D B Engineering Pvt. Ltd. Vs ACIT (ITAT Delhi)
Delhi ITAT: Penalty Under Section 271B Cannot Survive Where Delay in Tax Audit Was Due to Court-Monitored Management Disputes
The Delhi ITAT deleted the penalty of ₹1.50 lakh under Section 271B, holding that where the assessee establishes a reasonable cause for the delay in obtaining the tax audit and filing the return, the protection under Section 273B squarely applies.
The assessee-company failed to furnish the tax audit report within the prescribed time due to serious disputes among its directors, which had resulted in litigation before the Delhi High Court and the NCLT. Because of the ongoing litigation, the company’s business operations, bank accounts and books of account remained non-operative, and several transactions were carried out only under the supervision and directions of the Delhi High Court. The assessee also demonstrated that taxes for the relevant years were deposited pursuant to the High Court’s directions.
The Tribunal observed that the explanation offered by the assessee was fully supported by judicial orders and could not be doubted. It emphasised that Section 273B expressly provides that no penalty shall be imposed if the assessee proves that there was a reasonable cause for the failure. The disputes among the directors, the court-monitored affairs of the company and the pending NCLT proceedings constituted a genuine and reasonable cause for the delay in complying with the audit requirements.
The Tribunal criticised the Assessing Officer and the CIT(A) for ignoring the material evidence and the High Court’s orders, observing that the authorities appeared to have imposed the penalty without properly appreciating the factual circumstances. Holding that the penalty was palpably unsustainable in view of Section 273B, the Tribunal quashed the penalty under Section 271B and allowed the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT DELHI
The instant appeal filed by the assessee is directed against the order dated 29.03.2022 passed by the Ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as the Ld. CIT(A)/’NFAC’] under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of the penalty Order dated 26.09.2022under Section 271B of the Income Tax Act, 1961 (‘Act’ for shot) for Assessment Year 2016-17.
2. The assessment of the Assessee Company was completed under Section 147/144/144B of the Act on 29.09.2022 upon assessing income at Rs. 12,79,71,380/-. On 29.03.2022 itself, a notice under Section 274 of the Act read with 271B of the Act was issued alleging that the Assessee failed to get the accounts audited or failed to furnish report of such audit as required under Section 44AB of the Act. The Assessee submitted the reply. However, the same was not found to be acceptable and penalty, therefore, to the tune of Rs. 1,50,000/- was imposed in the hands of the Assessee for committing default in not filing the return of income along with the tax audit report as per requirement under Section 44AB within the specified time under Section 139(1) of the Act. The same was further confirmed by the First Appellate Authority. Hence the instant appeal before us.
3. It is the case of the Assessee that the return was filed in the preceding Assessment Year 2015-16 in a regular manner and has been regularly filing income tax return for more than 30 years previously. Since, there was a dispute repeatedly between Directors of the Assessee company during the F.Y 2015-16 and the litigation since still pending before the Hon’ble Delhi High Court and in National Company Law Tribunal (‘NCLT’)-2 on various issues and further that the business operations of the Company, bank accounts, books of accounts etc. non operative and, therefore, transactions were done only under the supervision of the Hon’ble High Court of Delhi at that relevant point of time, the return could not be filed in time neither accounts were audited within the prescribed time period. Such submission made before the Department, was also reiterated before us by the Ld. AR. It was further submitted by him that the taxes to the tune of Rs. 75,00,000/- for A.Y 2015-16 i.e. the preceding year and Rs. 25,00,000/- for the year under consideration were paid by the Assessee company by and under the directions passed by the Hon’ble High Court of Delhi; direction was given to that effect by the order dated 22.03.2018 and 28.03.2018 when it was represented to the Hon’ble High Court of Delhi that the Company was facing situations beyond control due to the aforesaid disputes amongst the Directors and becoming defaulters for filing ITR etc. Relevant to mention that copies of each of the orders passed by the Hon’ble High Court have been duly furnished before us.
4. Under these facts and circumstances of the case, it was therefore, contended by the Ld. AR that since sufficient reasons were duly explained before the authorities below in regard to non filing of return in time and also books of accounts not been audited in due time, the penalty under Section 271B not to be imposed. However, inspite of same, the case made out by the Assessee has not been accepted by the authorities below.
5. On the other hand, the Ld. DR relied upon the orders passed by the authorities below.
6. It is a fact that the Assessee duly explained the reason for not been able to file the return in time and also the books of accounts audited delayed. Such reasons assigned as above cannot be doubted in view of the series of orders passed by the Hon’ble High Court and also dispute pending before NCLT.
7. So far the provision of law is concerned Section 273B of the Act gives relaxation in imposing penalty rather throws light on the issue wherein penalty not to be imposed including penalty under Section 271B of the Act which is the subject matter before us. Section 273B clarifies and specifically directs that no penalty shall be imposable on the person or the Assessee, as the case may be, for any failure referred to in the said provision if he provides that there was reasonable cause for the said failure. Thus, the explanations rendered by the Assessee for not been able to file return of income in due time or that neither accounts was audited in due time since found to be acceptable having regard to the orders and directions and compliance made by the Assessee as above particularly the orders passed by the Hon’ble High Court and the proceeding pending before the NCLT, and further taking into considering the provision of Section 273B as above, the penalty against the Assessee, in our considered opinion ought not to have been imposed. The reasons as narrated above not found to be acceptable by the authorities below which is germane to the issue involved in the matter supported by relevant evidences is not justified rather it demonstrates that just in order to impose penalty, the order has been issued by the Ld. AO further confirmed by the First Appellate Authority without assigning any proper reason contrary to the factual aspect of the matter particularly considering the orders by the Hon’ble High Court of Delhi. The gamut of the matter has not been found to have been considered in is proper perspective by the authorities below. Having regard to the facts of the matter and the provision of Section 273B of the Act imposition of penalty could not be the logical conclusions. Thus, with the above observations imposition of penalty is found to be palpably bad and not sustainable particularly taking into consideration the provisions of Section 273B of the Act. The impugned penalty under Section 271B of the Act is, thus, quashed.
8. The appeal filed by the Assessee is allowed.
Order pronounced in the open court on 06/08/2026.
