2019 (3) TMI 1466 - HC - Income Tax

Penalty u/s 271B - delay caused in complying with the provisions of Section 44AB - delay in filing the audit report along with the returns - HELD THAT - The provision of Section 271B of the Act makes it clear that the imposition of penalty for non-compliance with the provision of Section 44AB is not mandatory, though the filing of such report may be mandatory, as the word used in Section 44AB is shall . But the the word may used in section 271B gives discretion to the Assessing Officer to impose penalty or not to impose penalty. The provision of Section 273B contains a non obstante clause and provides that notwithstanding the provision of Section 271B, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision if he proves that there was reasonable cause for the said failure. The assessee has given an explanation regarding the delay in filing the audit report. There is no unreasonable delay in filing the report. It is not mandatory that in every case of default penalty has to be imposed. In the instant case, there was only a delay of two months in filing the audit report along with the returns which delay was caused due to a valid explanation as submitted by the assessee. On an overall conspectus of the matter, we are firmly of the opinion that the assessee has proved the existence of reasonable cause under Section 271B - Decided in favour of the assessee

Summary

Issues:
1. Delay in filing tax audit report under Section 44AB of the Income Tax Act, 1961.
2. Imposition of penalty under Section 271B of the Act.
3. Justifiability of penalty deletion by the ITAT.
4. Discretionary nature of filing audit report within the stipulated time.

Analysis:
1. The case involved an assessee firm engaged in civil construction with a turnover exceeding ?40 lakhs, obligated to file a tax audit report under Section 44AB of the Income Tax Act before 31.10.2004. The report was filed with the return of income only on 30.12.2004, leading to a penalty notice from the Revenue in 2008. The penalty was imposed and upheld by the Commissioner of Income Tax (Appeals).

2. The assessee challenged the penalty before the Income Tax Appellate Tribunal (ITAT), Cochin Bench, which allowed the appeal. The ITAT accepted the explanation for the delay and held that filing the audit report within the time limit is discretionary. It emphasized that the purpose of the audit report is to assist the Assessing Officer in computing the correct income without causing prejudice to the Revenue. Consequently, the ITAT ruled that this case did not warrant a penalty under Section 271B of the Act.

3. The Revenue appealed the ITAT's decision, questioning whether the ITAT was justified in deleting the penalty based on the assessee's explanation and in considering the filing of the audit report as discretionary. The High Court examined the arguments presented by both parties, emphasizing the mandatory nature of filing the audit report on time under Section 44AB and the discretionary aspect of imposing penalties under Section 271B.

4. The Revenue contended that the ITAT erred in accepting the assessee's explanation for the delay, which was attributed to the abrupt departure of the firm's Accountant without disclosing the computer password, leading to a delay in updating the necessary entries. The Revenue suggested that legal action against the former employee or engaging an expert to access the computer could have mitigated the delay. However, the High Court, after a detailed analysis of the legal provisions, concluded that the assessee had provided a reasonable cause for the delay in filing the audit report. The Court highlighted that Section 271B grants discretion to the Assessing Officer regarding penalty imposition and that Section 273B allows for penalty exemption if a reasonable cause is proven. In this case, the delay was only two months, not deliberate, and supported by a valid explanation, leading the Court to uphold the ITAT's decision to delete the penalty.

In conclusion, the High Court ruled in favor of the assessee, rejecting the Income Tax Appeal and affirming that the delay in filing the audit report was justified by a reasonable cause, thereby exempting the assessee from the penalty under Section 271B of the Income Tax Act.