Case Law Details
Encore Construction- Consortium Pvt Ltd Vs ITO (ITAT Chennai)
ITAT Chennai held that delay in filing of tax audit report due to dispute between the directors of the assessee company is just a technical breach without any malafide intention. Hence, penalty u/s 271B not leviable.
Facts- The assessee is a Private Limited Company filed its return of income on 30.03.2019 which was assessed u/s.143(3) r.w.s.143(3A) & 143(3B) of the Income Tax Act, 1961, and the order was passed on 16.06.2020, wherein returned income of the assessee was accepted without any further addition. Subsequently, on 14.01.2022, order u/s.271B of the Act, was passed on the assessee imposing penalty of Rs.1,50,000/-.
Conclusion- Held that the reason for delay in filing of the Audit Report was disputes between the directors of the assessee company whereby books and records were kept by one of the Director and the delay was on account of recovering those books of accounts from the said Director.
Held that the Tax Audit Report was made available to ld.AO before completion of assessment proceedings. Therefore, this is just a technical breach without any malafide intention of the assessee, consequently, the penalty u/s.271B of the Act, cannot be levied. Our view is squarely in consonance to the view taken by co-ordinate Bench of this Tribunal, ITAT Chennai Benches in the case of Puducherry Tourism Development Corporation Ltd. v. ITO (supra), thus respectfully following the same, we set aside the order of lD. CIT(A)(NFAC) and direct the ld. AO to delete the penalty levied u/s 271B.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), Income Tax Department, National Faceless Appeal Centre (NFAC), Delhi, dated 27.03.2023, and pertains to assessment year 2018-19.
2. The assessee has raised the following grounds of appeal:
1. The order of the NFAC, Delhi dated 27.03.2023 vide DIN & Order No. ITBA/NFAC/S/250/2022-23/1051373872(l) for the abovementioned Assessment Year is contrary to law, fact and in circumstances of the case.
2. The NFAC, Delhi erred in confirming the levy of penalty u/s.271B of the Act for the presumed failure to file tax audit report in terms of section 44AB of the Act without assigning proper reasons and justification.
3. The NFAC, Delhi failed to appreciate that the small delay in filing the tax audit report was backed by reasonable cause and ought to have appreciated that he penalty envisaged for delay in filing the audit report should not be construed as automatic inasmuch as ought to have appreciated that the discretion of levying penalty or not levying penalty was not exercised properly on the facts and in the circumstances of the case.
4. The NFAC, Delhi failed to appreciate that the reasonable cause shown for the small delay would negate the presumption of applicability of section 271B of the Act thereby vitiating the related findings.
5. The NFAC, Delhi ought to have appreciated that the impact of the assessment completed would further fortify the stand on the penalty proceedings initiated and completed and ought to have appreciated that the tax audit report filed on 30.03.2019, in any event would aim and assist the Jurisdictional Assessing Officer for arriving at correct assessable total income which was filed before completion of assessment proceedings on 16.06.2020.
6. The NFAC, Delhi failed to appreciate that one of the reasons for delay in filing the audit report u/s 44AB of the Act shown / reported on account dispute between the directors of the company, which had resulted in seizure of the books of the accounts by one Mr. Sakthivel, director of the appellant company, would constitute reasonable cause under Section 2733 of the Act, thereby vitiating the findings in para 10 of the impugned order.
7. The NFAC, Delhi failed to appreciate that having placed reliance on certain judicial precedent which had no application to the present case and circumstances, thereby vitiating the findings in relation thereto and ought to have appreciated that the jurisdictional bench of the income tax appellate tribunal in the case decided in ITA No. 1 05/CHNY/2023 dated 03.2023 had deleted the penalty imposed under Section 271B of the Act.
8. The NFAC, Delhi failed to appreciate that the findings in para 10 of the impugned order were wrong, incorrect, erroneous, invalid, unjustified and not sustainable both on facts and in law.
