2022 (1) TMI 330 - AT - Income Tax

Penalty levied u/s 271B - tax audit report was not obtained and furnished before the due date for filing return of income - Proof of Reasonable cause - HELD THAT - Under sec. 273B of the Act, the penalty u/s 271B shall not be imposable, if the assessee proves that there was reasonable cause for the failure to comply with the provisions of sec.44AB. The approach to be adopted on levy of penalty u/s 271B has been explained by Hyderabad Special Bench of ITAT in the case of ACIT vs. Gayatri Traders 1996 (4) TMI 157 - ITAT HYDERABAD-B In the instant case, it is an admitted fact that the assessee did not have good relationship with its auditors before the end of the financial year. It has filed complaint against its earlier auditor in July, 2014. Subsequently, it has engaged another CA and furnished audit report before the completion of the assessment. Thus the delay in filing tax audit report has occurred due to strained relationship with its earlier auditor. We notice that the tax authorities have taken the view that the assessee should have appointed new CA immediately after knowing misdeeds of earlier CA. However, provisions of sec.273B exempts from levying of penalty, if the assessee proves that there was reasonable cause. If the cause shown by the assessee appeals or satisfies any reasonable mind, then the same shall constitute reasonable cause. In our view, strained relationship with the earlier CA would constitute reasonable cause. The tax authorities have pointed out time gap in getting a tax audit report from a new CA - As a known fact that it might have taken some time to severe relationship with the earlier CA. However, the fact remains that the tax audit report has been filed with the AO before completion of assessment. The tax authorities have mentioned about non-filing of tax audit report electronically. We notice that the provisions of sec.44AB do not mention about the same. Hence non-filing of audit report electronically cannot be the reason for imposing penalty u/s 271B. There was reasonable cause for the assessee in not filing the tax audit report in time. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the penalty levied u/s 271B - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271B for delayed filing of tax audit report for assessment year 2014-15.

Detailed Analysis:

Issue 1: Late filing of tax audit report
The appellant challenged the penalty of ?1,50,000 imposed under section 271B for filing the tax audit report after the due date. The return of income was filed on 30.11.2014, but the audit report was submitted on 09-12-2016 during assessment proceedings, leading to penalty proceedings initiated by the Assessing Officer (AO).

Issue 2: Reasons for delay
The appellant explained that the initial auditors made errors in the accounts, prompting a change to a new Chartered Accountant (CA) who provided the accurate tax audit report. The AO noted the delay in appointing the new CA and filing the report just 23 days before the assessment deadline. The appellant cited strained relations with the earlier CA as the cause for the delay.

Issue 3: Legal provisions and authorities
The penalty under section 271B is discretionary and not mandatory, as per the Hyderabad Special Bench of ITAT. The provision exempts penalty if a reasonable cause is proven. The Andhra Pradesh High Court defined "reasonable cause" as one that satisfies a reasonable mind, supporting the appellant's argument of strained relations with the earlier CA.

Issue 4: Arguments and findings
The appellant argued that the delay had a reasonable cause and the report was filed before completion of assessment. The Department contended that timely filing is crucial for scrutiny selection. The Tribunal found the strained relationship with the earlier CA to be a reasonable cause for the delay, emphasizing that the non-electronic filing did not warrant penalty under section 271B.

Conclusion
The Tribunal held that there was a reasonable cause for the delay in filing the tax audit report, overturning the penalty imposed by the CIT(A) and directing the AO to delete the penalty under section 271B for the relevant assessment year. The appeal of the assessee was allowed, emphasizing the importance of proving a reasonable cause for non-compliance with statutory provisions.

This detailed analysis provides an overview of the issues, arguments, legal provisions, and the final decision of the Appellate Tribunal in the case concerning the penalty under section 271B for the delayed filing of the tax audit report.