2020 (2) TMI 84 - AT - Income Tax

Penalty u/s 271B - non complying the provisions of section 44AB - assessee did not get the books of account audited within the time as prescribed - non furnishing the audit report in form 3CD within the specified time - HELD THAT - There was no infirmity in such tax audit report as observed by the AO. As such the income declared by the assessee in its income tax return has been accepted without pointing any variation. Moreover the purpose of tax audit was to ensure that the information furnished by the assessee in the income tax return are correct so as to save the time of the income tax officer is in carrying out routine verifications of the purchases and sales and other details shown in the financial statements. Thus it is transpired that there was the substantial compliance on the part of the assessee in getting the accounts audited and subsequently furnishing the tax audit report which was accepted by the revenue without pointing out any defect. Delay in getting the books of accounts audited cannot be considered as failure on the part of the assessee as envisaged under the provisions of section 271B of the Act. Thus the delay in getting the accounts audited cannot attract the penalty provisions as specified under section 271B of the Act. We are of the view that the assessee cannot be visited to the penalty on account of delay in getting the accounts audited and furnishing the tax audit report in form 3CD under the provisions of section 44 AB of the Act. With the above observations, the orders of lower authorities are set aside and the penalty levied u/s 271B is deleted. - Decided in favour of assessee.

Summary

Issues Involved:

1. Levy of penalty under Section 271B of the Income Tax Act, 1961 for not getting accounts audited within the specified time.
2. Reasonable cause for delay in compliance with Section 44AB of the Income Tax Act, 1961.
3. Interpretation of 'reasonable cause' under Section 273B of the Income Tax Act, 1961.
4. Impact of delay in audit on the penalty provisions under Section 271B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271B:

The primary issue was whether the penalty of ?1,37,500 levied under Section 271B of the Income Tax Act, 1961, for not getting the accounts audited within the specified time, was justified. The assessee, a partnership firm engaged in land dealings and real estate development, admitted undisclosed income during a survey and filed the return after the due date. The audit was completed after the specified time, leading to the penalty.

2. Reasonable Cause for Delay:

The assessee argued that the delay was due to the time taken to account for incriminating documents found during the survey. The CIT(A) rejected this argument, stating there was no delay in receiving the documents from the Income Tax Office and sufficient time was available between the survey date and the due date for filing the tax audit report.

3. Interpretation of 'Reasonable Cause' under Section 273B:

The tribunal noted that 'reasonable cause' is not defined in the Act and must be understood in its natural sense, based on the facts of each case. The assessee must show that a particular cause prevented compliance, and the authority must take a reasonable view. The tribunal referenced the Rajasthan High Court's decision in Addl. CIT v. Mohammed & Sons, which emphasized that 'reasonable cause' depends on the facts and circumstances of each case.

4. Impact of Delay in Audit on Penalty Provisions:

The tribunal examined whether the delay in getting the accounts audited constituted a 'failure' under Section 271B. It noted that the audit report was eventually accepted without any variations, indicating substantial compliance. The tribunal cited the Amritsar tribunal's decision in ITO v. Bindra Ban Bansi Lal, which held that minor defaults should not be penalized if there is no loss to the revenue. Additionally, the tribunal referred to the case of ITO v. Saphire Traders Pvt. Ltd., which distinguished between 'delay' and 'failure' in compliance, suggesting that penalties should not apply for mere delays.

Conclusion:

The tribunal concluded that the delay in getting the accounts audited did not warrant a penalty under Section 271B, as there was substantial compliance and no revenue loss. The orders of the lower authorities were set aside, and the penalty was deleted. The appeal in ITA No. 2221/Ahd/2018 for AY 2013-14 was allowed, and the same reasoning applied to the appeal in ITA No. 2222/Ahd/2018 for AY 2013-14, which was also allowed. Both appeals were pronounced in open court on 30/01/2020.