9. The NFAC, Delhi ought to have appreciated that in any event, the levy of penalty u/s 271B of the Act on various facets was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.
10. The NFAC, Delhi failed to appreciate that procedure for conducting Faceless Appeal Regime was not followed and ought to have appreciated that in the light of the procedural irregularities committed, the impugned order under consideration accordingly should be reckoned as bad in law.
11. The NFAC, Delhi failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles of natural justice would be nullity in law.
12. The Appellant craves leave to file additional grounds/arguments at the time of hearing.
3. The brief facts of the case are that the assessee is a Private Limited Company filed its return of income on 30.03.2019 which was assessed u/s.143(3) r.w.s.143(3A) & 143(3B) of the Income Tax Act, 1961 (in short “the Act”), and the order was passed on 16.06.2020, wherein returned income of the assessee was accepted without any further addition. Subsequently, on 14.01.2022, order u/s.271B of the Act, was passed on the assessee imposing penalty of Rs.1,50,000/-, assigning the reason as under:
7. On verification of the records, it is seen that the assessee had gross receipts of Rs.4,22,20,900/-. Thus, as per provisions of law, assessee was required to get it’s accounts audited by an accountant in terms of section 44AB and furnish the report in prescribed form before 31.10.2018 as per the Act. However, the prescribed audit report has not been filed by the assessee on or before 31.10.2018 but was filed on 30.03.2019. The assessee has not been able to furnish any reasonable cause for such delay and non-compliance to statutory provisions, hence, the assessee is liable to be penalized u/s. 271 B of the IT Act.
4. At the outset, on the issue, Ld.AR submitted that assessment u/s.143(3) of the Act, of the assessee was completed on 16.06.2020. However, the Tax Audit Report as prescribed u/s.44AB of the Act, was filed by the assessee on 30.03.2019, as is apparent from the penalty order passed u/s.271B of the Act. Ld.AR further drew our attention to Para 5 of the penalty order, wherein, the reason for delay was explained by the assessee. According to the Ld.AR, the delay was on account of dispute between Directors of the company. One of the Directors Mr. Sakthivel has taken the books and other documents of the assessee company, and there was a considerable delay in recovering those books from the said Director and therefore, there was a delay in completion of audit and filing of audit report u/s.44AB of the Act. The explanation of the assessee was not considered by the ld.AO averring that, if the Director has taken the books and other documents, the assessee company being altogether a legal entity could have taken necessary legal action for recovery of the same. However, the assessee merely has furnished the emails and reminders, no document in support of any legal step for recovery of books and other documents. E-mails and reminders being internally generated documents were not considered good enough by the AO and the information coming out from such evidence was not believed as reasonable cause for delay in furnishing Audit Report. Ld.AR contended that such observation of the ld.AO was erroneous so far as the assessee company was trying to get the books of accounts by its own means and have succeeded to receive the same without any further legal stay against the Directors. Therefore, the assessee company has reasonable cause for delay in preparation of Audit Report u/s.44AB of the Act., consequently, the Report was submitted with delay. It was the further submission of the ld.AR that although, report was submitted with a delay on 30.03.2019 instead of 3 1.10.2018, but the same was filed before culmination of assessment u/s.143(3) of the Act, i.e. on 16.06.2020, thus, the same was very much before the ld. AO to deliberate upon while performing the assessment proceedings. It was the submission that, there was no intentional delay on the part of assessee, but, the assessee was stopped by reasonable cause which was beyond the control of the assessee and since the Audit Report u/s.44AB of the Act, was furnished before completion of assessment proceedings u/s.143(3) r.w.s.143(3A) & 143(3B) of the Act. Therefore, the penalty levied u/s.271B of the Act, may kindly be deleted. To support the contention raised by the Ld.AR, reliance was placed on order in the case of Puducherry Tourism Development Corporation Ltd. v. ITO in ITA No.105/Chny/2023 dated 29.03.2023, wherein ITAT, Chennai Benches has held that:
6. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. In the penalty order, the Assessing Officer had noted that the assessee’s turnover in the year under consideration were ₹.20,37,43,616/-. The assessee was required to get his accounts audited under section 44AB of the Act and filed within the due date. Since the assessee has not filed the tax audit report under section 44AB of the Act before the due date, the Assessing Officer levied penalty of ₹. 1,50,000/- under section 271B of the Act, which was confirmed by the ld. CIT(A)(NFAC). Before us, by assigning reasons for the delay that the appointment of Statutory Auditor was not in the control of the assessee and the C & AG has appointed the Statutory Auditor on 10.08.2017 and the Statutory Auditor accepted the audit by 27.03.2019. It was submitted that the audit report under section 44AB of the Act were furnished during the course of assessment proceedings under section 143(3) of the Act, which was also considered by the Assessing Officer before concluding the assessment. Thus, we are of the considered opinion that when the Tax Audit Report was made available to the Assessing Officer before completion of assessment proceedings, then for venial technical breach without any mala fide intention, penalty cannot be levied under section 271B of the Act.
