Case Law Details
Murugesh Shantveerya Hiremath Vs DCIT (ITAT Pune)
Income Tax Appellate Tribunal (ITAT) Pune ruled in favor of Dr. Murugesh Shantveerya Hiremath, setting aside a ₹1,50,000 penalty imposed under Section 271B of the Income Tax Act. The penalty was initially levied due to the delayed submission of the tax audit report for Assessment Year 2018-19. The assessee, a cardiologist, had gross professional receipts exceeding the audit threshold but failed to submit the audit report within the due date. The delay stemmed from the Income Tax Department impounding key financial records during a survey in 2017, making it impossible to finalize accounts on time. Additionally, the Chartered Accountant handling the audit ceased practice, further delaying the process. The ITAT accepted these as valid reasons, concluding that the delay was beyond the assessee’s control.
The tribunal cited legal precedents, emphasizing that penalties under Section 271B should not be imposed when there is a reasonable cause for non-compliance. It noted that financial records for the previous year (2016-17) had to be finalized before auditing the subsequent year, making timely compliance unfeasible. By applying the principles from a similar case, APL (India) Pvt. Ltd. vs. JCIT, ITAT Pune ruled that the penalty was unjustified and directed its removal. The ruling reinforces that procedural delays beyond an assessee’s control should be considered before imposing penalties, ensuring fairness in tax compliance enforcement.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the assessee is directed against the order dated 20.06.2024 passed by Ld. CIT(A)-11, Pune [‘CIT(A)’] for the assessment year 2018-19.
2. The appellant has raised the following grounds of appeal :-
“1) The learned CITA NFAC erred in confirming the levy of penalty under section 271B of the Income Tax Act even though the tax payer had a reasonable cause for not getting his accounts audited for the relevant previous year.
2) The penalty of Rs. 1,50,000/- imposed under section 271B be cancelled.
3) Such other orders be passed as deemed fit and proper.
4) The appellant prays for leave to add to, modify or amend his grounds of appeal and lead evidence.”
3. The facts of the case, in brief, are that the assessee is an individual engaged in medical profession being a qualified doctor (cardiologist). The assessee has e-filed his return of income on 27-03-2019 declaring total income of Rs.4,39,14,050/-. The case was selected for compulsory scrutiny, since a survey u/s 133A was conducted at the premises of the assessee on 07-09-2017. The assessment was completed as per books of accounts & the income returned by the assessee was accepted as it is. However, the AO noted that the gross professional receipts of the assessee are Rs.6,84,08,433/- but the audit report was not uploaded, as per provisions of section 44AB of the IT Act on or before the due date as prescribed u/s 139(1) of the IT Act, accordingly penalty proceeding u/s 271B of the IT Act were initiated. Subsequently, after considering the reply of the assessee, the AO imposed penalty of Rs.1,50,000/- u/s 271B of the IT Act, by observing that the assessee has committed default in obtaining & e-filing of the Audit Report before the prescribed due date, without having any reasonable cause.
4. Being unsatisfied with the reply of the assessee, Ld. CIT(A) dismissed the appeal of the assessee & confirmed the penalty u/s 271B of the IT Act as imposed by the Assessing Officer.
5. Being aggrieved with the decision of Ld. CIT(A), the assessee is in appeal before this Tribunal.
6. Ld. AR appearing from the side of the assessee submitted before us that the assessee was prevented by reasonable and genuine cause for not getting his accounts audited in time. It was submitted by the counsel of the assessee that during survey operation at his premises relevant books of accounts including various receipt books, daily collection sheet and various relevant loose papers were impounded by the Department. Ld. AR further submitted that an application to get the copy of statements and impounded papers was filed before the DCIT, Circle-11, Pune on 14.09.2017, but the same were provided to the assessee on 19th of January, 2018. Due to this reason, even the books of accounts for the period 01.04.2016 to 31.03.2017 could not be closed in due time which resulted in delayed finalization of books of accounts of financial year 2016-17 and consequently the finalization of books of accounts for financial year 2017-18 also got delayed. Ld. AR also submitted that until and unless the books of accounts for financial year 2016-17 are completed the balances to be carried forward for financial year 2017-18 cannot be available and therefore in such kind of situation the assessee could not get the audit for financial year 2017-18 done within the time limit prescribed under the provisions of the IT Act. It was also submitted that the Chartered Accountant who was looking after the audit of books of accounts has stopped his practice and a new Chartered Accountant was searched and appointed who finalized the books of accounts and first completed the audit of financial year 2016-17 and then completed the audit of financial year 2017-18. Ld. AR furnished a paper book wherein ITR- V of financial year 2016-17 i.e. Assessment Year 2017-18 and financial year 2017-18 i.e. Assessment Year 2018-19 were enclosed and it was submitted before the Bench that the income tax return of both the above assessment years were furnished on 27.03.2019, which proves that the books of accounts for financial year 2016-17 and financial year 2017-18 were completed in the month of March, 2019. Accordingly, it was submitted before the Bench that the assessee was prevented by above reasonable and sufficient cause (books of accounts for immediate preceding year i.e. Financial Year 2016-17 were not completed), therefore imposition of penalty u/s 271B of the IT Act is unjustified.
7. On the other hand, ld. DR relied on the orders passed by the subordinate authorities and requested to confirm the same.
