Case Law Details
Apeejay Education Society Vs DCIT (ITAT Chandigarh)
ITAT Chandigarh held that imposition of penalty u/s. 271(1)(b) of the Income Tax Act unjustified as special audit completed u/s. 142(2A) and audit report submitted within the extended time limit provide by AO.
Facts- The present appeal is filed by the appellant against the order of CIT(A), whereby, penalty u/s. 271(1)(b) of the Income Tax Act is upheld. Notably, the penalty u/s. 271(1)(b) is imposed on the appellant for not complying with the directions for special audit under section 142(2A) of the Income Tax Act issued by the Assessing Officer.
Conclusion- Held that the assessee, felt aggrieved with the action of the AO in directing the special audit, had moved a writ petition before the Hon’ble Punjab and Haryana High Court. The AO was very much ceased of the said matter and even the special auditors were informed about the same. Therefore, where the assessee is seeking a legal remedy available under the law against the action of the AO in ordering the special audit, the time taken from filing the writ petition to the disposal of the writ petition (even though no stay was granted) by the Hon’ble High Court deserve to be excluded. Apparently, considering the same where the AO has extended the time limit for submitting the report of the special auditor, the same cannot be held against the assessee.
The Special audit has been completed u/s 142(2A) and the audit report has been submitted on 21.06.2019 which is well before within the extended time limit provided by the AO i.e, by 25.06.2019, therefore, there is no basis to fasten the charge on the assessee that there is violation of directions issued u/s 142(2A) of the Act.
Held that the assessment order has been passed u/s 143(3) taking into consideration the findings and report of the special auditor u/s 142(2A), therefore, we find that there is no justifiable basis for levy of penalty u/s 271 (1) (b) of the Act.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
This is an appeal filed by the Assessee against the order of the Ld. CIT(A), NFAC, Delhi dt. 29/09/2022 pertaining to Assessment Year 2016-17 wherein the assessee has raised the following grounds of appeal:
“1. That the learned CIT(A) fell in grave error by passing the order without giving opportunity of hearing to the assessee inspite of his request to do so
2. That the learned CIT(A) fell into grave error passing a non-speaking order without commenting/adjudicating on the submissions of the assessee.
3. That the learned CIT(A) fell into grave error by not passing a proper speaking He fell in grave error by relying on decision of Hon’ble Apex Court which has no connection with penalty under section 271(1)(b)
4. That the learned Commissioner of Income Tax (A) fell into grave error by confirming the penalty of Rs. 10,000/-.
5. That the appellant craves leave to add, amend, alter and/or delete any of the above grounds of appeal at or before the time of hearing.”
2. Brief facts of the case are that the present appeal is against the order of the ld. CIT(A)/NFAC dated 28.09.2022, wherein ld. CIT(A)/NFAC has upheld the penalty order dated 03.05.2019 passed under Section 271(1)(b) of the Income Tax Act 1961 by the Assessing officer.
3. During the course of hearing, the ld AR submitted that the order under Section 271(1) (b) of the Act passed on 03.05.2019 is for the alleged default of the assessee for not complying with the directions for special audit under Section 142(2A) of the Act issued by the Assessing officer.
4. It was submitted that the case of the assessee is that it had approached the Hon’ble Punjab and Haryana High Court for stay of reference to special audit under Section 142(2A) of the Act. It was submitted that the fact that the assessee had filed a Writ Petition and pursuing the matter before Hon’ble Punjab and Haryana High Court was very much in the knowledge of Assessing officer, who had personally appeared before the Hon’ble High Court. The Hon’ble High Court had also issued notice regarding the stay of the special audit and the proceedings were going on before the Hon’ble High Court.
5. It was submitted that it is incorrect to say that the letter/communication issued by auditor had not been complied with. It is noted by the Assessing officer on page no.2 of penalty order that the representative of the assessee met the special auditor and informed that the Assessee had challenged the 142(2A) order before Hon’ble Punjab and Haryana High Court. Not only that, the Assessee had also filed application before Chief Commissioner of Income Tax (Exemptions) against the reference to special audit and this fact was informed to special auditor vide letter dated 11.01.2019. It is not the case of non-compliance rather the Assessee was pursuing alternate remedy before the Hon’ble High Court.
6. It was submitted that the stay on special audit was not granted by the Hon’ble High Court and all the details were provided to Special auditor and the Special audit was thereafter completed on 21 .06.2019 and on the basis of special audit report, the Assessment was completed by the AO vide his order dated 18.08.2019 passed under Section 143(3) of the Act. It was submitted that where the assessment proceedings have been completed taking into consideration the report of the Special auditor, there was effective compliance to the directions issued u/s 142(2A) by the AO and the assessee cannot be penalized merely for the reason that it was pursuing alternate remedy before the Hon’ble High Court.
