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Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC-1’, NEW DELHI
PERO.P. KANT, AM:
This appeal by the assessee is directed against order dated 08/04/2019 passed by the learned CIT(Appeals)-9, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2010-11 in relation to levy of penalty by the Assessing Officer for not auditing books of accounts/ furnishing report of audit of books of accounts on or
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before due date of filing return of income. The grounds raised by the assessee are reproduced as under: 1. On the facts and circumstances of the case, the order passed by the CIT(A) levying penalty under Section 271B is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, the penalty order passed by the CIT(A) is gross violation of the principles of natural justice and thus bad in law and liable to be quashed. 3. (i)On the facts and circumstances of the case, the CIT(A) has erred both on facts and in law in imposing penalty of Rs.100,000/- invoking the provisions of section 271B of the Act. (ii) That the above said penalty has been imposed ignoring the explanation and evidences brought on record by the assessee. 4. (i) On the facts and circumstances of the case, the CIT(A) has erred both on facts and in law in imposing penalty of Rs. 100,000/- invoking the provisions of section 271B of the Act on account of not getting the books of accounts audited despite the fact books of account were duly audited prior to the due date of furnishing of return of income. 5. (i)On the facts and circumstances of the case, the CIT(A) has erred both on facts and in law in imposing the penalty ignoring the fact there was bonafide reasonable cause for not uploading the audit report electronically. (ii)That the assessee was prevented by reasonable cause to comply with the notice(s) so issued. 6. That the appellant craves leave to add, amend or alter any of the grounds of appeal.
The facts in brief of the case are that the assessee, a private limited company, was engaged in the business of providing gift items and other allied items to banks, financial institutions and LIC etc. For the year under consideration, the assessee was required to file its return of income on the due date prescribed for companies i.e. 30thSep., 2010, but the assessee did not file its return of income. The assessment for the year under consideration was reopened under section 147 of the Income-tax
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Act, 1961 (in short ‘the Act’) as the Assessing Officer had information that the company had taxable income for the year under consideration but no return of income was filed. Accordingly, notice under section 148 of the Act was issued on 31.03.2017 after recording reasons. The assessee delayed in complying with assessment proceeding, which is evident from following facts:
(i) No compliance of the notice under section 148 dated 31/03/2017 was made, which was sent to the assessee by speed post as well as through email. (ii) No compliance of notice under section 142(1) of the Act dated 10/07/2017, which was served personally on the director of the company Sh. Rajender Bashar Agarwal. (iii) No compliance of show cause notice dated 18/09/2017 for completing assessment under section 144 of the Act along with the copy of notice issued under section 148 and copy of the reasons recorded for reopening of the assessment, which was duly served at the residential address of the director through speed post. (iv) No compliance of another show cause notice dated 23/10/2017 for ex-parte assessment under section 144 issued at the address of the company and residential address of the director.
2.1 After issuing of so many notices, finally the assessee e-filed its return of income on 06/11/2017 declaring nil income.
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Subsequent to the filing of the return of income, assessment proceedings were commenced. During the assessment proceeding on 24/11/2017, the assessee filed a copy of the Tax Audit Report dated 02/09/2010 signed by the Chartered accountant Sh Gajanand Gupta. The assessee has shown sales of Rs.2,07,70,014/- for the year under consideration therefore,as per provisions of section 44AB of the Act, the assessee was required to audit its books of accounts from a Chartered Accountant. According to the Assessing Officer, the assessee was required to furnish the Tax Audit Report before the specified date i.e. 30/09/2010 in the Income Tax Department as required under the provisions of section 44AB of the Act, therefore, he issued notice under section 271B of the Act, as why penalty might not be levied for non-furnishing of the Audit Report before the specified date. Before the Assessing Officer, the assessee submitted that assessee had filed appeal against the quantum assessment order and, therefore, till disposal of the appeal, the penalty might be kept in abeyance. The Assessing Officer rejected the contention of the assessee and levied penalty of Rs.1,00,000/- in terms of provision of section 271B of the Act. 2.2 The assessee filed appeal before the Learned CIT(A) and pleaded that in view of the Circular No. 3/2009 dated 21/05/2009 issued by the CBDT, the assessee was not required to furnish physical copy of Audit Report with the Income Tax Department and was only required to fill out the relevant columns in the form of return of income on the basis of such report. According to the assessee, though the Audit Report was obtained before the due date, but since no return of income was filed by
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the assessee, there was no occasion to fill the relevant column of the form of the return of income on the basis of Audit Report. According to the assessee, in view of the CBDT circular (Supra) , no default has been committed by the assessee and therefore, penalty levied by the Assessing Officer under section 271B of the Act was invalid. The Ld. CIT(A), however, not accepted the contention of the assessee and held that it could not be established that the said report was really obtained before the due date of filing of return of income. The relevant finding of the learned CIT(A) is reproduced as under: “9. Carefully considered facts of the case vis-a-vis provision u/s 44AB r.w.S 271B. It is not in dispute that the copy of audit report was furnished to the Assessing Officer on 24.11.2017 when called for the same. However, it cannot be established that the said report was categorically obtained before the due date .The assessee could have filed copy of the report before his assessing officer if at all he was not able to submit its return of income in time i.e before the due date of filing of return. Further, the circular referred above inter alia provides that the Audit Report may not be submitted while filing the return u/s 139(1) implying that existence of said Audit Report is certified by the fact that Return of Income has been filed by the due date of filing return.
