ZENITH OUTDOORS PRIVATE LIMITED ,MUMBAI vs. ITO WARD 1(3)(1), MUMBAI

Briefly stated, the assessee’s case was reopened under section 147 of the Act and the reopening assessment was completed on 15.05.2023 with no addition to the taxable income, however penalty proceedings under section 271B of the Act are initiated, due to the failure of assessee-company to get its accounts audited for the Financial Year (FY) 2014-15 relevant to AY 2015-16. Subsequently notice under section 274 r.w.s. 271B was issued on 15.05.2023, to which the assessee has responded that there was a litigation pending between the Directors of the Company, thus a situation occurred, resulting failure to submit the income tax returns and annual returns with the Registrar of Companies. It is clarified that in absence of availability of Directors for signing of the balance-sheet, the balance-sheet could not be signed, so the Auditors of Zenith Outdoors Private Ltd. the Company have refused to carry out the statutory Audit as well as the tax audit. Such contentions of the assessee were not found favour with the ld. AO, therefore, a penalty of Rs. 1,50,000/- u/s 273B has been imposed vide the impugned penalty order.

The assessee carried the matter before the First Appellate Authority (FAA)/ CIT(A), who had decided the appeal against the assessee, stating that the reasons given by the assessee for not obtaining and furnishing the Audit Report as per requirement of statute does not constitute a reasonable cause and therefore the penalty levied under section 271B of the Act has been held as correct and sustainable.

Being aggrieved with the aforesaid decision of ld. CIT(A), the assessee preferred an appeal before the Tribunal.

At the outset, the ld. AR of the assessee submitted that the similar issue has been came up before the coordinate bench of the Tribunal in assessee’s own case for AY 2016-17 and 2017-18, wherein under similar facts and circumstances the penalty levied on assessee under section 271B of the Act was deleted by the ITAT, Mumbai.

The observations of ITAT, Mumbai, referred to and relied by the Ld. AR in the aforesaid case, in for AY 2016-17 & 2017-18 in assessee’s own case, are culled out hereunder: 3 Zenith Outdoors Private Ltd. “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:-

It was the submission that, having the penalty under section 271B of the Act has been deleted by the Tribunal in assessee’s own case for AY 2016-17 & 4 Zenith Outdoors Private Ltd. 2017-18, in squarely identical circumstances, the penalty imposed for AY 2015-16, which is under consideration in the instant appeal may also be directed to be deleted.

Per contra, the ld. DR vehemently supported the orders of revenue authorities.

We have considered the rival submissions and perused the material available on record. Admittedly, in present case the assessee was unable to get its accounts audited for the reasons that there was some dispute between the Directors and the balance-sheet for the relevant years could not be signed, therefore the statutory Auditor refused to audit the books of accounts of the assessee company. Accordingly, the tax audit could not be conducted. Since the issue has already been discussed and decided under similar facts and circumstances in assessee’s own case by this Tribunal (supra), therefore in absence of any material to distinguish the facts of present case from the facts of case relied upon by the assessee, we are of the considered view that the assessee was prevented with sufficient cause for not getting the account audited, so penalty under section 271B of the Act cannot be levied. We thus set-aside the impugned order of ld. CIT(A) and direct the ld. AO to delete the penalty imposed vide impugned order under section 271B of the Act.