2016 (8) TMI 772 - AT - Income Tax

Penalty u/s 271B - violation of provisions of section 44AB - whether there is a reasonable cause for the delay on the part of the appellant to submit the audit report before the due date of filing the return of income? - assessee being a society set up under the Societies Act, 1958 - Held that - The assessee s belief that being a society running educational institutes is not carrying on business is a reasonable belief which is fortified by subsequent grant of registration under section 12A by the CIT. Even though grant of registration u/s 12A is not a basis that the income of the assessee would be fully exempt or the assessee wouldn t be required to file its return of income, it is atleast a reasonable basis to hold that the provisions of section 44AB are not attracted. Basis such belief, where the provisions of section 44AB have not been complied with, it is a matter where the assessee has shown reasonable cause and the AO should have exercised his discretion in favour of the assessee in not levying the impunged penalty. Further, for the reason that there was a delay in submission of audit report where section 44AB is attracted, the AO has not given any adverse finding that it affected the proper computation of income in terms of provisions of the Act or any claim to any deduction by the assessee under any provisions of the Act. In such event, the breach remains a technical breach of the procedural requirement as the intent behind the introduction of section 44AB have been fulfilled which is basically to help support the AO to compute true income in the hands of the assessee. Thus we are of the view that penalty u/s 271B cannot be levied in the instant case hence this same is deleted - Decided in favour of assessee

Summary

Issues:
Penalty under section 271B of the IT Act, 1961 for failure to get accounts audited and file audit report in Form No. 3CD.

Analysis:

Issue 1: Penalty under section 271B

The appellant, a society operating educational institutes, filed its return of income declaring total income as NIL, claiming gross receipts as exempt under section 11(1)(a) of the Act. However, since the appellant was not registered under section 12A during the relevant year, the Assessing Officer (AO) assessed its income at a certain amount and initiated penalty proceedings under section 271B for not getting the accounts audited and filing the audit report in Form No. 3CD. The penalty was confirmed by the CIT(A) based on the delayed submission of the tax audit report, as the appellant failed to justify the delay. The appellant argued that it believed its income was exempt due to its nature as an educational institute and that the audit report was filed along with the return of income. The AO and CIT(A) were at odds regarding the grounds for penalty imposition, with the appellant contending that the penalty was wrongly initiated and confirmed. The appellant's subsequent registration under section 12A further supported its claim of exemption. The ITAT, considering all facts, found that the penalty under section 271B could not be levied in this case and thus deleted the penalty.

Issue 2: Compliance with section 44AB

Section 44AB requires the audit of accounts and submission of the audit report along with the return of income by a specified date. In this case, the appellant had the accounts audited before the due date but failed to furnish the audit report within the stipulated time frame. The ITAT noted that the penalty under section 271B is applicable to businesses or professions required to get their accounts audited, and while the appellant's belief that its educational activities did not constitute business was reasonable, the subsequent registration under section 12A supported this belief. The ITAT held that the delay in submitting the audit report, while a technical breach, did not affect the proper computation of income or any deduction claims. Therefore, the ITAT concluded that the penalty under section 271B was unjustified and deleted the penalty, allowing the appeal filed by the assessee.

In conclusion, the ITAT ruled in favor of the assessee, holding that the penalty under section 271B for failure to submit the audit report in time was unjustified given the circumstances and beliefs of the appellant. The ITAT emphasized the importance of considering reasonable causes for non-compliance and the technical nature of the breach in procedural requirements.