2024 (11) TMI 1272 - HC - Income Tax

Penalty proposals u/s 271B - breach of the procedure contemplated u/s 44AB - non filling of the audit report as mandated under the said provision within the time limit specified - whether the assessee Societies had demonstrated a reasonable cause for the delay in submitting audit reports as mandated u/s 44AB of the I.T. Act before the Assessing Authority? - HELD THAT - It can be seen from a perusal of the statutory framework that the assessee Co-operative Societies had virtually no control over the completion of the audit by the statutory auditors. We also note that there is nothing on record that would suggest that the delay occasioned by the statutory auditors in finalising the audit reports was in any way attributable to the conduct of the assessees in these appeals. We make this observation at this stage because we notice that, unlike the findings of the Assessing Authority and the First Appellate Authority, the observations of the Tribunal in the orders impugned before us are suggestive of such lethargy on the part of the assessees without there being any tangible material before the Tribunal based on which it could arrive at such a finding. We also find that, at any rate, the audit reports were made available before the Assessing Authority at the time of completion of the assessment, and hence, there was really no prejudice caused to the Department in the matter of finalisation of assessment. The appellants/assessees before us cannot be seen as persons who did not establish a reasonable cause for the belated filing of the audit reports before the Assessing Authority. The peremptory phraseology used in Section 273B of the I.T. Act therefore mandated that no penalty under Section 271B be imposed on them. For the same reason, and since reasonable cause was demonstrated by the assessees in the instant cases, the decision of Peroorkkada 2020 (1) TMI 624 - KERALA HIGH COURT would have no application to the case of the appellants before us. We therefore set aside the impugned orders of the Appellate Tribunal, to the extent it confirms the penalty under Section 271B of the I.T. Act on the appellants/assessees, and allow assessee appeal.

Issues Involved:

1. Justification of penalty imposition under Section 271B of the Income Tax Act.
2. Applicability of Section 80P exemption to primary agricultural credit societies.
3. Acceptance of the assessees' explanation for delay in furnishing audit reports.
4. Tribunal's adherence to binding judgments of coordinate benches.
5. Evaluation of penalty proceedings in light of Section 273B and reasonable cause.

Detailed Analysis:

1. Justification of Penalty Imposition:

The core issue in these appeals is the legality of the penalty imposed on the Co-operative Societies under Section 271B of the Income Tax Act for not submitting audit reports within the prescribed time under Section 44AB. Section 44AB mandates that certain assessees must have their accounts audited and submit the audit report by a specified date. The penalty under Section 271B is triggered if there is a failure to comply, with the Assessing Officer having discretion to impose a penalty equal to one-half percent of the total sales, turnover, or gross receipts, or a sum of Rs. 1.5 lakhs, whichever is less. However, the Tribunal upheld the penalty, not considering the reasonable cause for delay as required under Section 273B, which states that no penalty shall be imposed if the assessee proves reasonable cause for the failure.

2. Applicability of Section 80P Exemption:

The appellants argued that the primary agricultural credit societies are entitled to exemption under Section 80P of the Income Tax Act, and thus, independent of tax assessment, the imposition of penalty should not be justified. The Tribunal did not adequately address this argument, which was a significant oversight given the statutory provisions and existing judgments supporting the exemption claim.

3. Acceptance of Assessees' Explanation:

The assessees contended that the delay in submitting the audit reports was due to factors beyond their control, specifically the delay in receiving audit reports from statutory auditors under the Kerala Co-operative Societies Act and Rules. The Tribunal and lower authorities failed to recognize this as a reasonable cause, despite the statutory framework indicating that the societies had no control over the audit completion timeline. The court noted that the audit reports were available at the time of final assessment, causing no prejudice to the Department, which should have been considered as a reasonable cause for delay.

4. Tribunal's Adherence to Binding Judgments:

The appellants argued that the Tribunal did not follow binding judgments of coordinate benches in similar cases, which had set precedents for not imposing penalties under similar circumstances. The court found that the Tribunal's reliance on a previous decision (Peroorkkada Service Co-operative Bank Limited) was misplaced, as the factual circumstances were distinguishable, and the Tribunal did not consider the reasonable cause demonstrated by the assessees.

5. Evaluation of Penalty Proceedings:

The court emphasized the importance of Section 273B, which provides that no penalty should be imposed if the assessee demonstrates reasonable cause for the failure. The Tribunal and lower authorities did not adequately consider this provision, leading to an unjust imposition of penalties. The court highlighted that the CBDT Circular No.3/2009 allows for belated production of audit reports under certain circumstances, aligning with the statutory scheme that penalties should not be imposed if no prejudice is caused to the Department.

Conclusion:

The court concluded that the assessees demonstrated reasonable cause for the delayed submission of audit reports, and thus, the imposition of penalties under Section 271B was not justified. The appeals were allowed, setting aside the Tribunal's orders confirming the penalties, and the questions of law were answered in favor of the assessees and against the Revenue.

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