8. We have heard Ld. Counsels from both the sides and perused the material available on record. The issue in the present appeal relates to the imposition of penalty u/s 271B of the IT Act for failure of the assessee to get accounts audited in respect of the previous year 2017-18 relevant to the assessment year 2018-19 as required u/s 44AB of the IT Act and furnished to the Assessing Officer before specified due date i.e. due date for filing the return of income. However, admittedly, in the present case, it is the case of the appellant that the tax audit report was filed belatedly along with return of income though the tax audit report was not obtained before the specified date. It is the contention of the assessee that the delay in getting the accounts audited is mainly due to the impounded documents & lapse on the part of the chartered accountant, who stopped his practice. It was also the contention of Ld. counsel of the assessee that until & unless the audit for immediate preceding year is completed the audit of subsequent year cannot be done. Admittedly, the audit of Financial Year 2016-17 was completed in March 2019 & obviously the audit of Financial Year 2017-18 cannot be done prior to that. We find force in the arguments of the assessee that under the above peculiar circumstances of the case the assessee was prevented by reasonable & genuine cause for not getting the books of accounts completed & audited in time. Therefore, considering the totality of the facts of the case we are of the considered opinion that the assessee was prevented by sufficient & reasonable cause for not getting the books of accounts audited in time. In this regard, we rely on the decision passed by a Co-ordinate Bench of this Tribunal in the case of APL (INDIA) (P) LTD vs. JCIT, ITA No.4796/MUM/2012 order dated 25/10/2013, wherein, the penalty u/s 271B of the IT Act was deleted in identical situation by observing as under :-
“3. We have heard both parties and their contentions have carefully been considered. According to section 273B, no penalty shall be imposable on the person or the assessee, as the case may be for any failure which interalia include the defaults mentioned in section 271B, if he proves that there was reasonable cause for the said failure. A plain reading of section 273B makes it clear that the same is a procedural law with regard to the question of imposition of penalty under different sections which include section 271B. Section 271B maintains imposition of penalty on the failure but, by reason of rule of evidence provided under section 273B, such imposition of penalty is dependent on the proof that there was no reasonable cause for the failure. Omission of the particular phrase from the substantive law and incorporation thereof in the procedural law bears the legislative intent to make the provision of section 271B coercive instead of penal. The amendment was intended to remove the scope of any confusion with regard to the characteristics and nature of the proceedings under section 271B. The word “may” employed under section 271B though may be interpreted as discretionary yet that discretion is limited within the convenience of section 273B providing the A.Y.08-09 procedure thereof. The word “may” has been used only to accommodate the procedural law enabling the assessee to prove that there was a reasonable cause for the failure. Unless it is proved that there was reasonable cause for the failure there is no escape from the imposition of penalty. Section 271B does not leave any discretion at the hands of the authority except as provided in section 273B. It is only when reasonable cause for the failure is proved, the penalty can be avoided. Therefore, the liability in the form of penalty can be imposed simply on the default if it is not explained by proving reasonable cause for the default. There can not be any proposition conceived of to the extent that if there was a substantive compliance or if there was no absolute default then penalty can not be imposed. But the statute has used the expression “may” employed in 271B which can not be treated to be mandatory. It has left a discretion that the taxing authority in given facts and circumstances may not impose penalty if they are satisfied that there was sufficient ground for not imposing penalty. But it depends on the facts of each case and having regard to the materials placed before it or where the finding is such that it can conceive of two alternate meaning, then the meaning beneficial to the assessee has to be accepted. Reference in this regard can be made to the decision of the Hon’ble Calcutta High Court in the case of CIT vs. Capital Electronics (261 ITR 4).
3.1 If the facts of the present case are examined in the light of law laid down in the aforementioned decision then even according to facts and circumstances of this case there is material on record according to which it can be said that the Assessee was prevented by sufficient cause for non-compliance with the provisions of section 44AB. The reason given in the present case for non-compliance with the statutory provisions of section 44AB is late completion of statutory audit by the auditors which was completed on 21.04.2009. After completion of the said statutory audit, within a reasonable time i.e. within a period of little more than 2 A.Y.08-09 months, the assessee obtained tax audit report on 25/06/2009 and return was e-filed on 03.09.2009. Without completing statutory audit, the Assessee could not have obtained tax audit report, which constitutes reasonable cause. This plea was raised by the assessee even before the AO and AO has not doubted such contention of the assessee. The Hon’ble Punjab & Haryana High Court in the case of CIT vs. Punjab State Leather Development Corporation Ltd. (171 CTR 451) has held that delay in completion of statutory audit was reasonable cause for non- compliance with section 44AB and it was held that the Tribunal was right in cancelling penalty levied under section 271B.
4. In view of our discussion, we are of the opinion that CIT(A) was not right in upholding the levy of penalty under section 271B. Penalty is directed to be deleted.
5. Appeal by the assessee is allowed.”
9. Therefore, respectfully following the above decision passed in the case of APL (INDIA) (P) LTD vs. JCIT (supra), we hold that the assessee in the instant case was prevented by reasonable cause in not getting the accounts audited in time and accordingly, we direct the Assessing Officer to delete the penalty of Rs.1,50,000/- levied u/s 271B of the IT Act. Thus, the ground of appeal filed by the assessee is allowed.
10. In the result, the appeal filed by the assessee stands allowed. Order pronounced on this 02nd day of January, 2025.
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