2017 (6) TMI 180 - AT - Income Tax

Non est Return of income as filed without the audit report - delay in statutory audit - Held that - As the assessee has filed the return of income on the basis of provisional accounts and the AO has rejected the books as not reliable and disallowed the loss claimed by the assessee. AO has therefore, relied upon the return of income, but has not allowed the loss claimed. In such circumstances, it is not open to the CIT (A) to hold the returns of income as non-est particularly when the assessee, though a Govt. Agency, had no power to appoint the auditors by itself. The assessee has explained the reasons for delay in audit of accounts which is clearly beyond the control of the assessee. Therefore, the delay cannot be attributable to the assessee. In view of the same, we set aside the order of the CIT (A) and remit the issue to the file of the AO with a direction to recompute the income of the assessee on the basis of the audited accounts of the assessee, if they are available now. Penalty levied u/s 271B - Held that - We find that the assessee being a Govt. organization and a Registered Society, has to abide by the rules framed under the Societies Act. As per the said Act, the Auditors have to be appointed by the Registrar of Societies and therefore, is beyond the control of the assessee. We are satisfied that the assessee was prevented by reasonable cause for not getting its accounts audited u/s 44AB of the Act within the prescribed time. Therefore, we set aside the penalty levied by the AO and confirmed by the CIT (A). Disallowance u/s 43B - disallowance of interest payable - Held that - We find that in the case before us, the Govt. has sanctioned the loan to the assessee for payment to the employees who have opted to retire under the VRS. It is therefore, not covered under any of the clauses of section 43B of the Act, nor is the interest payable to the Institutions mentioned in the clauses. It is not fee or tax paid by the assessee. In view of the same, we see no reason to interfere with the order of the CIT (A).

Summary

Issues involved:
Cross appeals by assessee and Revenue for A.Ys 2004-05, 2005-06, 2009-10, 2010-11, and 2011-12; Disallowance of loss and depreciation; Non-filing of audited report; Penalty u/s 271B; Disallowance of interest on government loans.

Analysis:

1. Disallowance of Loss and Depreciation:
The assessee, engaged in milk processing, filed returns based on provisional accounts for A.Y 2004-05. The AO disallowed claimed loss due to lack of audited report and unreliable books. The CIT (A) dismissed the case as non-est for not filing the audit report. The ITAT found the delay in audit beyond the assessee's control and remitted the issue to the AO for recomputation based on audited accounts, allowing the appeals for A.Ys 2004-05, 2005-06, and 2011-12.

2. Penalty u/s 271B:
The AO levied a penalty for non-filing of audit report under section 271B. The assessee cited reasons for delay, attributing it to the Registrar of Societies' delayed auditor appointment. The ITAT acknowledged the reasonable cause beyond the assessee's control, setting aside the penalty for A.Y 2011-12.

3. Disallowance of Interest on Government Loans:
The AO disallowed interest on government loans for A.Ys 2009-10, 2010-11, and 2012-13 under section 43B. The CIT (A) granted relief, stating the interest payable to the government is not covered under the disallowance clauses. The ITAT concurred, dismissing the Revenue's appeals, as the interest was not to specified institutions and not subject to section 43B.

In conclusion, the ITAT allowed the assessee's appeals and dismissed the Revenue's appeals concerning the disallowance of loss, penalty under section 271B, and disallowance of interest on government loans. The judgments highlighted the importance of audited reports, reasonable cause for delays, and specific provisions governing interest disallowances.