2023 (3) TMI 507 - AT - Income Tax

Levy of penalty u/s 271B - failure to get accounts audited as per the provisions of section 44AB - HELD THAT - In the present case, it is no doubt true that no documentary evidence is available on record that the assessee had authorised the aforesaid auditor to prepare its tax audit report u/s 44AB - as noted by the CIT(A), there is no confirmation affidavit from the said auditor in this regard. At the same time, we cannot be oblivious to the undisputed fact that the auditor has signed the statutory audit report, balance sheet, and profit and loss account as per the Companies Act, 1956, which fact is evident from the copy of aforesaid documents forming part of the paper book. From the perusal of the profit and loss account we further find that the assessee incurred a net loss during the year under consideration, which in the absence of filing the return of income within the due date cannot be carried forward and set off. Thus, the non-filing of the return of income and audited accounts cannot in any way be said to be beneficial to the assessee. Therefore, the aforesaid facts prove that the assessee had reasonable cause in terms of section 273B for not furnishing the audited report as per section 44AB - AO is directed to delete the penalty levied u/s 271B. As a result, the grounds raised by the assessee are allowed.

Summary

Issues:
Levy of penalty under section 271B of the Income Tax Act for failure to get accounts audited as per section 44AB.

Analysis:
The appeal was filed challenging the penalty order dated 28/06/2019 under section 271B of the Income Tax Act for the assessment year 2011-12. The assessee, engaged in various activities, failed to file its original return of income despite substantial receipts. The penalty was imposed as the assessee did not get its accounts audited and failed to furnish the audit report under section 44AB of the Act. The AO initiated proceedings under section 147 and assessed the total income. The penalty was levied at 0.5% of the gross receipts. The CIT(A) dismissed the appeal citing lack of evidence that the auditor was authorized to prepare the tax audit report. The directors were held accountable for not being aware of the filing requirements. The AR argued that the audit report under the Companies Act was filed but not under the Income Tax Act, leading to loss set-off issues. The Departmental Representative supported the lower authorities' decisions, emphasizing the lack of evidence from the auditor regarding the non-filing of the audit report.

The Tribunal considered the submissions and facts. It acknowledged the failure to file the return of income and the audit report under section 44AB. The auditor signed reports under the Companies Act but failed to file under the Income Tax Act. While no documentary evidence authorized the auditor for tax audit, the signed reports were on record. The Tribunal noted the net loss incurred by the assessee, affecting carry-forward benefits due to non-filing. It found reasonable cause for not furnishing the audit report under section 44AB, directing the deletion of the imposed penalty. Consequently, the appeal by the assessee was allowed.

In conclusion, the Tribunal's decision favored the assessee, highlighting the reasonable cause for not furnishing the audit report under section 44AB, leading to the deletion of the penalty imposed under section 271B of the Income Tax Act.