7. In support, reliance was placed on the decision of Coordinate Lucknow Benches in case of M/s Sursadhana Barter Pvt. Ltd. vs. DCIT, Central Circle- 9 (ITA No. 169/LKW/2018 dated 7. 12.20 18) wherein it was held as under:
“5. We have heard the rival parties and have gone through the material placed on record. We find that assessee during the assessment proceedings did not comply with the notice issued u/s 142(1) therefore, the authorities below have imposed penalty u/s 271(1)(b) of the Act. However, we find that finally the assessee did appear before the assessment proceedings and assessment was completed u/s 147/143(3) of the Act. Under similar circumstances I.T.A.T. Lucknow Bench of the Tribunal in the case of Smt. Reeta Patel vs Income Tax Officer in l.T.A. No.598/LKW/2016 has deleted the penalty observing as under:
“5. We have heard the rival parties and have gone through the material placed on record. We find that assessee during the assessment proceedings did not comply with the notices issued u s 142(1) on various dates which learned CIT(A) and Assessing Officer have noted in their order and therefore, the authorities below have imposed penalty u/s 271(1)(b) of the Act. However, we find that finally the assessee did appear before the assessment proceedings and assessment was completed us 143(3) and thereafter, the matter travelled upto Tribunal, which vide order dated 30/01/2017 allowed the appeal of the assessee for statistical purposes. Therefore, we do not see any reason to uphold the order of Off (A). We reverse the same and allow the appeal filed by the assessee. “
6. In the result, the appeal of the assessee is allowed.”
8. Reliance was also placed on the decision of the Coordinate Delhi Benches in case of Shiv Vani Petro Services Pvt. Ltd. vs. Asstt. Commissioner of Income Tax (l.T.A. 4792-4796/Del/2013 dated 6.02.2014) wherein it was held as under:
“9. Furthermore, we note that is all the assessment years in these cases assessment orders were passed under section 153A read with section 143(3) of the I. T. Act and not under section 144 of the I.T. Act. In such circumstances, we agree with the Ld. Counsel of the assessee that the assessee made the compliance in the assessment proceedings and as such there could be no reason to come to the conclusion that default was deliberate or willful.
10. In this regard Ld. Counsel further referred to the decision of this Tribunal in Akhil Bhartiya Prathmik Shikshak Sangh Akhil Bhartiya Prathmik Shikshak Sangh Bhawan Trust Bhawan Trust Assistant Director of Income Tax. (2008) 115 TTJ (Assistant Director of Income Tax, (2008) 115 TTJ (Del.) 419. 8) 115 TTJ (Del.) 419. In this case Del.) 419. it was held that assessment have been made under section 143(3) and not under section 144 of the IT Act. It means that subsequent compliance in the assessment proceedings was considered as good compliance and the defaults committed earlier were ignored by the AO. Hence, the penalty u/s 27I(l) (b) could not be levied.
11. We further find that assessee’s conduct in this case cannot be termed as contumacious so as to warrant levy of penalty. In this regard, we refer to the decision of the Hon’ble Apex Court rendered by a larger Bench comprising of three of their Lordships in the ease of Hindustan Steel vs. State of Orissa in 83 ITR 26. In ibis case it was held that that “An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penally will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute. “
9. It was further submitted that the Assessing officer had also levied penalty under Section 271(1)(b) of the Act for the same Assessment Year vide order dated 29.10.2018. The Assessee had also filed appeal against the said order and the penalty was deleted by the ld CIT(A) and appeal of the assessee was allowed vide order dated 01.05.2019. The Assessing officer thereafter filed an application under Section 154 of the Act dated 07.2019 before the CIT(A). The said 154 application was also rejected by CIT(A) vide order dated 12.02.2020. It was submitted that the same shows the way as to how Assessing officer was levying the penalty under Section 271 (1 ) (b) of the Act in spite of full cooperation of the Assessee and which has been deleted by the ld CIT(A).
10. In light of aforesaid submissions, it was submitted that penalty imposed under Section 271 (1) (b) of the Act may kindly be deleted.
