2020 (8) TMI 316 - AT - Income Tax

Penalty u/s 271B - non-furnishing of the Audit Report before the specified date - violation of the provisions of section 44AB - Assessee contended that in terms of CBDT circular dated 21/05/2019, the assessee was not required to furnish physical copy of the Tax Audit Report under section 44AB to the Income Tax Department along with the return of income on or before the due date of furnishing of the return of income and no penalty was to be initiated or levied - HELD THAT - From various provisions of Rules along with CBDT circulars, it is evident that during the relevant assessment year i.e. assessment year 2010-11, the assessee was not required to furnish the tax Audit Report along with the return of income and it was to be produced only on being asked by the Income Tax Authorities. The mandatory uploading of the Audit Report electronically has been made effective only from assessment year 2013-14. In the instant case before us, the assessee did not file return of income for the year under consideration on or before the due date of the filing of the return of income (i.e. 30/09/2010). The assessee filed return of income for the first time on 06.11.2017 in response to notice under section 148 of the Act issued by the Assessing Officer. During reassessment proceeding, the assessee furnished the tax Audit Report dated 2/09/2010. Assessee was required to get his books of accounts audited on or before the due date of filing of the return of income. There was no relaxation in getting the books of account audited by a Chartered Accountant and relaxation was given only for furnishing the Tax Audit Report. The requirement of furnishing the audit report before the specified date has been dispensed with for the relevant assessment year. But AO emphasized only on the fact Audit Report was not furnished on or before the due date of filing of return of income. He did not examine whether the books of account were audited before the due date of return of Income. He has even not verified authenticity of the Audit Report from the Chartered Accountant, whose name is appearing on the Audit Report. AO has not verified the records of the Chartered Accountant like, register of dispatch of Audit Report or team member engaged in Audit, records on the basis of which report was prepared, correspondence or comment of the assessee on the deficiencies pointed out by the team etc. AO has even not verified whether these details have been incorporated by the assessee in return of Income filed by the assessee on 06.11.2017. As the AO has failed in his duty in verifying whether books of account were audited before the specified date and only emphasized on the fact of furnishing the audit before the specified date , we do not find any reason for confirming the penalty levied u/s 271B - CIT(A) has insisted for obtaining the Audit report before the specified. We find that word obtain before has been susctitued in section 44AB by the word furnish by w.e.f 1-7-1995 and therefore for the relevant obtaining the report before the specified date is not relevant - we set aside the order of the learned CIT(A) and delete the penalty levied u/s 271B for violation of the provisions of section 44AB - Appeal filed by the assessee is allowed.

Issues Involved:
1. Validity of the penalty under Section 271B.
2. Alleged violation of principles of natural justice.
3. Imposition of penalty despite the audit report being obtained before the due date.
4. Reasonable cause for not electronically uploading the audit report.
5. Compliance with CBDT circulars regarding the furnishing of the audit report.

Issue-wise Detailed Analysis:

1. Validity of the penalty under Section 271B:
The primary issue revolves around the imposition of a penalty of ?1,00,000 under Section 271B of the Income Tax Act, 1961, for not auditing the books of accounts and furnishing the audit report before the due date of filing the return of income. The assessee argued that the penalty was invalid as the audit report was obtained before the due date, although not furnished due to the non-filing of the return.

2. Alleged violation of principles of natural justice:
The assessee contended that the penalty order passed by the CIT(A) was a gross violation of the principles of natural justice. The CIT(A) did not accept the explanation and evidence provided by the assessee, leading to an unjust imposition of the penalty.

3. Imposition of penalty despite the audit report being obtained before the due date:
The CIT(A) imposed the penalty despite the assessee claiming that the books of accounts were audited before the due date of furnishing the return of income. The CIT(A) held that the assessee failed to establish that the audit report was obtained before the due date, as no return of income was filed by the due date.

4. Reasonable cause for not electronically uploading the audit report:
The assessee argued that there was a bona fide and reasonable cause for not uploading the audit report electronically. The delay in compliance was due to the non-filing of the return of income, and the audit report was furnished when called upon by the Assessing Officer during reassessment proceedings.

5. Compliance with CBDT circulars regarding the furnishing of the audit report:
The assessee relied on CBDT Circular No. 3/2009 dated 21/05/2009, which stated that the audit report need not be furnished with the return of income but should be retained and produced on demand by the income-tax authorities. The CIT(A) did not accept this contention, stating that the benefit of presumption regarding the existence of the audit report was not available as no return of income was filed by the due date.

Conclusion:
The Tribunal examined the provisions of Sections 271B and 44AB, related rules, and CBDT circulars. It was noted that during the relevant assessment year, the assessee was not required to furnish the tax audit report along with the return of income. The mandatory electronic furnishing of the audit report was introduced only from the assessment year 2013-14. The Tribunal found that the Assessing Officer failed to verify whether the books of accounts were audited before the due date and only emphasized the non-furnishing of the audit report. Consequently, the penalty under Section 271B was deemed unjustified, and the order of the CIT(A) was set aside, resulting in the deletion of the penalty.

Final Judgment:
The appeal filed by the assessee was allowed, and the penalty of ?1,00,000 levied under Section 271B was deleted. The judgment emphasized the importance of verifying compliance with the audit requirements and the applicability of CBDT circulars in determining the validity of penalties.

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