No Penalty for mere Non enclosure of audit report to return of income

By CA Sandeep Kanoi Income Tax Judiciary May 26, 2017 1 comment

TaxGuru Citation: 2017 taxguru.in 579
Case Name: M/s. Sri Sai Prasanthi Realtors Vs Deputy Commissioner of Income Tax (ITAT Hyderabad)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2008- 09
Courts: All ITAT, ITAT Hyderabad

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As seen from the order of the AO u/s. 153C, it is very clear that AO has initiated penalty proceedings for not enclosing the audit report, but not for completing the audit before the due date. Board Circular No. 5 of 2007 clearly states that while uploading the return, no audit report should be attached to the return and also further states that it should not be furnished separately also before or after due date. Non- enclosure of audit report to the return of income does not attract any penalty u/s. 271B, as specified in the Board Circular extracted above. Since AO has initiated the penalty proceedings only for non- enclosure of audit report along with the Return, we are of the opinion that the same is not attracting penalty, on the facts of the case, as assessee has complied with the Board Circular. If the audit report was not enclosed to the return of income filed by assessee subsequently in response to proceedings u/s. 153C, AO should have treated the return as defective return. No such action was taken by the AO, which indicates that the return is complete in all respects. Since prior approval of the Addl. CIT u/s. 153D was also taken by the AO before completion of assessment, we are of the opinion that non enclosure of audit report to the return of income does not attract penalty proceedings u/s. 271B. Accordingly, penalty levied is cancelled.