Brief : Delhi bench of the (ITAT) has ruled that penalty cannot be levied if there is a genuine reason for the delay. Open Technologies India who filed the appeal against the Rs1 lakh penalty imposed on it by the I-T department because of an alleged delay in filing a report from a Transfer Pricing Accountant.
The ITAT, while waiving the penalty observed that penalty proceedings are quasi criminal proceedings and should not be levied unless there is reason to believe that the tax-payer had acted deliberately in defiance of law or acted in conscious disregard of its obligation. This was not the case here, ITAT ruled.
But the judgement has not considered circular 9/2006 dated 10 October 2006 issued by the CBDT wherein it was explicitly clarified that the Accountant’s Report (Form 3 CEB) has to be furnished with the tax authorities within the due date.”
Citation : Open Technologies India Private Limited (2010-TII-43-ITAT-DEL-TP
Court : ITAT Delhi
When reasonable cause for non-filing of the Accountant’s Report in Form 3CEB as per Section 92E of the Income Tax Act, 1961 is proved by the assessee, no penalty can be levied under section 271BA for such non-compliance.
Open Technologies India Private Limited (‘the assessee’) had not furnished an Accountant’s Report in Form No. 3CEB relating to International transactions before the due date of filing return of income for the assessment year (‘AY’) 2006-07 as required under section 92E of Income Tax Act (‘the Act’).
The penalty proceedings were initiated against the assessee for non-filing of Form 3CEB under section 271BA of the Act. The assessee during the penalty proceedings replied that it was of the belief that for the AY 2006-07 it was mandatory to file the return of income online and that too without any annexure / reports / attachment. Since online filing of return of income being introduced for the first time, none of the documents were filed alongwith the return which were usually filed in case of manual return – like copy of Audited accounts, TDS certificates, Form 3CA, Form 29B, Form 56F, and Form 3CEB, etc. The Accountant’s Report in Form 3CEB was obtained on September 1, 2006 which was before the due date of filing return of income; but could not be filed in view of online filing of return of income without any attachment. However, the Accountant’s Report in Form 3CEB was filed during the course of assessment proceedings. However, the Assessing Officer (‘AO’) did not accept the contention and levied the penalty under section 271BA of the Act. The Commissioner of Income Tax (Appeals) [‘CIT(A)’], upheld the penalty levied by the AO.
Aggrieved by the order of the CIT(A), the assessee filed an appeal before the Income Tax Appellate Tribunal (‘Tribunal’).
Observation and decision of the Tribunal:
• As per the mandate of section 92E, the assessee had to obtain the Audit Report and file it before the due date for filing return. Section 271BA provides for a penalty of ` 1,00,000 for failure to follow the mandate of section 92E. However, section 273B provides that no penalty inter-alia under section 271 BA will be leviable, if there is reasonable cause for the failure of the assessee to comply with the provisions mentioned therein.
• The assessee has claimed that the Accountant’s Report in Form 3CEB was obtained much before the due date for filing the return. The same could not be filed along with the return as the return was filed electronically and the assessee was under the belief that any annexures, etc. were not to be filed along with the return. Further, Affidavit from Director and Chartered Accountant were also submitted that the Accountant’s Report in Form No. 3CEB was obtained on September 1, 2006 i.e. before the due date for filing the return and the same was subsequently furnished by the assessee to the AO before the completion of the assessment. Thus, there was reasonable cause for the assessee in not filing the Accountant’s Report in Form No. 3CEB along with the return of income. Hence, the penalty levied under section 271BA has been deleted.
• While passing the order, the Tribunal relied on the Apex Court Ruling in case of of Hindustan Steel vs. State of Orissa (83 ITR 26).
The Tribunal has rightly and equitably held that where there is a reasonable cause for the delay in fulfilling or non-complying of the statutory obligation cast on the assessee acting under a bonafide belief, no penalty can be imposed on the assessee. However, it is the burden of the assessee to prove that there is a reasonable cause for the delay in fulfilling or non-complying of the statutory obligation cast upon the assessee under the Act.
The Central Board of Direct Taxes vide Circular No. 9 dated October 10, 2006 has clarified in relation to e-filing of return of income that the Accountant’s Report under section 44AB (Tax Audit Report) is not required to be filed physically with the AO. However, the Accountant’s Report under section 92E (Transfer Pricing Audit Report) is required to be filed physically with the AO.
For the AY 2010-11, the due date of filing the return of income has been extended from September 30, 2010 to October 15, 2010 vide Circular dated September 27, 2010. As per the said circular, this due date has also been extended for the Accountant’s Report under section 44AB. However, the circular is silent on the filing of the Accountant’s report in Form 3CEB. Considering the provisions of sections 44AB, 92E, 92F(iv) and 139(1), the due date for filing the Accountant’s Report in Form 3CEB has also been extended to October 15, 2010.