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Facts
The assessee failed to file the original return of income and the mandatory tax audit report for AY 2012-13, despite the turnover exceeding the prescribed limit under Section 44AB of the Income Tax Act. Penalty proceedings under Section 271B were initiated. The assessee's plea of reasonable cause due to being busy with financial arrangements and partners being senior citizens was rejected.
Held
The Tribunal held that the reasons provided by the assessee, such as being busy with creditors and senior citizen partners, do not constitute a "reasonable cause" for not getting the accounts audited under Section 44AB. The court also noted that the purported audit report was not submitted to the lower authorities, and the assessee's stand was contradictory. The decisions relied upon by the assessee were found to be based on distinguishable facts. Therefore, the penalty under Section 271B was rightly levied.
Key Issues
Whether the penalty under Section 271B of the Income Tax Act, 1961 was rightly imposed for failure to furnish the audit report under Section 44AB, and if the reasons provided by the assessee constitute a reasonable cause for such failure.
Sections Cited
271B, 44AB, 273B, 148
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Before: SHRI PAWAN SINGH & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R
PER BIJAYANANDA PRUSETH, AM:
This appeal by the assessee emanates from order of National Faceless Appeal Centre, Delhi [in short, ‘CIT(A)’] dated 24.02.2023 for assessment year (AY) 2012-13. Initially this appeal was adjudicated vide order dated 04.09.2023 in 271B of the Income-tax Act, 1961 (in short, ‘Act’) passed by AO was allowed by holding that the order passed was time barred. The Department filed Miscellaneous Application (MA) against the above order of ITAT which allowed and the order was recalled and appeal was fixed for hearing on 11.11.2024. The case was finally heard on 05.12.2024.
Grounds of appeal raised by the assessee are as under:
/AY.2012-13 Pristine Jewellery “1. The Ld. CIT Appeal erred in confirming the order passed by the Ld.AO which is bad in law. 2. The Ld. CIT Appeal erred in confirming the penalty impose by the Ld.AO for non-furnishing audit report under the provisions of Section 44AD of the Income Tax Act, 1961 without reasonable cause. 3. The appellant craves leave to add, amend, alter, drop any of the grounds of appeal
.”
3. Facts of the case has been narrated at para 4 of the original order of ITAT in ITAT No.277/SRT/2023, dated 04.09.2023. The assessee had raised an additional ground of appeal stating that penalty order passed u/s 271B of the Act was barred by limitation. The limitation date was 30.06.2020 whereas penalty order was passed on 08.08.2021. The plea of the appellant was favourably considered and the ITAT quashed the penalty order by holding that order u/s 271B was barred by limitation. As the penalty order was time barred, all other issues were treated as academic in nature and infructuous. In the MA No.4/SRT/2024 filed by the revenue seeking recall of the order dated 04.09.2023, the ITAT has referred to the extended period of limitation by various CBDT Circulars due to Covid-19 and TOLA, 2020 where time for passing order was extended up to 30.09.2021. Since the order of penalty u/s 271B was passed on 09.08.2021, the order was held to be passed well within the time allowed by the CBDT Circular No.74/2021, dated 25.06.2021. Hence, the matter was recalled. Therefore, the issue to be decided are as per the original grounds of appeal (supra) taken up by the appellant before the ITAT. 3.1 The assessment order in case of the assessee was passed on 24.12.2019 where it was mentioned that assessee had not filed original return of income /AY.2012-13 Pristine Jewellery for AY.2012-13. The return was filed on 27.04.2019 in response to notice issued u/s 148 on 31.03.2019. The AO at para 4.1 held that the total receipt of the assessee during the year under consideration exceeded the limits prescribed u/s 44AB of the Act. Hence, assessee was required to get its accounts audited as required u/s 44AB of the Act. The assessee did not filed original return of income and failed to furnish the said audit report due to which penalty u/s 271B of the Act was initiated. The assessee was issued a show cause notice on 24.12.2019 in response to which assessee filed reply dated 09.01.2020, which is reproduced at para
3. (page 2) of the penalty order. The assessee had referred to section 273B of the Act and submitted that no penalty can be imposed if there was reasonable cause for the said failure. All three partners were senior citizens and they had no knowledge of compliance and therefore, the audit report was not filed. Subsequently, further show cause notices were issued on 24.02.2021, 09.03.2021, 05.05.2021 and 28.07.2021, but assessee did not respond to any of the notices. Therefore, the Assessing Officer (in short, ‘AO’) observed that assessee has not brought out any reasonable cause for not furnishing the return of income and audit report even though assessee was liable to get his accounts audited and to furnish the details thereof in the return of income. He also held that ignorance of law is not an excuse in the eyes of law. Therefore, he levied maximum penalty of Rs.1,50,000/- because the turnover was Rs.8,53,66,166/- and 0.5% of turnover was Rs.4,26,830/-. The assessee filed appeal against the penalty order before /AY.2012-13 Pristine Jewellery CIT(A). The CIT(A) has extracted the ‘Statement of Facts’, grounds of appeal and submission of the assessee. The findings are at page 5 to 7 of the appellate order. He has stated that the appellant has contradicted his ground No.1 that the accounts of assessee for previous year 2011-12 (AY.2012-13) were audited but in his submission dated 21.01.2023, it was submitted that ‘the appellant could not able to get the accounts audited and filed return of income heavy loss incurred in the first year of operation’. The appellant had receipts which exceeded limits prescribed u/s 44AB of the Act. The appellant failed to comply in getting the books of account audited and also failed to furnish report of such audit before AO. He also observed that it was ascertained from ITBA that appellant had not uploaded audit report on the portal within prescribed time. The CIT(A) also held that there was no reasonable cause for failure of assessee to get the books of account audited. Hence, this appeal was also dismissed.
