2013 (10) TMI 658 - HC - Income Tax

Penalty u/s 271B - Failure to get its accounts audited or submitted before due date - Whether the cause shown by an assessee would constitute a good cause for the non-compliance in order to avoid him from paying the penalty imposed contention that the accountant was on leave during the relevat period - Held that - it was a non completion of audit of the accounts of a branch at USA which prevented the head office from submitting the records. It was not possible for the head office in India to complete the accounting and then submit audit report within the time prescribed. But, in this case it was within the reach of the assessee to complete the process of finalisation of accounts and then submit an audit report within the time prescribed which they failed to do. Even other wise on facts, no material is produced by the assessee to substantiate the cause shown by the assessee. Decided against Assessee.

Summary

Issues:
- Penalty under Section 271B of the Income Tax Act for delay in filing returns
- Reasonable cause for delay in filing audit report
- Interpretation of "reasonable cause" under Section 271B
- Absence of accountant as a sufficient cause for delay
- Failure to engage another accountant as a factor in determining reasonable cause

Penalty under Section 271B of the Income Tax Act for delay in filing returns:
The appellant, a partnership firm dealing in Welding Electrodes, industrial tools, and other equipment, was penalized under Section 271B of the Income Tax Act for a three-month delay in filing returns for the assessment year 2005-2006. Despite filing the return on 30.1.2006 and having it accepted under Section 143(3) of the Act, the penalty was imposed, rejecting the appellant's explanation for the delay. The appellant challenged the penalty before the Commissioner of Income Tax and the Income Tax Appellate Tribunal, Kochi Bench, both of which upheld the penalty.

Reasonable cause for delay in filing audit report:
The appellant cited the judgment in M/s.Data Software Research Co.P.Ltd's case to argue that the delay in filing the audit report was due to the absence of the accountant during the year 2005. The appellant maintained that the delay was a result of finalizing accounts by the end of December 2005, leading to a three-month delay in submitting the audit reports. The appellant contended that the delay was not an absolute default in obtaining the audit report and that the explanation offered constituted a reasonable cause.

Interpretation of "reasonable cause" under Section 271B:
The judgment referred to various decisions highlighting that a reasonable cause is one that prevents a person of average intelligence and ordinary prudence from complying without negligence or want of bona fides. The determination of reasonable cause depends on the facts and circumstances of each case.

Absence of accountant as a sufficient cause for delay:
The appellant consistently argued that the absence of the accountant was the sufficient cause for the delay in filing the audit report. However, the authorities found that there was no reasonable cause established, especially since the absence of the accountant only explained a part of the delay before 31.12.2005. The failure to engage another accountant to finalize the accounts and submit the audit report in time was a crucial factor in determining the reasonableness of the cause.

Failure to engage another accountant as a factor in determining reasonable cause:
The court emphasized that the appellant could have engaged another accountant to complete the accounts and submit the audit report on time. The absence of evidence showing efforts to engage another accountant and the failure to finalize accounts in a timely manner led to the dismissal of the appeal. The court found no grounds to interfere with the Tribunal's reasoning and dismissed the Writ Appeal.