2022 (12) TMI 1223 - AT - Income Tax

Levy of penalty u/s. 271(1)(b) - Non compliance requirement in respect of special audit u/s. 142(2A) - HELD THAT - relevant ledgers for all the years under consideration were impounded by the Ld. AO in the course of assessment itself which has prevented the assessee in making compliance to the requirements of the special auditors for getting the special audit u/s. 142A of the Act completed. Reference is also made to the legal maxim impotentia excusat legam and lex non cogit ad impossibilia in this respect. When there is an invincible disability to perform mandatory part of the law that impotentia excuses. Law does not compel one to do that which one cannot possibly perform. Where the law creates a duty or charge and the party is disabled to perform it, without any default in him and has no remedy over it, there the law will, in general, excuse him. Therefore, when it appears that the performance of the formalities prescribed by a statute has been rendered impossible by circumstances over which the person interested had no control, the circumstances will be taken as a valid excuse. Assessment proceedings furnished by the Ld. Counsel, it is evidently demonstrated that there exists a reasonable cause within the meaning of section 273B of the Act which prevented the assessee in meeting the compliance requirement in respect of special audit u/s. 142(2A) of the Act. - Levy of penalty directed to be deleted.

Summary

Issues:
Appeal against penalty orders under section 271(1)(b) of the Income-tax Act, 1961 for non-compliance with special audit requirements.

Analysis:

Issue 1: Non-compliance with special audit requirements
The appeals were filed against penalty orders under section 271(1)(b) of the Act for failure to comply with special audit directions under section 142(2A). The case involved a survey converted into a search, leading to the discovery of incriminating documents. The Assessing Officer (AO) referred the case for special audit due to voluminous and complex accounts. The appellant's books were impounded during assessment without proper authorization. Despite non-compliance, the appellant sought to keep penalty proceedings in abeyance until the appeal against the assessment was resolved.

Issue 2: Principles of penalty imposition
The CIT(A) highlighted principles relevant to penalty imposition under section 271(1)(b), emphasizing the onus on the assessee to show reasonable cause for non-compliance. The CIT(A) stated that penalty imposition is not dependent on the assessment outcome and that the appellant's conduct indicated non-cooperation with authorities. The CIT(A) upheld the penalty, leading to the appeal before the Tribunal.

Issue 3: Reasonable cause for non-compliance
During the Tribunal hearing, the appellant's counsel demonstrated reasonable cause for non-compliance by showing that the impounding of books during assessment prevented compliance with special audit requirements. Legal provisions such as section 273B were cited to argue against penalty imposition in cases of reasonable cause. The Tribunal noted the onus on the appellant to establish reasonable cause and analyzed legal maxims to support the appellant's argument.

Issue 4: Tribunal's decision
The Tribunal considered the evidence presented, including order sheet entries, to conclude that a reasonable cause existed for the appellant's non-compliance with the special audit requirements. The Tribunal directed the AO to delete the penalty imposed under section 271(1)(b) based on the appellant's demonstration of reasonable cause. All appeals were allowed based on the finding of reasonable cause, rendering other grounds for appeal academic.

Conclusion:
The Tribunal's decision to allow the appeals was based on the appellant's successful demonstration of reasonable cause for non-compliance with special audit requirements. The Tribunal emphasized the importance of establishing reasonable cause to avoid penalty imposition under the relevant provisions of the Income-tax Act, ultimately leading to a favorable outcome for the appellant in all appeals.