6.1 Similar issue on an identical fact was subject matter in appeal before this Tribunal in the case of Balaji Logistics v. ACIT in I. T.A. No. 2248/Chny/201 9 dated 07.09.2022 for the assessment year 2015-16, wherein, the Tribunal has observed as under:
“6. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. It is an admitted fact that although the assessee has filed Tax Audit Report in Form 3CB as required u/s.44AB of the Act, beyond due date specified u/s.139(1) of the Act, but such Tax Audit Report was made available to the AO before completion of assessment proceedings u/s. 143(3) of the Act, on 22.11.2017. It is evident from the fact that the assessee has obtained Tax Audit Report from an Accountant on 28.03.2016 and furnished before the AO during the course of assessment proceedings. Therefore, we are of the considered view that when the Tax Audit Report was made available to the AO before completion of assessment proceedings, then for venial technical breach without any mala fide intention, penalty cannot be levied u/s.271B of the Act. Further, a similar issue has been considered by the co-ordinate Bench of the Tribunal in the case of M/s. T P D 101 Uthangarai Milk Producers Co-operative Society Ltd. (supra), where on identical set of facts, penalty levied u/s.271B of the Act, has been deleted. The relevant findings of the Tribunal are as under:
“… 7. We have heard both the parties and perused the materials available on record and gone through the orders of the authorities below. The assessee supposed to have been filed audit report as required u/s.44AB of the Act, on or before 31.10.2015. However, such audit report has been filed on 05.03.2016, which is before the date of completion of assessment proceedings u/s. 143(3) of the Act. In other words, although the assessee has filed tax audit report beyond the stipulated period, but such tax audit report was made available to the AO before he completes assessment proceedings. The assessee has given reasons for delay in filing tax audit report. As per which, the audit of accounts of society done by the Dept. of Cooperative Audit, could not be completed on or before 31.10.2015 and said delay was not in the hands of the assessee. Therefore, there is a reasonable cause for not filing the tax audit report within prescribed time limit ad thus, penalty cannot be levied. We find merits in the submission of the assessee for the simple reason that non-filing of audit report within the due date is a venial technical breach without any mala fide intention on the part of the assessee. Because, completion of audit of books of accounts of the society is under the control of Dept. of Cooperative Audit and thus, unless the Dept. of Cooperative Audit completes audit, the assessee cannot file return of income along with tax audit report. Therefore, we are of the considered view that reasons given by the assessee for not filing tax audit report prescribed u/s.44AB of the Act, is neither intention nor any mala fide intention, but it is venial technical breach and for this reason, penalty u/s.271B of the Act, cannot be levied. This principle is supported by the decision of the Hon ’ble jurisdictional High Court in the case of P. Senthil Kumar v. PCIT reported in 416 ITR 336, where an identical issue had been considered by the Court and held that for venial technical breach without any mala fide intention, penalty cannot be levied. The ITAT Cochin Bench in ITA No.41 1/Cochin/2018 vide order dated 05.02.2019 had held that once audit report has been made available before the AO, when the assessment proceedings were completed, then, there is no reason for levy of penalty.
8. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that reasons given by the assessee for not filing tax audit report within due date comes under reasonable cause as provided u/s.271B of the Act, and thus, the AO is erred in levying penalty u/s.271B of the Act. Hence, we direct the AO to delete penalty levied u/s.271B of Act. ”….
7. In this view of the matter and by following the decision of the coordinate Bench of the Tribunal in the case of M/s. T P D 101 Uthangarai Milk Producers Co-operative Society Ltd. (supra), we direct the AO to delete penalty levied u/s.271B of the Act.
8. In the result, the appeal filed by the assessee is allowed.”
6.2 Respectfully following the above decision of the Coordinate Benches of the Tribunal in the case of Balaji Logistics v. ACIT (supra) for the assessment year 2015-16, we are of the considered opinion that it is not a fit case for the levy of penalty under section 271 B of the Act and accordingly, the penalty levied stands deleted.
On the other hand, the Ld. DR supported the order of the authorities below. Ld. DR has strongly opposed the contention of the Ld.AR have reiterated the reason for levy of penalty that the company is a different entity from the Directors of the company and the records of the company should be under the custody of the company and not to be kept with the Directors. The reason stated for delay in preparation of submission of Audit Report by the assessee is not tenable and reasonable. It is a clear cut case of failure on the part of the assessee to get audit u/s.44AB of the Act, completed within the prescribed time limit. The assessee company was also failed to produce any external evidences or any document in support of legal steps taken against the Directors on account of disputes between the Directors and the assessee company. It was the submission of the Ld. DR that in such circumstances, the AO has suitably imposed the penalty u/s.271B of the Act. on the assessee which has rightly been confirmed by the Ld. CIT(A), NFAC, Delhi, vide order dated 27.03.2023 u/s.250 of the Act.
6. We have considered the rival submissions, perused the material available on record, gone through the orders of the authorities below and order of the Tribunal on which the reliance was placed by the Ld.AR. In the present case, the penalty u/s.271B of the Act, was levied on the assessee on account of delay in filing of Audit Report u/s.44AB of the Act. Admittedly, the assessment u/s.143(3) of the Act, was completed on 16.06.2020, the Audit Report was to be submitted as prescribed under the law on or before 31.10.2018, however, the Audit Report was filed on 30.03.2019. On perusal of the penalty order, the reason for delay in filing of the Audit Report was disputes between the directors of the assessee company whereby books and records were kept by one of the Director and the delay was on account of recovering those books of accounts from the said Director. Internal documentation in the form of e-mails, reminders were produced before the AO. However, the AO has not considered them as a reasonable evidence for the delay and has required external evidences showing legal steps taken for recovery of books and documents from the Director. It is also a fact that Audit Report was filed on 30.03.2019 with the Department before culmination of the assessment u/s.143(3) of the Act, on 16.06.2020. Therefore, the audit report was available with the AO at the time of assessment proceedings, thus, we do not see any intentional reason on the part of the assessee to delay the filing of report in order to interrupt or disturb the assessment proceedings conducted by the Department. In back drop of such facts, we are of the view that the Tax Audit Report was made available to ld.AO before completion of assessment proceedings. Therefore, this is just a technical breach without any malafide intention of the assessee, consequently, the penalty u/s.271B of the Act, cannot be levied. Our view is squarely in consonance to the view taken by co-ordinate Bench of this Tribunal, ITAT Chennai Benches in the case of Puducherry Tourism Development Corporation Ltd. v. ITO (supra), thus respectfully following the same, we set aside the order of lD. CIT(A)(NFAC) and direct the ld. AO to delete the penalty levied u/s 271B.
7. In the result, appeal filed by the assessee is allowed.
Order pronounced on the 23rd day of June, 2023, in Chennai.
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