Ironically, the case at hand is that no return for the AY 2010- 11 was filed u/s 139(1) of the Act and therefore, benefit of presumption with respect to existence of Audit report by the due date is not at all available to the appellant.
In fact, it is requirement of relevant provisions u/s 44AB that appellant’s turnover being above the threshold limit of Rs. 40 lakhs, account were to be audited and with the input from the same, return of income for the relevant AY should have been filed. The appellant assertion that Vrinda Sales Private Limited, Appeal no. 10182/18- 19, AY-2010-11
Its audit was completed by 02.09.2010 is not supported with any associated facts in as much as it has not filed its return of income by the due date. 11. In view of my detailed deliberation as noted above, wherein the appellant though having turnover at Rs.20770014/- during the
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relevant assessment year, failed to get its account audited u/s 44AB and submit the same before due date of filing of return in that assessment year and also the fact that judicial precedents are not applicable to the fact of the case, I am of considered view that the Appellant has not fulfilled the tenets of the aforesaid Board’s Circular but on the other hand, has violated the above quoted circular of CBDT and therefore, the AO has rightly imposed penalty u/s 271B at Rs.100000/-. The grounds are decided in negative to the appellant.”
Before us, the Learned counsel of the assessee appeared through video conferencing facility and filed a paper-book containing copies of the Central Board of Direct Taxes (CBDT) circulars dated 21/05/2009 and dated 01/05/2013. The Learned counsel contended that in terms of CBDT circular dated 21/05/2019, the assessee was not required to furnish physical copy of the Tax Audit Report under section 44AB of the Act to the Income Tax Department along with the return of income on or before the due date of furnishing of the return of income and no penalty was to be initiated or levied for not furnishing the Tax Audit Report on the before the due date. She referred to another CBDT circular dated 01/05/2013, according to which requirement of furnishing the tax Audit Report on the before the due date of filing of the written was made mandatorily applicable with effect from the assessment year 2013-14. Thus, according to her in view of the CBDT circulars (supra) , it is apparent that the assessee was not required to furnish Tax Audit Report on the before the due date with the Income Tax Department during relevant year and only requirement was to obtain the tax Audit Report before specified date , which the assessee has done. The learned counsel stated that said Audit Report has been duly submitted on 6/11/2017, on being called by the Assessing
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Officer during reassessment proceedings under section 147 of the Act. 4. On the contrary, the learned DR relied on the order of the lower authorities and submitted that no evidence as regard to obtaining the said Audit Report before the specified date, has been filed by the assessee and therefore the Ld. CIT(A) was justified in confirming the penalty levied by the Assessing Officer. 5. We have heard rival submission of the parties and perused the relevant material on record including the CBDT circulars cited by the Learned counsel of the assessee. For ready reference, it is relevant to refer the provision of sections 271B and 44AB of the Act and related rules, CBDT circulars, and judicial decisions on the issue . 5.1 During relevant assessment year, the section 271B has prescribed that if any person fails to get his accounts audited or furnish report of such auditas required under section 44AB of the Act, the Assessing Officer may levy a penalty equal to 1% of the total sales or ₹ 1 lakh whichever is less. The maximum amount of the penalty has been increased to Rs. 1.5 lakhs by way of Finance Act 2010 with effect from 01/04/2011. 5.2 The section 44AB during relevant period prescribed that every person carrying on the business shall, if his total sales exceeds ₹ 40 lakh in any previous year, he shall get his accounts of such previous year audited by a chartered accountant before the due date of the filing of the return of income and furnish by that date report of such audit in the prescribed form duly signed in verified by such Chartered Accountant. The limit of sales turnover has been increased to
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₹60 lakh by way of Finance Act 2010, with effect from 01/04/2011, which has been further increased to Rs. 1Crore by way of Finance Act 2012, with effect from 01/04/2013. 5.3 Thus, for complying the provisions of section 44AB, an assessee is required to fulfill two conditions before the specified date. Firstly, getting the books of account audited and secondly furnishing the audit report in prescribed form. The penalty u/s 271B is leviable if the assessee commit either of the default. So, if the assessee fails to get his books of account audited before the specified date , the penalty u/s 271B may be levied and also if the assessee after getting books of account audited, fails to furnish such audit report with the Income-tax Department before the specified date , the penalty u/s 271B may be levied. Further , Rule 12 of the Income-tax Rules has prescribed the form for filing the Tax Audit Report and other requirements. Further, Rule 12(2) of the Income Tax Rules, 1962 has prescribed filing of Audit Report along with the return of income. The relevant rule is reproduced as under:
