2019 (1) TMI 1334 - AT - Income Tax

Levy of penalty u/s. 271B - delayed filing of return and audit report before the AO - Held that - The assessee got his books of accounts audited on 25/01/2014 which was made available To the Assessing Officer and no prejudice has been caused to the Revenue The assessee had only committed technical venial breach which has not created any loss to the exchequer as the audit report was available to the Assessing Officer before the completion of the assessment proceedings. In the case of CIT vs. A.N. Arunachalam (1994 (1) TMI 65 - MADRAS HIGH COURT) in the context of filing of audit report for claiming deduction u/s. 80J observed that once audit report has been made available before the AO before the completion of assessment proceedings, the assessee should be granted deduction u/s. 80J of the Act. We observe that this judgment was rendered in the context of adjudication of quantum of deduction claimed by the assessee. Hence, the said analogy can very well be drawn and used in the penalty proceedings like that of the assessee. To sum up, we hold that the assessee had committed only technical venial breach for which he cannot be penalized - Decided in favour of assessee. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty u/s. 271B for delayed filing of return and audit report.

Analysis:

Issue 1: Levy of Penalty u/s. 271B
The case involved the appeal against the order of the CIT(A) regarding the imposition of a penalty under section 271B of the Income Tax Act for delayed filing of the return and audit report. The Assessing Officer had issued a notice to the assessee for explanation on the delay in getting the accounts audited under section 44AB, which led to the penalty imposition of ?1,50,000. The CIT(A) upheld the penalty, stating that there was a delay of 17 months in getting the accounts audited, and no satisfactory reason was provided by the assessee. The CIT(A) also noted that the penalty proceedings were independent of the assessment proceedings. The assessee argued that the delay was due to the filing of returns for earlier assessment years and a survey operation on the business premises. However, the CIT(A) found these reasons unsatisfactory as the accounts for the earlier years were audited within the due dates. The CIT(A) confirmed the penalty, leading to the appeal before the ITAT.

Issue 2: Reasonable Cause for Penalty Waiver
During the appeal before the ITAT, the assessee contended that there was a reasonable cause for the delay in getting the accounts audited, as they had to carry forward balances from earlier years. The ITAT considered the judgments cited by the assessee and observed that no prejudice was caused to the revenue as the audit report was available to the Assessing Officer before the completion of assessment proceedings. The ITAT held that the delay constituted a technical venial breach and did not warrant a penalty under section 271B. Drawing an analogy from a Madras High Court judgment, the ITAT concluded that the penalty should be deleted. Consequently, the ITAT allowed the appeal of the assessee and deleted the penalty under section 271B.

In conclusion, the ITAT ruled in favor of the assessee, holding that the delay in filing the audit report constituted a technical venial breach and did not warrant a penalty under section 271B of the Income Tax Act.