2020 (6) TMI 473 - AT - Income Tax

Penalty levied u/s. 271B - Defective notice - vague and unspecific notice - failure to furnish the audit report u/s 44AB before the due date - HELD THAT - We note that the AO by issuing penalty notice u/s. 271B has not spelt out what was the fault for which the assessee is being proceeded against for levy of penalty. Since the AO has not struck down the irrelevant portion/fault which is not applicable in the facts and circumstances of the case, the notice is vague and therefore, bad in law. Notice proposing penalty should clearly spell out the fault/charge for which the assessee is put on notice, so that he can defend the charge properly. The issue of bad/vague penalty notice was adjudicated by the Hon ble Karnataka High Court though in a different context i.e notice issued u/s. 274 read with section 271(1)( c) of the Act in the case of CIT vs. SSA s Emerald Meadows 2015 (11) TMI 1620 - KARNATAKA HIGH COURT wherein the Hon ble High Court following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT has held that if the penalty notice is vague, then the penalty order is also bad in the eyes of law. Reasonable cause u/s 273B - Held that - The assessee explained that delay happened due to the fact that for earlier year i.e. AY 2014-15 the audit report could not be completed on time and could be completed only on 23-03-2016. This happened because the accountant of the assessee, who used to handle the accounts had suddenly left the office/service in earlier year without properly handing over the books maintained by the assessee. - Moreover, we also note that there has been several mistakes which has crept in the impugned penalty order of the AO, which shows total non- application of mind of necessary facts by the AO. Appeal of assessee is allowed.

Summary

Issues:
1. Validity of penalty notice under section 271B
2. Jurisdiction for imposing penalty under section 271B
3. Reasonable cause for delay in filing Tax Audit Report (TAR)

Issue 1: Validity of penalty notice under section 271B

The appellant challenged the penalty notice dated 15.05.2018 issued under section 274 r.w.s 271B as vague and unspecific. The appellant argued that the notice did not specify the fault for which the penalty was proposed, rendering it untenable and bad in law. The appellant cited the case of M/s. Parkinson Electrical Corprn Vs. ITO, where it was held that a penalty notice must inform the assessee of the precise charge against them. The Tribunal found the notice issued by the AO to be vague and lacking clarity on the fault for which the penalty was being imposed, thus concluding that the notice was bad in law.

Issue 2: Jurisdiction for imposing penalty under section 271B

The AO levied a penalty under section 271B of the Income Tax Act, 1961, due to the assessee's failure to furnish the Tax Audit Report (TAR) by the specified date. The appellant contended that there was a reasonable cause for the delay in filing the TAR, as explained by the assessee regarding the departure of the accountant handling the accounts for the preceding year. The Tribunal noted that the explanation provided by the assessee was reasonable, as supported by the decision in ACIT Vs. Kamlesh R. Agarwal (HUF), where delay in completing the audit of the earlier year was considered a valid ground for delay in the subsequent year's audit. The Tribunal concluded that there was a reasonable cause for the delay in filing the TAR, and the penalty imposed by the AO was not justified.

Issue 3: Reasonable cause for delay in filing Tax Audit Report (TAR)

The Tribunal observed that the assessee had submitted the TAR belatedly due to the delay in finalizing the accounts for the preceding year. The departure of the accountant handling the accounts led to the delay in completing the audit report, which was accepted by the department. The Tribunal found the explanation provided by the assessee to be reasonable, considering the circumstances. Additionally, multiple errors in the penalty order indicated a lack of application of mind by the AO. Therefore, the Tribunal concluded that the penalty levied under section 271B was not sustainable and directed the AO to delete the penalty.

In conclusion, the Tribunal allowed the appeal of the assessee, finding the penalty levied under section 271B to be invalid due to a vague penalty notice and a reasonable cause for the delay in filing the Tax Audit Report. The Tribunal directed the AO to cancel the penalty and pronounced the order on 17th June 2020.