11. Per contra, the ld DR drawn our reference to the penalty order. t was submitted that the assessee was directed to get its accounts audited u/s 142(2A) of the income- tax Act, 1961 by M/s Kumra Bhatia & Co, New Delhi and to furnish final report of such audit in the prescribed form i.e. Form 6B vide letter no. 1130 dated 28.12.2018. Vide this letter, the assessee was also directed to cooperate in the special audit proceedings. However, the assessee totally disregarded the directions u/s 142(2A) of the I.T. Act. Accordingly, a detailed show cause notice u/s 274 r.w.s. 271 (1) (b) was issued on 11.04.2019. In response to the show cause, the assessee submitted its reply on 20.04.2019 stating that the Hon’ble High Court had issued notice regarding the stay of the special / audit and no objections had been filed by the respondents and that the assessee had complied to the notices of the Special auditors by sending them emails and giving them reasons for delay. The assessee did not avail the opportunity of being heard on 22.04.2019. In the reply, the assessee reiterated the same arguments as were given by it vide letter dated 20.04.2019. The A.R. of the assessee was again told that the assessee is well aware that the Hon’ble High Court has not stayed the special audit proceedings despite the counsel of the assessee strongly asking for the same. It was aso noted that the matter regarding stay of special audit proceedings ti l decision by the Court was again brought up by the counsel of the assessee before the Hon’ble High Court on the hearing dated 02.05.2019. Once again, the Hon’ble High Court categorical y stated that stay was not granted. It was submitted that the assessee despite knowing al the above facts of the case that no stay of special audit proceedings has been granted, has deliberately shown scant regard for the directions issued u/s 1 42(2A) of the Act and being satisfied that it was a fit case for levy of penalty u/s 271 (1)(b), the AO imposed the penalty of Rs. 10,000/- on the assessee u/s 271(1)(b) of the Income-tax Act, 1961 for failure to comply with the directions issued u/s 142(2A) of the lncome-Tax. Act, 1961 which has rightly been confirmed by the ld CIT(A). It was accordingly submitted that there is no infirminity in the order so passed by the ld CIT(A) and the same be confirmed and the appeal of the assessee be dismissed.
12. We have heard the rival submissions and purused the material available on The charge against the assessee is failure to comply with the directions issued by the Assessing officer u/s 142(2A) of the Act whereby the assessee was directed to get its accounts audited by the Special auditor nominated by the appropriate authority and to furnish the audit report with such period as may be specified by the Assessing officer.
13. It has been provided in section 142(2A) of the Act that where during any stage of the proceedings, the Assessing officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts, or specialized nature of business activity of the assessee and interest of the Revenue, is of the opinion that it is necessary so to do so, he may with previous approval of the Competent authority, direct the assessee to get the accounts audited by an accountant as nominated by the Competent authority. It has also been provided that the AO shall not direct the assessee to get its audited unless the assessee has been given a reasonable opportunity of being heard. It has also been provided that the Assessing officer for good and sufficient reasons can extend the period for furnishing the audit report and such period so extended shall not exceed 180 days from the date on which the directions under section 142(2A) were received by the assessee.
14. In the instant case, the directions u/s 142(2A) were issued by the AO on 12.2018 to the assessee to get its accounts audited and to submit the audit report latest by 7.04.2019. The time limit to submit the audit report was subsequently extended to 25.06.2019 by the AO vide his letter dated 9.04.2019. The Special audit was thereafter completed on 21.06.2019 and audit report submitted to the AO and taking into consideration the audit report, the assessment order was passed by the AO u/s 143(3) dated 18.08.2019.
15. In this factual background, if we see the penalty order passed u/s 271(1)(b) of the Act, we find that firstly, the penalty order has been passed by the AO on 3.05.2019 holding the assessee in violation of directions issued u/s 142(2A) whereas the AO himself has extended the time limit for submission of the audit report to 21.06.2019. Therefore, it is a case where the AO formed an opinion even prior to the completion of the extended time limit that the assessee has committed a default and is in violation of the directions issued u/s 142(2A) of the Act, which to our mind, is completely incomprehensible to understand and appreciate as the same acks the very foundation for fastening the charge on the assessee which is to furnish the audit report within the extended period so provided by him.
16. Further, if we look at the reasons behind the extension of the time limit, we find that the assessee, felt aggrieved with the action of the AO in directing the special audit, had moved a writ petition before the Hon’ble Punjab and Haryana High Court. The AO was very much ceased of the said matter and even the special auditors were informed about the same. Therefore, where the assessee is seeking a legal remedy available under the law against the action of the AO in ordering the special audit, the time taken from filing the writ petition to the disposal of the writ petition (even though no stay was granted) by the Hon’ble High Court deserve to be excluded. Apparently, considering the same where the AO has extended the time limit for submitting the report of the special auditor, the same cannot be held against the assessee.
17. The Special audit has been completed u/s 142(2A) and the audit report has been submitted on 21 .06.2019 which is well before within the extended time limit provided by the AO i.e, by 25.06.2019, therefore, there is no basis to fasten the charge on the assessee that there is violation of directions issued u/s 142(2A) of the Act.
18. Further, as held by the various Coordinate Benches, referred supra, where assessment proceedings have been completed under section 143(3) and not under section 144 of the IT Act, it means that subsequent compliance in the assessment proceedings was considered as good compliance and the defaults committed earlier were ignored by the AO and in such circumstances, it was held that the penalty u/s 27I(1)(b) could not be levied. In the instant case as well, we find that the assessment order has been passed u/s 143(3) taking into consideration the findings and report of the special auditor u/s 142(2A), therefore, following the decisions referred supra, we find that there is no justifiable basis for levy of penalty u/s 271 (1) (b) of the Act. The penalty so levied is hereby directed to be directed.
19. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 18/10/2023.
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