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Facts
The assessee, a co-operative society, failed to file its Income Tax Returns under Section 139(1) and obtain a tax audit report under Section 44AB for multiple assessment years. Following a search operation and notice under Section 153A, returns were filed. The Assessing Officer levied a penalty under Section 271B for non-submission of the audit report, which was upheld by the CIT(A).
Held
For assessment years 2011-2012 and 2012-2013, the Tribunal quashed the Section 271B penalties as they were time-barred. For assessment years 2020-2021 and 2021-2022, the penalties were deleted, finding reasonable cause due to delays by the State Co-operative Department in completing audits and acknowledging that a special audit under Section 142(2A) served the same purpose as Section 44AB.
Key Issues
1. Whether penalty proceedings under Section 271B for non-submission of the audit report were barred by limitation for older assessment years. 2. Whether a special audit under Section 142(2A) and delays by the State Co-operative Department constituted a reasonable cause for non-compliance with Section 44AB, warranting deletion of penalty.
Sections Cited
250, 139(1), 132, 153A, 44AB, 274, 271B, 142(2A), 139(4)
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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri George George K, Vice- & Shri Inturi Rama Rao
:Asst.Year 2012-2013 :Asst.Year 2020-2021 ITA No.887/Coch/2024 :Asst.Year 2021-2022 The Service Co-operative Bank The Assistant Commissioner Limited No.F-583 v. of Income-tax, Abdurahiman Nagar Post Central Circle – 2 Malappuram – 676 305. Kozhikode PAN : AADAT4700A. (Appellant) (Respondent) Appellant by : Sri.M.Ramkumar Menon, CA Respondent by :Smt.Leena Lal, Sr.AR Date of Date of Hearing :02.04.2025 Pronouncement : 08.04.2025 O R D E R Per Inturi Rama Rao, AM : These four appeals filed by the assessee are directed against different orders of the Commissioner of Income-tax (Appeals), Kochi-3 [“CIT(A)”] passed u/s.250 of the Income-tax Act, 1961 [“the Act”] for the assessment years 2011-2012, 2012-2013, 2020-2021 and 2021- 2022.
Since common issues are involved in these appeals, they were heard together and are being disposed of by this consolidated order for the sake of convenience. We take the appeal bearing ITA -887/Coch/2024. The Service Co-op.Bank Limited No.F 583. No.884/Coch/2024 for assessment year 2011-2012 as the lead appeal for adjudication, and the decision that would arrive at therein would be applicable to the other appeals as well.
Briefly the facts of the case are that the appellant is a co-operative society duly registered under the Kerala Co-operative Societies Act, 1969. It is classified as a primary agricultural credit society. The appellant had not filed the regular return of income under the provisions of sec.139(1) of the Income-tax Act, 1961 (“the Act”). Subsequently, a search and seizure action u/s.132 of the Act were conducted in the business premises of the appellant on 26th March, 2021. Thereafter, notice u/s.153A of the Act was issued to the appellant on 6th September, 2021. In response to the notice u/s.153A of the Act, the appellant had filed return of income on 10.12.2021 for the assessment year 2011- 2012. The Assessing Officer (“the AO”) noticed that the appellant had failed to get its accounts audited and submit the report as prescribed u/s.44AB of the Act within the due date specified for filing the return of income u/s.139(1) of the Act. Accordingly, a show cause notice u/s.274 r.w.s. 271B of the Act dated 4th July, 2023 was issued to the appellant calling upon the appellant to show cause as to why the order imposing penalty u/s.271B of the Act should not be made. In response to the show cause notice, the appellant filed explanation stating therein that the delay in submission of the prescribed audit report is because of the delay in completion of audit under the Co-operative Societies Act by the State Co-operative Department and consequently there was a delay in getting the accounts audited as per the provisions of Co-operative Societies Act. However, the AO rejecting the above explanation had
Being aggrieved by the above order of penalty, an appeal was preferred before the CIT(A), who vide the impugned order, confirmed the levy of penalty.
