ITAT Hyderabad held in the case of Sai Prasanthi Realtors & Sai Eswar Real Estates & Developers v. Dy. CIT that if assessee has obtained audit report before due date, but did not enclose audit report along with return of income due to CBDT instructions in this regard then, imposition of penalty under section 271B was not justified.
As seen from the order of the assessing officer under section 153C, it is very clear that assessing officer 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 assessing officer 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 under section 153C, assessing officer should have treated the return as defective return. No such action was taken by the assessing officer, which indicates that the return is complete in all respects. Since prior approval of the Addl. Commissioner under section 153D was also taken by the assessing officer 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 under section 271B. Accordingly, penalty levied is cancelled.