R.R. Kapoor Vs ITO (ITAT Pune)
Introduction: In the recent case of R.R. Kapoor vs ITO, the ITAT Pune has ruled in favor of the assessee, setting aside the penalty imposed under Section 271B. The key contention revolved around the delay in filing the audit report, which the tribunal deemed to have a reasonable cause.
Detailed Analysis: R.R. Kapoor admitted to auditing the accounts beyond the due date specified under Section 139(1) of the Income Tax Act. The Assessing Officer (AO) imposed a penalty of Rs.1,50,000 under Section 271B, citing the delayed filing of the audit report.
However, Section 271B is subject to Section 273B, which states that if a “reasonable cause” for non-compliance is established, no penalty should be imposed. The situation involved a change of auditor from the preceding year. The newly appointed auditor sought a no-objection certificate from the earlier auditor, leading to objections and subsequent delays.
Once the objections were resolved, the audit work was promptly undertaken, followed by the filing of the tax audit report and the income-tax return. The Tribunal considered this change of auditor and the subsequent resolution of objections as a reasonable cause for the delayed audit, warranting the withdrawal of the penalty.
Conclusion: The ITAT Pune’s decision in R.R. Kapoor vs ITO emphasizes the importance of considering reasonable causes in penalty proceedings. The change of auditor, seeking a no-objection certificate, and the subsequent resolution of objections were deemed valid reasons for the delay in filing the audit report. This ruling provides relief to the assessee and sets a precedent for cases where genuine issues contribute to procedural delays.
It is observed that the assessee admittedly got the accounts audited beyond the due date u/s 139(1) of the Act, which was the reason for late filing of the audit report with the Department. Section 271B in such circumstances calls for imposition of the penalty. However, it is pertinent to note that section 271B is subject to section 273B, and the latter section emphasizes that if a ‘reasonable cause’ is established for non-compliance of the requirements which led to imposition of penalty under certain sections, including 271B, then no penalty should be imposed. We are confronted with a situation in which there was a change of the auditor from the preceding year. The new auditor, as per the established procedure, sought a no objection from the earlier auditor, who raised certain objections. Those issues were resolved later on, which led to the delay in the audit of the accounts of the assessee. As and when the issues got resolved, the audit work was taken up and completed followed by the filing of tax audit report and the income-tax return. In our considered opinion, such reasons for the delay constitute a reasonable cause for the late auditing of the accounts and of furnishing the audit report belatedly. In the hue of section 273B r.w.s.271B, we hold that the ld. CIT(A) ought not to have confirmed the penalty. We, therefore, set aside the impugned order and direct to delete the penalty.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal by the assessee is directed against the order passed by the CIT(A)-2, Pune on 30-07-2020 confirming the penalty of Rs.1,50,000/- imposed by the Assessing Officer (AO) u/s.271B of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2015-16.
2. This appeal is time barred by 06 days. The ld. AR has attributed the reason of delay due to Covid-19 pandemic. Therefore, the said delay is condoned and the instant appeal is admitted for disposal on merits by virtue of judgment of the Hon’ble Supreme Court in Cognizance for Extension of Limitation, In re 438 ITR 296 (SC) read with judgment in Cognizance for Extension of Limitation, In re 432 ITR 206 (SC) dated 08-03-2021 and 421 ITR 314.
3. Briefly stated, the facts of the case are that the assessee furnished his return on 30-03-2016 declaring total income of Rs.8,56,050/-. Such return was accompanied by the tax audit report. The AO observed that the audit u/s.44AB was not carried out before the “specified date”, namely, 31-10-2015 and hence, the assessee was liable to be visited with penalty u/s.271B of the Act. On being called upon to explain the reasons for the delay, the assessee submitted that audit of the books of account for the immediately preceding year was carried out by M/s. S.M.R. For the year under consideration, the new auditor was appointed for conducting the audit on 22-08-2015. The new auditor called for objections, if any, to its appointment from the earlier auditor, who raised certain issues. Eventually, the issues were resolved and immediately thereafter the incumbent auditor undertook the audit work and completed the same, followed by the filing of the return along with the tax audit report. Not convinced, the AO imposed penalty of Rs.1,50,000/- u/s.271B of the Act. The ld. CIT(A) echoed the penalty, against which the assessee has come up in appeal before the Tribunal.
4. After considering the rival submissions and going through the relevant material on record, it is observed that the assessee admittedly got the accounts audited beyond the due date u/s 139(1) of the Act, which was the reason for late filing of the audit report with the Department. Section 271B in such circumstances calls for imposition of the penalty. However, it is pertinent to note that section 271B is subject to section 273B, and the latter section emphasizes that if a “reasonable cause” is established for non-compliance of the requirements which led to imposition of penalty under certain sections, including 271B, then no penalty should be imposed. We are confronted with a situation in which there was a change of the auditor from the preceding year. The new auditor, as per the established procedure, sought a no objection from the earlier auditor, who raised certain objections. Those issues were resolved later on, which led to the delay in the audit of the accounts of the assessee. As and when the issues got resolved, the audit work was taken up and completed followed by the filing of tax audit report and the income-tax return. In our considered opinion, such reasons for the delay constitute a reasonable cause for the late auditing of the accounts and of furnishing the audit report belatedly. In the hue of section 273B r.w.s.271B, we hold that the ld. CIT(A) ought not to have confirmed the penalty. We, therefore, set aside the impugned order and direct to delete the penalty.
5. In the result, the appeal is allowed.
Order pronounced in the Open Court on 15th June, 2022.