“[Return of income and return of fringe benefits. 12. (1) ……………….. [(2) The return of income required to be furnished in Form SAHAJ (ITR-1) or Form No. ITR-2 or Form No. ITR-3 or 18[Form SUGAM (ITR-4)] or Form No. ITR-5 or Form No. ITR-6 [or Form No. ITR-7] shall not be accompanied by a statement showing the computation of the tax payable on the basis of the return, or proof of the tax, if any, claimed to have been deducted or collected at source or the advance tax or tax on self-assessment, if any, claimed to have been paid or any document or copy of any account or form or report of audit required to be attached with the return of income under any of the provisions of the Act:] [Provided that where an assessee is required to furnish a report of audit specified under sub-clause (iv), (v), (vi) or (via) of clause (23C) of section 10, section 10A[, section 10AA], clause (b) of sub-section (1) of section 12A, section 44AB [, section 44DA, section 50B], section 80-IA, section 80-IB, section 80-IC, section
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80-ID, section 80JJAA, section 80LA, section 92E, [section 115JB, 5[section 115JC] or section 115VW] [or to give a notice under clause (a) of sub-section (2) of section 11] of the Act, he shall furnish the same electronically.]
5.4 We find that during the period of filing of hard copy of return of income with the Income-tax Department, rules provided to file the Tax Audit report along with the return of income. But after introduction of e-filing of return online , the Rules were amended and filing of other documents or audit report with return was dispensed with. We note that Rule 12(2) has prescribed not to file or accompany report of the audit along with the form of return of Income. This Rule 12(2) has been substituted by the IT (fourth Amendment), Rules, 2010, with effect from 01/04/2010 (relevant to the year under consideration in the case of the assessee). Further, we also not that a proviso to the Rule 12(2), has been inserted with effect from 01/04/2013, which has made it mandatory to furnish the Audit Report electronically. Thus, this rule was relaxed for furnishing of Audit Report under section 44AB along with the return of the income in the relevant assessment year, but proviso to the rule has made furnishing the same electronically with effect from 01/04/2013. 5.5 The CBDT in its circular No. 03/2009 dated 21/05/2009 has also clarified the requirement of not furnishing Audit Report along with the return of income for the relevant year. The assessee has filed a copy of said circular on pages 9-12 of the paper-book. The relevant clauses of the said circular are reproduced as under:
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“6. In exercise of the powers conferred by section 139C of the Income Tax Act.1961 (hereinafter referred to as the Act'), read with clause (eeba) of sub-section (2) of section 295 of the Act, sub-rule (2) of the said rule provides that the returns required to be furnished in above mentioned Forms (except in ITR-7) shall not beaccompanied by any attachments/annexures. Thus, taxpayers should not enclose with these return forms any statement showing the computation of income or tax, copies of balance-sheet, profit and loss account, TDS/ TCS certificates, proof of payment of advance tax or self-assessment tax. However, these documents shall have to be produced before the Assessing Officer on demand by him. The Chief Commissioners of Income-tax/Commissioners of Income-tax must ensure that documents if any, annexed with these returns or Form ITR-V are detached at the time of receiving these returns/ ITR-V and are returned to the taxpayers immediately. 7. Following clarifications are also issued in respect of certain issues arising from furnishing the return; the above mentioned forms: (i) AN assessee should obtain the report of audit from an accountant under section 44AB of the Act on or before the due date of the furnishing of the return and should fill out the relevant columns of the return forms on the basis of such report. However, the report of audit should not be attached with the return or furnished separately any time before or after the due date. The assessee should retain the report with himself. If called for by any income-tax authority during any proceeding under the Act, it shall be incumbent upon the assessee to furnish/produce the same in original. No penalty under section 271B shall be initiated or levied for not furnishing the tax audit report on or before the due date. However, if the audit report has not been obtained before the due date, provisions of section 271B shall continue to be attracted.”
