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.
