FAT EAST TRADING ESTABLISHMENT,KAYAMKULAM vs. ITO, WARD NO.1, ALAPPUZHA

Brief facts of the case are that the appellant is a partnership firm engaged in retail business. The return of income for AY 2018- 19 was filed on 31.03.2019 disclosing total income of Rs. 10,75.563/-. The appellant also filed prescribed audit report u/s. 44 AB of the Income Tax Act, 1961 (the Act) on 31.03.2022. Against Far East Trading Establishment the said return of income, the assessment was completed by the ITO, Ward -1, Alappuzha (hereinafter called "the AO") accepting the returned income vide order dated 02.02.2021 passed u/s. 143(3) of the Act. During the courses of assessment proceedings the AO noticed that the gross sales of the appellant for 2018-19 was Rs. 3,84,25,527/-. The appellant was required to obtain prescribed audit report u/s. 44AB of the Act on or before the due date specified u/s. 139(1) of the Act and submit the same before the due date. However, the appellant firm had obtained the prescribed audit report u/s. 44AB on 31.03.2022. In the circumstances the AO formed an opinion that the appellant firm had violated the provisions of section 44AB of the Act. Accordingly, a show cause notice was issued calling upon the appellant to explain as to why penalty should not be imposed u/s. 271B of the Act. In response to the show cause notice the appellant filed reply on 03.10.2022 stating that the delay in obtaining the prescribed audit report was caused on account of the fact that the Accountant of the appellant firm, Shri Pavithra Kumar met with a serious motorcycle accident in the month of July, 2018. He was hospitalised and later discharged with instruction to take bed rest for a least 6 months. He had injured his spinal cord. The assessee submitted a copy of discharge summary of Mr. Pavithrakumar issued by Believers Church Medical College Hospital, Thiruvalla. However, the AO rejected the above explanation by holding that the books of accounts were audited by Far East Trading Establishment one Chartered Accountant, namely Shri Jayakumar Vasudevan Nair, not by Shri Pavithra Kumar. Therefore, he proceeded with levy of penalty of Rs. 1,50,000/-.

Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO.

Being aggrieved, the appellant is in appeal before us in the present appeal.

The learned A.R. submitted that penalty cannot be levied as the audit report was furnished before completion of the assessment in view of the judgement of Hon'ble Madras High Court in the case of CIT v. A.N. Arunachalam [1994} 208 ITR 481.

On the other hand, the learned Sr. DR, placing reliance on the orders of lower authorities submitted that no interference is called for.

We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the Hon'ble Jurisdictional High Court in the case of Chavakkad Service Co-op. Bank Ltd. [2024] 169 taxmann.com 45 (Kerala) has observed as under: - “Where assessee co-operative societies did not file audit report as mandated under section 44AB within time limit specified thereunder, however, audit reports were made available before Assessing Authority at time of finalization of assessments, since delay in obtaining audit reports from statutory auditors under Kerala Co-operative Societies Act Far East Trading Establishment and Rules could be seen as a reasonable cause for delayed submission of audit reports, no penalty under section 271B was to be imposed on assessee.”

The facts of the case on hand are identical as discussed above. Thus, respectfully following the same, we delete the penalty imposed by the Revenue.

In the result, appeal filed by the assessee is allowed.