2019 (5) TMI 998 - AT - Income Tax

Levy of penalty u/s 271B - delay in filing the audit report as per section 44AB on or before the due date of filing the return of income u/s 139(1) - reasonable cause for delay in getting the accounts audited u/s 44AB - main reason for delay is that there were frequent change of the Managing Director of the company and for a considerable period there was no regular Managing Director - HELD THAT - Assessee has explained the reason for delay in filing the audit report as due to the delay of statutory audit of the financial statements of the assessee undertaking the audit u/s 44AB was not completed within the stipulated period. The assessee has further explained that there is a frequent change of Managing Director of the company and we find from the details as reproduced in the foregoing para that there are as many as 5 changes during the period from 01.04.2014 to 15.11.2014 which has caused the delay in convening the Board Meeting for adopting the financial statements of the assessee and consequent statutory audit to be completed by the auditors appointed by the CAG. The delay in getting the accounts audited as per the provisions of section 44AB was due to the reasons as explained by the assessee which were beyond the control of the assessee being a State Government Undertaking. The assessee has also filed a copy of resolution for seeking extension of time from ROC for convening the AGM and adoption of books of account. Thus the assessee has explained all the relevant facts and reasons for not getting the accounts audited u/s 44AB within the stipulated period. We are of the considered opinion that the assessee has explained a reasonable cause for delay in getting the accounts audited u/s 44AB and consequently in view of the provision of section 273B, the penalty levied u/s 271B is deleted. - Decided in favour of assessee.

Summary

Issues:
- Penalty under section 271B of the IT Act for delay in filing audit report.
- Reasonable cause for delay in getting accounts audited under section 44AB.
- Applicability of section 273B to avoid penalty imposition.

Analysis:
1. The appeal was against a penalty order under section 271B for delay in filing the audit report. The assessee, a State Government Undertaking in mining, faced the penalty due to a delay in filing the audit report as per section 44AB of the IT Act. The AO imposed the penalty, which was upheld by the ld. CIT (A). The assessee contended that frequent changes in the Managing Director caused delays in convening the Board meeting for adopting audited financial statements, leading to delayed statutory audit.

2. The assessee argued that the delay was beyond their control due to Managing Director changes, preventing timely convening of the Board meeting. The Board meeting was eventually held on 12.12.2014, with the audit conducted on 24.03.2015, and both reports were filed online the same day. The assessee cited precedents like Johns Biwheelers vs. ACIT and Rajasthan Rajya Vidhyut Utpadan Nigam Ltd. vs. ACIT to support the claim that penalty imposition should consider reasonable cause for the failure.

3. The ld. D/R contended that the assessee failed to file the audit report along with the return of income, violating section 44AB. However, the Tribunal noted that the delay was due to Managing Director changes, beyond the assessee's control. Referring to the decision in CIT vs. Punjab State Leather Development Corporation Ltd., the Tribunal held that the delay in statutory audit was a reasonable cause for non-compliance with section 44AB, leading to penalty deletion under section 271B.

4. In a similar case, Johns Biwheelers vs. ACIT, the Cochin Bench ruled that a technical venial breach, not causing revenue loss, does not warrant penalty imposition under section 271B. Citing judgments like CIT vs. Malayalam Plantations Ltd. and ACIT vs. Amar Chand Raj Kumar, the Tribunal emphasized that the availability of the audit report to the Assessing Officer before completion of assessment proceedings should prevent penalty imposition.

5. Considering the explanations and precedents, the Tribunal found that the assessee had a reasonable cause for the delay in getting accounts audited under section 44AB. Therefore, applying the provision of section 273B, the penalty under section 271B was deleted, and the appeal of the assessee was allowed.

6. The judgment was pronounced on 14/05/2019, with the Tribunal ruling in favor of the assessee, highlighting the importance of reasonable cause in penalty imposition under the IT Act.