Being aggrieved, the appellant is in appeal before the Tribunal in the present appeal. The learned Counsel submits that the appellant had failed to submit the prescribed audit report u/s.44AB of the Act because the delay in completion of audit under the State Co-operative Department under the provisions of Kerala Co-operative Societies Act and the consequential delay in completion of statutory audit. It is further submitted that the department had caused the special audit u/s.142(2A) of the Act and the object of the provisions of sec.44AB of the Act is fulfilled by the audit u/s.142(2A) of the Act, and therefore, no penalty can be levied. Finally it is submitted that the penalty proceedings should have been initiated within a reasonable time from the end of the relevant assessment year, whereas in this case penalty proceedings were initiated after a lapse of ten years from the end of the relevant assessment year. Therefore, the penalty proceedings were barred by limitation.
On the other hand, the learned Senior Departmental Representative submits that since the appellant has failed to submit the prescribed audit report till date, the provisions of sec.271B of the Act is squarely applicable to this case and no interference is called for in the orders of the lower authorities.
We heard the rival submissions and perused the material available on record. The issue that arises for our consideration is whether there was reasonable cause for not getting the accounts audited u/s.44AB of the Act and submit the report within the due date specified for filing the return of income u/s.139(1) of the Act. Admittedly, the appellant neither filed the return of income within the due date specified u/s.139(1) of the Act nor filed belated return of income u/s.139(4) of the Act. It is also an admitted fact that the appellant had not submitted the prescribed audit report and failed to submit the audit report as prescribed u/s.44AB of the Act, till date. The explanation offered by the appellant for failure to get the accounts audited is that because of delay in completion of audit by the State Co-operative Department, there was consequential delay in completion of the statutory audit. Undoubtedly, this would constitute a reasonable cause for delayed submission of prescribed audit report u/s.44AB of the Act. But this proposition does not hold good in the present case, as the appellant had failed to submit the prescribed audit report even after completion of the audit by the State Co-operative Department under the statutory audit. However, the penalty proceedings initiated u/s.271B are vitiated as barred by limitation. In the present case, the relevant assessment years are 2011-2012 and 2012-2013 in respect of and 885/Coch/2024, respectively, and the penalty proceedings u/s.271B of the Act have no relevance with the assessment proceedings. The AO ought to have initiated the penalty proceedings within a reasonable period of four years from the end of the relevant assessment year, as held by the Special Bench of the Mumbai Tribunal in the case of Mahindra & Mahindra Ltd v. Dy. CIT (2010) -887/Coch/2024. The Service Co-op.Bank Limited No.F 583. 122 ITD 216 (SB)(Mum) (Trib) [affirmed in DIT(IT) v. Mahindra & Mahindra Ltd. (2014) 365 ITR 560 (Bom) (HC)]. Thus, the penalty proceedings in respect of & 885/Coch/2024 for assessment years 2011-2012 and 2012-2013 respectively are bad in law and accordingly we quash the penalty proceedings initiated u/s.271B of the Act and direct the AO to delete the same.
As regards the penalty levied u/s.271B of the Act in the other appeals, viz., and 887/Coch/2024 for assessment years 2020-2021 and 2021-2022, respectively, we take note of the fact that pursuant to the search and seizure operation conducted in the business premises of the appellant, the department had ordered for special audit u/s.142(2A) of the Act and the very object of the provisions of sec.44AB are same as that of the object behind the provisions of sec.142(2A) of the Act. Therefore, no prejudice caused to the department for non-submission of the audit report u/s.44AB of the Act. Furthermore, the delay in submission of the audit report u/s.44AB of the Act is attributable to the delay in completion of the audit by the State Co-operative Department and consequential delay in completion of the statutory audit by the Chartered Accountants also constitutes reasonable cause in view of the decision of the Hon’ble jurisdictional High Court in the case of Chavakkad Service Co-operative Bank Ltd. v. ITO (2024) 169 taxmann.com 45 (Kerala). In the light of this, we are of the considered opinion that the penalty is not warranted by invoking the provisions of sec.271B of the Act in the facts and circumstances of the case. Accordingly, we direct the AO to delete the penalty levied u/s.271B of the Act for the assessment years 2020-2021 and 2021-2022.
Order pronounced on this 08th day of April, 2025.