Case Law Details
ACIT Vs Haneefa Sahib Shajahan (ITAT Chennai)
The ITAT, Chennai in the Assistant Commissioner of Income Tax, v. Haneefa Sahib Shajahan, [I.T.A. No.931/Chny/2022 dated January 24, 2023] has upheld the decision of the Appellate Authority, deleting the penalty levied for failure to get accounts audited as per Section 271B of the Income Tax Act, 1961 (“the IT Act”) and for filing tax audit report belatedly, on the grounds that the assessee was prevented by reasonable cause due to its pathetic condition and heavy losses incurred in its business.
Facts:
Haneefa Sahib Shajahan (“the Respondent”) had filed its Income Tax Returns on March 24, 2018 for the Assessment Year (“A.Y.”) 2017-18 claiming the loss of INR 51,19,878/-. The case was selected for scrutiny and the assessment was completed under Section 143(3) of the IT Act.
However, as the audit report was filed beyond the due date, penalty proceedings were initiated by the Revenue Department (“the Appellant”) under Section 271B of the of the IT Act. In the penalty proceedings, the Appellant noted that the Respondent’s gross receipts in the A.Y. 2017-18 were to the tune of INR 27,17,11,367/- which was above the threshold of INR 1 crore, hence, the Respondent was required to get its accounts audited under Section 44AB of the IT Act before the due date. However, the Respondent had not filed the tax audit report under Section 44AB of the IT Act before the due date, and thus, the Appellant levied penalty of INR 1,50,000/- under Section 271B of the IT Act.
The Respondent preferred an appeal, and contended that, its business had come to a total standstill to the level that its properties were put to auction by the bank, by filing detailed year-wise sales turnover of its jewellery business and heavy loss incurred in its fish net business. Consequently, the Appellate Authority deleted the penalty levied under Section 271B of the IT Act by vide order dated September 16, 2022 (“the Impugned Order”).
Being aggrieved, this appeal has been filed.
Issue:
Whether the penalty levied under Section 271B of the IT Act is sustainable?
Held:
The ITAT, Chennai in I.T.A. No.931/Chny/2022 held as under:
- Noted that, the Appellant had not complied with the defect notice issued for filing of grounds of appeal.
- Further noted that, the Respondent did not appear for the hearing.
- Stated that, the Respondent was prevented by reasonable cause for not getting its books of accounts audited in time as required under the provisions of Section 44AB of the IT Act, but filed the tax audit report before completion of the assessment, therefore, it was not fit for the levy of penalty.
- Upheld the decision by the Appellant Authority deleting the penalty for failure to get accounts audited as per Section 271B of the IT Act.
Relevant Provisions
Section 271B of the IT Act:
“Failure to get accounts audited.
If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred fifty thousand rupees, whichever is less.”
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 16.09.2022 relevant to the assessment year 2017-18.
2. Brief facts of the case are that the assessee filed the return of income on 24.03.2018 for the assessment year 2017-18 claiming loss of ₹.51,19,878/-. The case was selected for scrutiny under CASS. The assessment was completed under section 143(3) of the Income Tax Act, 1961 [“Act” in short] by accepting the returned income. Since the audit report was filed beyond the due date, the Assessing Officer has initiated penalty proceedings and issued notice under section 271B the Act dated 10.03.2021. In the penalty proceedings, the Assessing Officer has noted that during the relevant assessment year, the total gross receipts were to the tune of ₹.27,17,11,367/-, which is more than ₹. 1 crore and therefore, the assessee was liable to file the tax audit report as required under section 44AB of the Act before the due date. However, the assessee has filed the tax audit report belatedly. After considering the submissions of the assessee and in view of the provisions of section 271B of the Act, the Assessing Officer levied penalty of ₹.1,50,000/-. On appeal, the ld. CIT(A) (NFAC) deleted the penalty levied under section 271B of the Act.
3. Aggrieved, the Revenue is in appeal before the Tribunal. The Department has not complied with the defect notice issued by the Tribunal for filing of grounds of appeal before the ITAT. However, the ld. DR supported the penalty levied under section 271B of the Act.
4. None appeared on behalf of the assessee and hence we proceed to decide the appeal on merits after hearing the ld. DR.
5. We have heard the ld. DR, 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 gross receipts in the year under consideration were to the tune of ₹.27,17,11,367/- and since the receipts were above the threshold of ₹.1 crore, the assessee was required to get his accounts audited under section 44AB of the Act. 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. On appeal, after considering the submissions of the assessee, the ld. CIT(A) has observed as under:
“5.3 I have considered the facts of the case and the submissions of the appellant. The facts of the appellant’s case are similar to those of Attinkara Electronics vs. ITO, Thiruvalla cited supra. In that case too, the assessee had got his books of accounts audited, though belatedly, but the audit report was produced before the AO before completion of the assessment. The Hon’ble ITAT Cochin Bench, relying on various decisions had held that the assessee had only committed a technical venial breach which did not cause any loss to the exchequer. The Bench also held the ill-health of the partner and the malfunctioning of the computer system to be reasonable causes for not furnishing the audit report before the AO within the stipulated time. The ratio laid down in the case of Attinkara Electronics vs. ITO, Thiruvalla, as well as the case laws cited therein, support the case of the appellant. Further, the dire financial condition of the appellant appears to be a reasonable cause for the appellant not getting the audit completed within the stipulated time. It is not the case of the AO that the appellant has deliberately and wilfully contravened the provisions of the law. Taking the totality of facts and circumstances of the case in account, I am of the considered view that there existed compelling reasons for the appellant to not get her accounts audited in time as required under the provisions of section 44AB. Therefore, I hold this to be not a fit case for the levy of penalty u/s 271 B of the Act. The penalty is accordingly ordered to be deleted.”
6. By filing detailed year-wise sales turnover of assessee’s jewellery business and heavy loss incurred in the fish net business, the assessee has submitted before the ld. CIT(A) that her business was totally came to a standstill and matters went to a very critical level that her properties were put for auction by the bankers (M/s. Karur Vysya Bank), due to her inability to repay the loan or the mounting interest liability and also filed notice for sale of immovable properties published by the bankers in the leading news papers for recovery of ₹.29.60 crores as on 31.01.2022 plus interest till the date of settlement. Considering the pathetic condition of the assessee as well as by following various case law, the ld. CIT(A) has observed that the books of accounts audited, though belatedly, but the audit report was produced before the Assessing Officer before completion of the assessment. Since the assessee was prevented by reasonable cause for not getting her books of accounts audited in time as required under the provisions of section 44AB of the Act, but filed the tax audit report before completion of the assessment, the ld. CIT(A) has held that it is not a fit case for the levy of penalty under section 271B of the Act and accordingly, the penalty levied was deleted. We find no infirmity in the order passed by the ld. CIT(A) and thus, the appeal filed by the Revenue is dismissed.
7. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on the 24th January, 2023 at Chennai.
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