2016 (10) TMI 365 - AT - Income Tax

Penalty levied by the AO u/s.271B - not getting the accounts audited before the specified date - Held that - We find some force in the submission of the assessee that when the accounts of the A.Y. 2007-08 was audited on 11-02-2009, it was not possible to obtain the tax audit report u/s.44AB for A.Y. 2008-09 before 30-09-2008. Although the assessee could not substantiate with evidence the sudden leaving of the old Accountant and that the new Accountant took some time to understand the job but the fact remains that the accounts for preceding assessment year were audited only on 11-02-2009. Without the closing balance of the financial year 2006-07 the opening balance of the financial year 2007-08 cannot be verified. No auditor will audit the accounts of a subsequent year without having the audited accounts of the preceding assessment year. Therefore, there is some force in the argument of the assessee that without the audit of the accounts for A.Y. 2007-08 the audit of the accounts for A.Y. 2008-09 could not have been done. Further, the AO has completed the assessment on a total income of ₹ 533,87,720/- in the order passed u/s.143(3) on 14-12-2010 which is the income declared by the assessee in the revised computation of income. Thus we are of the considered opinion that this is not a fit case for levy of penalty u/s.271B of the I.T. Act. We therefore set aside the order of the CIT(A) and direct the AO to cancel the penalty - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271B for delayed audit of accounts.

Analysis:
The appeal was filed against the order of the CIT(A) related to the Assessment Year 2008-09, specifically challenging the penalty of ?1 lakh imposed by the AO and upheld by the CIT(A) under section 271B. The facts of the case revealed that the assessee's income was revised due to disallowances, and a survey was conducted at the business premises. The AO noted that the accounts were audited after the specified due date, leading to the initiation of penalty proceedings. The assessee explained the delay by citing the departure of the Accountant, but the AO rejected the explanation based on the decision of the Karnataka High Court. The CIT(A) also upheld the penalty, emphasizing the lack of evidence supporting the reasons for the delay.

The Tribunal considered the arguments and evidence presented by both sides. The assessee contended that obtaining the tax audit report for the preceding assessment year in February 2009 caused the delay in auditing the accounts for the year under consideration. The Tribunal noted that penalties were deleted in previous years for similar delays in audit, indicating a reasonable cause for the delay. The Tribunal highlighted that without the audit of the preceding year, the audit for the current year could not be completed accurately. Additionally, the AO had accepted the income declared by the assessee in the revised computation. Citing previous Tribunal decisions, the Tribunal concluded that there was a reasonable cause for the delay and set aside the penalty imposed under section 271B.

In conclusion, the Tribunal allowed the appeal, emphasizing that the delay in auditing the accounts was justified due to the circumstances, and considering the decisions of the Pune Bench of the Tribunal in similar cases. The penalty under section 271B was canceled, ruling in favor of the assessee.