4. Aggrieved by the order of CIT(A), the assessee filed appeal before the Tribunal. The assessee submitted that the notification/circular cannot override the Act. For this, he relied upon the decision in cases of Ganeshdas Khanna vs. ITO and Gujarat Urban Co-op. Bank Federation (Civil Appeal No.11209 of 2002) and Jalgaon District Central Co-operative Bank vs. UoI (265 ITR 423) (Bombay). In subsequent submission dated 25.11.2024, assessee submitted that its started business since last two years. It is a new business and first return of AY. 2011-12 was filed in response to notice u/s 148 of the Act. The appellant had huge losses and no return u/s 139 was filed for AY.2012-13. From AY.2013-14 /AY.2012-13 Pristine Jewellery till AY.2024-25, all returns and tax audit reports were filed on time. The tax audit report was obtained from auditor on 23.09.2013. The assessment order was passed on 24.12.2019 accepting returned loss but penalty proceedings u/s 271B of the Act were initiated. The tax payer should not suffer due to procedural lapses caused by third parties. The ld. AR has relied upon the decisions of ITAT in following cases: (i) Mugu Services Co-operative Bank Ltd. vs. ITO, 2024 ITL 748 (Cochin – Trib.), (ii) Smt. Laxmi Devi Chandwani Agrasen Chowk Bilaspur vs. ITO, 2023 ITL 3618 (Rai – Trib.), (iii) Century Pharmaceuticals Ltd. vs. Assessment Unit, IT Department, 2024 ITL 3055 (Ahd – Trib.) and (iv) Revanta Hometex India Pvt. Vs. CIT, 2023 ITL 2759 (Mum – Trib.).
5. On the other hand, learned Senior Departmental Representative (ld. Sr. DR) relied on the order of both lower authorities. He submitted that both AO and CIT(A) have given concurrent findings that assessee had not got its books audited u/s 44AB of the Act, though the turnover exceeded the limited specified in the said section. He also referred to the order of CIT(A) where it has been clearly mentioned by the appellant that he could not get the accounts audited due to heavy losses incurred in the first year of operation. He further submitted that the case laws relied upon by the appellant are not applicable to the facts of the present case.
