ZENITH OUTDOORS PRIVATE LIMITED ,MUMBAI vs. INCOME TAX OFFICER WARD, 1(3)(1), MUMBAI

& 5482/Mum/2024 Zenith Outdoors Pvt. Ltd., 2. The assessee is mainly aggrieved by levy of penalty of Rs.1,50,000/- in each year for not getting the accounts audited. Here in this case, assessments u/s.147 r.w.s.144B was completed on 28/01/2022 both for A.Y.2016-17 and 2017-18 accepting the return income filed in response to notice u/s 148. During the course of assessment proceedings, ld. AO noted that assessee had gross total income of Rs.6,37,29,779/- for the A.Y. 2016-17 and Rs.5,95,61,674/- for the A.Y.2017-18 out of contract receipts and yet assessee has failed to get its accounts audited u/s.44AB nor has e-filed Form 3CB, 3CD alongwith the return of income under Section 139(1). Accordingly, the penalty has been levied u/s.271B levying penalty of Rs.1,50,000/- in each of the year. The reasons given for not getting the accounts audited by the assessee company was that the Directors of the assessee company were in major dispute with each other since year 2015 regarding affairs of various companies and there were various cases pending between them in various forums and courts hence, one of the Directors was not ready to sign the balance sheet or audited accounts. Since there were two Directors holding majority of shares, therefore, without the signature of the Directors, audit cannot be conducted, because Auditors refused to carry out the statutory audit and tax audit. Thus, this was stated to be a reasonable cause. However, the ld. CIT (A) has confirmed the penalty.

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 & 5482/Mum/2024 Zenith Outdoors Pvt. Ltd., carried out and both the Directors have to sign the audit report. Section 134(1) reads as under:- “134.[(1) The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorised by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director for submission to the auditor for his report thereon.] (2) The auditors' report shall be attached to every financial statement. (3) There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include 4. Form 3CA which is audit report prescribed u/s.44AB clearly provides that without the statutory audit under the Companies Act, tax audit cannot be prepared. Rule 6G which is a report of audit of accounts to be furnished u/s.44AB provides that it is mandatory to get the audit done under the Companies Act. Thus, without the signature of the Directors of the company neither the statutory audit nor the tax audit u/s.44AB can be conducted. Here in this case, assessee did not file any return of income u/s.139(1), albeit, it has been filed in response to notice u/s.148 and the said return of income has been accepted by the ld. AO in the order passed u/s.147 / 143(3). Assessee had given explanation and also filed documents to prove that the Directors were in dispute with each other and none of the Directors were & 5482/Mum/2024 Zenith Outdoors Pvt. Ltd., cooperating with each other and one of the Director has completely refused to sign, therefore, the assessee company could not get the statutory audit done nor tax audit report u/s. 44AB. Since these two Directors were major shareholder of the company, therefore, Board could not appoint any other Director to sign the statutory audit and tax audit report. Thus, so far as assessee company is concerned which is separate juridical person, it was impossible to get the tax audit report or accounts audited. Accordingly, we hold that not getting accounts audited was due to bonafide and genuine reasons therefore, in terms of Section 273B, it falls in the category of a reasonable cause and therefore, no penalty can be levied. In our view, penalty u/s.271B for both the years is to be deleted. We order accordingly.