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Facts
The assessee, a cooperative society, failed to get its accounts audited within the prescribed time, leading to a penalty under Section 271B. The delay was attributed to the late appointment of auditors by the Registrar of Co-operative Societies, which was beyond the assessee's control. The audit report was eventually filed before the completion of the assessment.
Held
The Tribunal held that since the delay in audit was due to reasons beyond the assessee's control and the audit report was available before the assessment was completed, the penalty under Section 271B was not sustainable. They referred to a Kerala High Court judgment supporting this view.
Key Issues
Whether penalty under Section 271B is leviable when the delay in obtaining the audit report is beyond the assessee's control and the report is available before assessment completion.
Sections Cited
271B, 143(3), 80P, 44AB, 274
AI-generated summary — verify with the full judgment below
Before: SHRI INTURI RAMA RAO & SHRI SONJOY SARMA
Assessment Year: 2017-18 Chandiroor Service Co-Operative Bank Ltd. …….….…..…..….……….Appellant Chandiroor 688537, Tal: Cherthala, Dist-Alappuzha, Kerala – 688537. [PAN:AAAAC6215E] vs. ACIT, Circle, Alappuzha..……….....................………........……...…..…..Respondent Appearances by: Shri C A Jono, Adv., appeared on behalf of the assessee. Smt. Leena Lal, Snr AR, appeared on behalf of the Revenue. Date of concluding the hearing: June 12, 2025 Date of pronouncing the order: August 12, 2025 ORDER
Per Sonjoy Sarma, Judicial Member:
This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), dated 06.01.25, for the Assessment Year 2017–18, confirming the penalty of Rs. 88,750 levied by the Assessing Officer under Section 271B of the Income-tax Act, 1961.
Brief facts of the case are as under the assessee is a cooperative society, filed its return of income on 19.12.2017, declaring total income at ‘Nil’. The assessment under Section 143(3) was completed on 17.12.2019, disallowing deduction under Section 80P and determining the total income at Rs. 32,96,560. During the assessment proceedings the Assessing Officer noted that the assessee failed to get its accounts audited within the time prescribed under Section 44AB of the Act. Accordingly, penalty proceedings under Section 271B were initiated. A notice under Section 274 read with Section 271B was issued. In Chandiroor Service Co-Operative Bank Ltd response, the assessee submitted that being a cooperative society, it is governed by the Kerala Co-operative Societies Act and the statutory auditors are appointed by the Registrar of Co-operative Societies. The delay in audit was due to the late appointment of the auditor by the Registrar, which was beyond the assessee’s control. The audit report was dated 28.11.2017, i.e., after the due date of 07.11.2017. However, the AO was not satisfied with the explanation and levied a penalty of Rs. 88,750 under Section 271B of the Act (being 0.5% of turnover of Rs. 1,77,49,933).
Aggrieved by the order of AO assessee preferred and appeal before ld. CIT where ld. CIT (A) dismissed the appeal of the assessee by upholding the order of penalty.
Dissatisfied with the order, the assessee is in appeal before this tribunal and contends that the delay in audit was not attributable to the assessee but due to the statutory process of auditor appointment by the Registrar of Co-operative Societies. That the audit report was filed on 19.12.2017 and was very much available before the completion of assessment on 17.12.2019. Further stated that the CBDT Circular No. 13/2023 dated 26.07.2023 recognized such practical difficulties in timely completion of audits by state-empanelled auditors. The ld. AR further relied on the jurisdictional Hon’ble Kerala High Court in the case of Chavakkad Service Co-op Bank Ltd. v. ITO [(2024) 169 taxman .com45 (Ker)]held that if the audit report is available before the assessment is completed, no penalty under Section 271B is warranted.
We have heard both parties and perused the materials on record. It is evident that the delay in audit was due to reasons beyond the control of the assessee and stemmed from the procedural timelines followed by the Registrar of Co-operative Societies. The audit report, though delayed, was made available before the assessment was completed. The Hon’ble Chandiroor Service Co-Operative Bank Ltd Kerala High Court in the Chavakkad Service Co-op Bank Ltd. (supra) case held that where the audit report was made available before completion of assessment, penalty under Section 271B was not justified. In the present case, the assessee has filed the audit report on 19.12.2017, and the assessment was completed on 17.12.2019. Thus, there is substantial compliance and no wilfully disobedient conduct on the part of the assessee. In light of the above facts, judicial precedents, and considering the totality of circumstances, we hold that the penalty imposed under Section 271B is not sustainable. Accordingly, we delete the penalty of Rs. 88,750 levied by the Assessing Officer and allowed the appeal of the assessee.
In the result, the appeal of the assessee is allowed.
12th August, 2025