2022 (9) TMI 581 - AT - Income Tax

Penalty u/s. 271B - delay for filing the audit report within the time frame prescribed under law - reasonable cause for filing the audit report belatedly provided or not? - HELD THAT - As brought to our notice that the delay in filing the audit report occurred due to conversion of the business into private limited company and it was the first year of the company and due to the said reason assessee company required to do several formalities in compliance with the Companies Act and other ancillary laws do smooth transaction of the business to the company. There is only delay in filing the return of tax audit report on time which was accidental and unintentional on the part of the appellant assessee. According to the Ld. AR their exists reasonable cause for filing the audit report belatedly and under the foregoing reasons he submitted before us to quash the impugned order, we have satisfied with the explanation given by the assessee and in our opinion this is not a fit case for levying penalty u/s. 271B of the Act due to technical breach which was beyond the control of the appellant assessee and considering the facts and circumstances of the case, we are inclined to delete the penalty levied u/s. 271B of the Act. Appeal filed by the assessee is allowed.

Summary

Issues:
Penalty order under section 271B of the Income Tax Act, 1961 - Reasonableness of penalty - Compliance with tax audit report filing requirements - Jurisdictional approval for penalty - Availability of audit report online - First full year of operation after business transition - Applicability of penalty due to technical breach.

Analysis:
The appeal before the ITAT Chennai stemmed from a penalty order issued by the Income Tax Officer under section 271B of the Income Tax Act, 1961, for the Assessment Year 2017-18. The assessee challenged the penalty on various grounds, including the legality of the order, lack of consideration for reasonable cause, failure to obtain prior approval for penalty, and incorrect factual assertions regarding the availability of the audit report online.

The assessee initially declared income and filed returns electronically, subsequently revising the income amount. The case was selected for scrutiny, leading to the imposition of a penalty for not filing the tax audit report within the prescribed time limit. The assessing officer alleged that the assessee failed to provide a reasonable cause for the delay, resulting in the penalty imposition.

Upon appeal to the CIT(A), the assessee explained the delay in filing the audit report was due to business transition complexities, formalities under the Companies Act, and unintentional delays. However, the CIT(A) upheld the penalty, stating that the reasons provided did not constitute a reasonable cause, indicating voluntary and intentional failure to comply. The appeal was dismissed based on these findings.

The ITAT Chennai, after hearing both parties and reviewing the case details, noted the reasons for the delay provided by the assessee related to the business transition and first-year operations of the company. The tribunal found merit in the explanation, considering the delay as accidental and unintentional. Consequently, the ITAT Chennai decided to delete the penalty levied under section 271B of the Act, emphasizing that it was a technical breach beyond the assessee's control.

In conclusion, the ITAT Chennai allowed the appeal, overturning the penalty order and ruling in favor of the assessee based on the reasonable cause for the delay in filing the audit report, which was deemed beyond the assessee's control due to business transition complexities.