2021 (11) TMI 328 - AT - Income Tax

Penalty u/s. 271B - non filing the tax audit report - reasonable cause for not obtaining the audit report - HELD THAT - Whether the explanation offered in response to the show cause notice constitutes a reasonable cause for not obtaining the audit report. The explanation of the appellant is that it was under bona-fide belief that there is no requirement under law to obtain the audit report u/s.44AB as its income was exempt u/s.80P(2) of the Act and its books accounts were subject to audit by Government Auditor. This explanation was not found to be false by the lower authorities. The lower authorities merely rejected the explanation and proceed with levy of penalty. There is nothing on record to doubt the explanation offered by the appellant society. Therefore, when the assessee entertained bona-fide belief that its account were not subject to audit u/s. 44AB, it would certainly constitute reasonable cause for not obtaining the audit report and, therefore, the question of imposing of the penalty u/s. 271B does not arise. Further, we find audit report under the provisions of Maharashtra Co-operative Society was obtained only 27th June, 2017 and, therefore, occasion for filing the tax audit report along with the return of income does not arise. In the circumstances, we find that the lower authorities was not justified in confirming the levy of penalty and accordingly we direct the Assessing Officer to delete the penalty levied u/s. 271B - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty under section 271B of the Income Tax Act 1961 for failure to obtain tax audit report as per section 44AB.

Analysis:
The appellant, a cooperative society engaged in the business of milk and cattle feeds, filed its return for the assessment year 2014-15 declaring total income as NIL. The Assessing Officer completed the assessment at a total income of Rs. 7,62,646 and initiated penalty proceedings under section 271B for not obtaining the tax audit report as required by section 44AB. The appellant contended that it believed in good faith that no audit report was needed under section 44AB as it maintained proper accounts audited under the Maharashtra Cooperative Societies Act and had income exempt under section 80P(2). The appellant argued that penalty under section 271B is discretionary and not mandatory for a technical breach, citing the Hindustan Steel Ltd. case. Despite the appellant's explanation, the Assessing Officer imposed a penalty of Rs. 1,23,800, which was upheld by the CIT(A).

The Tribunal considered whether the appellant's belief constituted a reasonable cause for not obtaining the audit report under section 44AB. The appellant's explanation that it believed no audit report was required due to income exemption under section 80P(2) and government audit of its accounts was not found false by the lower authorities. The Tribunal found no reason to doubt the appellant's explanation and held that the appellant's genuine belief constituted a reasonable cause for not obtaining the audit report. The Tribunal noted that the audit report under the Maharashtra Co-operative Society Act was obtained after the penalty was imposed, negating the need for a tax audit report at the time of filing. Consequently, the Tribunal directed the Assessing Officer to delete the penalty levied under section 271B.

The Tribunal applied its decision in the first appeal to subsequent appeals with identical facts and issues, allowing all appeals by the appellant. The Tribunal emphasized that the appellant's genuine belief and compliance with relevant audit requirements constituted a reasonable cause for not obtaining the tax audit report under section 44AB, leading to the deletion of the penalty.