We have heard both the parties and perused the material available on record. We have also deliberated upon the decisions relied upon by the ld. AR. There is no dispute regarding the fact that assessee did not file its return of /AY.2012-13 Pristine Jewellery income for the subject AY.2012-13. The return was filed only pursuant to the notice issued u/s 148 of the Act on 27.04.2019. As the assessee failed to furnish the audit report u/s 44AB of the Act, penalty u/s 271B was initiated by the AO during the assessment proceedings vide his order dated 24.12.2019. The AO issued show cause notice during the penalty proceedings, in response to which assessee filed reply dated 09.01.2020 wherein assessee has not mentioned any fact about obtaining and furnishing audit of the books u/s 44AB of the Act. It has only emphasised that there was “reasonable cause” u/s 273B of the Act. In fact, assessee did not reply to the subsequent show cause notices issued on four occasions, as detailed in para 4 of the penalty order. The CIT(A) has also given a categorical finding that assessee has contradicted his own grounds in his submission dated 21.01.2023 that the appellant could not get the accounts audited and failed to file the return of income due to heavy losses incurred in the first year of operation. He has also ascertained that no audit report was uploaded in the ITBA portal of the Department. We also find that the assessee, in the ‘Statement of Facts’, at Point No.4 of column No.11 has admitted it by stating as follows: “The assessee was extremely busy in financial arrangement for payment of creditors and was not in a position to comply with the last date of submission of Tax Audit”. In view of the above admission of assessee as well as the concurrent finding of the lower authorities that assessee had not got its account audited u/s 44AB of the Act, penalty u/s 271B of the Act was liable to be imposed on the assessee. The word ‘shall’ /AY.2012-13 Pristine Jewellery used in section 44AB of the Act makes it mandatory on part of assessee to get his accounts audited by an Accountant specified in section 288(2) of the Act before the specified date and furnish by that day, the report of such audit in the prescribed form duly signed and verified by such an Accountant and setting forth such particulars as may be prescribed. Section 271B mandates levy of penalty up to maximum of Rs.1,50,000/- but such penalty will not be imposable if the assessee proves that there was reasonable cause of such failure u/s 273B of the Act. In the present case, the reasons given by the assessee that there was substantial loss in the first year of operation, that it was busy in payment of creditors and that partners are senior citizens are not “reasonable cause” for failure to get the accounts audited u/s 44AB of the Act. It is seen from the order that assessee had turnover of Rs.8,53,66,166/-, which is substantially higher than the limit prescribed u/s 44AB of the Act. 6.1 We also find that the purported tax audit report dated 23.09.2013 enclosed in submission dated 25.11.2024 had not been submitted before the lower authorities. This is clear from orders of both AO and CIT(A). We further find that the assessee has not any enclosed copies of profit and loss account and balance sheet in the submission dated 25.11.2024. It has enclosed Annexure – 4 (fixed assets), Annexure – 1 (profit sharing ratio), Annexure – 2 & 3 (books of account), Annexure – 6 (quantitative details of principle items) and Annexure – 7 (accounting ratios). Hence, the contradictory stand taken by the assessee in the present proceedings that it has got its accounts audited and /AY.2012-13 Pristine Jewellery furnished before/by the specified date deserves to be rejected at the threshold itself. 6.2 The decisions relied upon by the assessee are also based on different set of facts and hence the ratio is not applicable to the facts of the present case. In case of Mugu Services Co-operative Bank (supra), the audit report was furnished during assessment proceedings, but in case of the appellant, the same was not furnished. In the case of Smt. Laxmidevi Chandwani (supra), books of account were not available but in case of assessee, they were available. In case of Century Pharmaceuticals (supra), the accounts were delayed but no such facts have been brought to the notice of lower authorities. In case of Revanta Hometex India (supra), there was loss return and report filed belatedly was available to the AO. In the present case, the assessee did not file any return of income and the audit report was not available before AO. Hence, these decisions are not applicable in the present case. Be that as it may, there are decisions of Hon’ble High Court where it has been held that where provisions of section 44AB are not complied, penalty u/s 271B was rightly levied. The Hon’ble Telengana High Court in case of S. Ramakumar Reddy vs. ACIT, (2023) 147 taxmann.com 401 held that where assessee bookie has not complied with provisions of section 44AB i.e., by submitting audited accounts despite having turnover exceeding prescribed limit and he did not file Income-tax return voluntarily, penalty u/s 271B of the Act was rightly levied. In said case, the assessee did not file income-tax return /AY.2012-13 Pristine Jewellery voluntarily but it was filed in response to notice u/s 148 of the Act. In the present case also, the facts are similar and assessee filed return only in response to notice u/s 148 of the Act. The Hon’ble Kerala High Court in case of Peroorkkada Services Co-op. Bank Ltd. vs. ITO, 424 ITR 422 (Kerala) held that mere fact that audit of assessee was conducted under provisions of Co- operative Societies Act, would not be sufficient for such compliance u/s 44AB of the Act. Furnishing of audit report in prescribed form accompanied with a further report by an Accountant in the prescribed form is a mandatory requirement for proper compliance. Thus, it is clear that the ratio of these decisions of Hon’ble High Court is clearly applicable whereas facts of the cases. On the other hand, facts of the decisions of ITAT relied upon by assessee are distinguishable. Hence, the decisions relied upon by assessee in its submission (supra) would not come to the rescue of the appellant. 6.3 The ld. AR has also relied on various decisions that notification/circulars cannot override the Act. The decisions relied upon by the ld. AR are at para 4 of this order. Such argument of the ld. AR is not relevant in the present proceedings in deciding the grounds raised (supra). The Tribunal while recalling the earlier order in dated 04.09.2023 has already considered the contention and case laws relied upon by the assessee. Hence, the submission of the assessee in this regard does not require any further deliberation and decision. Accordingly, the grounds are rejected and appeal is hereby dismissed.