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT 6 ITA 3301/Mum/2025 Blue Sky Brandcomm Asia Pvt. Ltd. BY ORDER,