5.6 The CBDT has issued another notification dated 01/05/2013, amending sub-rule 2 of Rule 12 by way of which proviso to the sub-rule 2 been introduced. The said proviso reads as under:
“provided that where an assessee is required to furnish a report of audit under section 44AB , 92E or 115JB of the act, shall furnish the same electronically.”
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5.7 In view of the above provisions of Rules along with CBDT circulars, it is evident that during the relevant assessment year i.e. assessment year 2010-11, the assessee was not required to furnish the tax Audit Report along with the return of income and it was to be produced only on being asked by the Income Tax Authorities. The mandatory uploading of the Audit Report electronically has been made effective only from assessment year 2013-14. 5.8 In the instant case before us, the assessee did not file return of income for the year under consideration on or before the due date of the filing of the return of income (i.e. 30/09/2010). The assessee filed return of income for the first time on 06.11.2017 in response to notice under section 148 of the Act issued by the Assessing Officer. During reassessment proceeding, the assessee furnished the tax Audit Report dated 2/09/2010. 5.9 The contention of the assessee is that the Tax Audit Report was obtained prior to the due date of filing of the return of income, but not furnished on the before the due date as there was no separate requirement of filing the said Audit Report and assessee has produced the said report on being asked by the Assessing Officer during reassessment proceeding and therefore there is no default on the part of the assessee and the penalty can be levied for alleged violation of section 44AB of the Act. 5.10 But in the instant case, we find that the assessee was required to get his books of accounts audited on or before the due date of filing of the return of income. There was no relaxation in getting the books of account audited by a Chartered Accountant and relaxation was given only for furnishing the Tax Audit Report.
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The penalty u/s 271B can be levied for either not getting books of account audited before the specified date or for not furnishing the audit report before the specified date. The requirement of furnishing the audit report before the specified date has been dispensed with for the relevant assessment year. But , the Assessing Officer emphasized only on the fact Audit Report was not furnished on or before the due date of filing of return of income. He did not examine whether the books of account were audited before the due date of return of Income. He has even not verified authenticity of the Audit Report from the Chartered Accountant, whose name is appearing on the Audit Report. The AO has not verified the records of the Chartered Accountant like, register of dispatch of Audit Report or team member engaged in Audit, records on the basis of which report was prepared, correspondence or comment of the assessee on the deficiencies pointed out by the team etc. In the Audit Report in clause 28(a), detail of opening stock, closing stock, purchase & sales has been given by the Tax Auditor. The AO has even not verified whether these details have been incorporated by the assessee in return of Income filed by the assessee on 06.11.2017. As the AO has failed in his duty in verifying whether books of account were audited before the specified date and only emphasized on the fact of furnishing the audit before the specified date , we do not find any reason for confirming the penalty levied u/s 271B of the Act. The Ld CIT(A) has insisted for obtaining the Audit report before the specified. We find that word “ obtain before” has been susctitued in section 44AB by the word “ furnish by” w.e.f 1-7-1995 and therefore for the relevant obtaining the report before the specified
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date is not relevant. In view of the above discussion, we set aside the order of the learned CIT(A) and delete the penalty of Rs. 1.00 lakh levied by the AO u/s 271B of the Act for violation of the provisions of section 44AB of the Act. The grounds raised by the assessee are allowed. 6. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 11th August, 2020.
Sd/- Sd/- (BHAVNESH SAINI) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 11th August, 2020. RK/-(D.T.D.S.) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi