Case Law Details
Revanta Hometex India Pvt. Ltd Vs CIT (ITAT Mumbai)
ITAT Mumbai held that penalty under section 271B of the Income Tax Act for delay in furnishing of audit report not leviable on account of reasonable cause shown that delay was due to the death of director who was also an accountant of the company.
Facts- The assessee e-filed its return of income on declaring a total loss of Rs. 58,03,371. The return filed by the assessee was selected for scrutiny and statutory notices u/s. 143(2) as well as section 142(1) of the Act were issued and served on the assessee. On the basis of material available on record, AO passed order accepting the explanation provided by the assessee and assessed the total income at Rs. Nil. Since the assessee has filed the return belatedly, the losses claimed were not allowed to be carried forward.
Meanwhile, the penalty proceedings vide notice dated 16/03/2021 issued u/s. 271B r/w section 274 of the Act were initiated for the failure to get accounts audited or failure to furnish the audit report as per the provisions of section 44AB of the Act. The said notice was responded to by the assessee on 03/05/2021. The AO vide penalty order dated 29/10/2021 passed u/s. 271B of the Act did not agree with the submissions of the assessee and levied a penalty of Rs. 1,50,000.
CIT(A) upheld the levy of penalty. Being aggrieved, assessee has preferred the present appeal.
Conclusion- The audit report under section 44AB of the Act was filed by the assessee belatedly on 05/07/2020 and was available with the AO during the course of the assessment. As per the assessee, the director, who was also an accountant and was looking after the affairs of the company, had expired on 03/10/2017, and therefore not only the return of income but also the tax audit report could not be filed on time.
Held that when the loss return has been accepted by the Revenue and the audit report filed belatedly was available with the AO during the assessment proceedings, we are of the view that no adverse inference can be drawn against the assessee for not filing the audit report within the prescribed time. In view of the above, we are of the considered view that the assessee had reasonable cause in terms of section 273B for not furnishing the audited report under section 44AB of the Act in time. Thus, the AO is directed to delete the penalty of Rs.1,50,000 levied under section 271B of the Act. As a result, the grounds raised by the assessee are allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. The present appeal has been filed by the assessee challenging the impugned order dated 16/02/2023, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”] for the assessment year 2018–19, which in turn, arose from the penalty order dated 29/10/2021, passed under section 271B of the Act.
2. In its appeal, the assessee has raised the following grounds:–
“1. The Assessing Officer has erred in treating the appellant’s case as one where no Tax Audit Report is filed.
2. The Assessing Officer has not considered the reasons for delay in filing the Audit Report as per the response of the appellant.
3. The Assessing Officer is not justified in saying that the appellant has not responded to the Show Cause Notice dated 12-08-2021 as the appellant could not file his response due to glitches in the Income Tax Portal.
4. The Assessing Officer even when the final Show Cause Notice is not responded to should have considered the communication given by the appellant and received by the department on 03-05-2021 in response to initial Show Cause Notice.
5. The Assessing Officer has erred in not considering the decision of the Gemini Coach Builders cited in the letter.
6. The Assessing Officer should also consider the appellant’s delay in filing the Audit Report in the light of the observations in Para 7.7 6. and 7.8 of the decision reported in ITA No.2221/A hd/2018-A.Y.2013-1 4, ITA No. 2222/A hd/2018-A. Y. 2013-14.
7. As the returned loss is accepted by the department, no adverse inference should have been taken by the department for late filing of Audit Report which was available in the course of assessment.
8. The department is not justified in concluding that there was no reasonable cause for delayed submission of Audit Report.
9. As the notice issued for the levy of penalty is an Omnibus Notice where the inapplicable portions were not struck off, any penalty imposed on the basis of such invalid notice is bad in law.
10. The CIT (Appeals) has grossly erred in totally ignoring the additional grounds raised and the Supreme Court Judgment cited therein. Such an action of the CIT (Appeals) is violative of principles of natural justice and ought to be visited upon with costs.
11. For these and other grounds that may be raised at the time of hearing, the penalty may kindly be withdrawn.”
3. The only dispute raised by the assessee is against the levy of penalty under section 271B of the Act.
4. The brief facts of the case as emanating from the record are: For the year under consideration, the assessee e-filed its return of income on 30/03/2019 declaring a total loss of Rs. 58,03,371. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. In response to the notice, the assessee filed its submissions. On the basis of material available on record, the Assessing Officer (“AO”) vide order dated 16/03/2021 passed under section 143(3) read with sections 143(3A) & 143(3B) of the Act accepted the explanation provided by the assessee and assessed the total income at Rs. Nil. Since the assessee has filed the return belatedly, the losses claimed were not allowed to be carried forward.
5. Meanwhile, the penalty proceedings vide notice dated 16/03/2021 issued under section 271B r/w section 274 of the Act were initiated for the failure to get accounts audited or failure to furnish the audit report as per the provisions of section 44AB of the Act. The said notice was responded to by the assessee on 03/05/2021. The AO vide penalty order dated 29/10/2021 passed under section 271B of the Act did not agree with the submissions of the assessee and levied a penalty of Rs. 1,50,000.
6. Before the learned CIT(A), the assessee submitted that due to the death of one of the directors, there was a delay in the audit of the books and submission of the audit report with the Department. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee on the basis that a similar reason was submitted by the assessee in the assessment year 2017- The learned CIT(A) further noted that the director of the assessee died on 03/10/2017 and thereafter the business of the assessee was running normally. The learned CIT(A) also held that no sufficient basis has been brought on record to show that the directors were not capable enough to get the accounts audited or run the business. Being aggrieved, the assessee is in appeal before us.
7. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the assessee company only had two directors and out of them one of the directors expired on 03/10/2017, while the other director was not active in the business. The learned AR further submitted that the director who expired was also an accountant and was well-versed with all the aspects of the company and therefore due to the demise of the said director not only the tax audit report was filed belatedly but the return of income was also filed
8. On the other hand, the learned Departmental Representative vehemently relied upon the order passed by the lower authorities.
9. We have considered the submissions of both sides and perused the material available on record. In the present case, it is undisputed that the assessee filed its return of income belatedly on 30/03/2019. From the perusal of the notice dated 20/01/2021 issued under section 142(1) of the Act, we find that Form 3CD was available with the AO and upon perusal of the same certain queries were raised. It is evident from the record that the AO accepted the explanation of the assessee and assessed the total income at Rs. Nil. However, since the assessee had filed the belated return, the loss claimed by the assessee was not allowed to be carried forward. It is the plea of the assessee that the audit report under section 44AB of the Act was filed by the assessee belatedly on 05/07/2020 and was available with the AO during the course of the assessment. As per the assessee, the director, who was also an accountant and was looking after the affairs of the company, had expired on 03/10/2017, and therefore not only the return of income but also the tax audit report could not be filed on time. Since the assessee failed to furnish the audit report as required under section 44AB of the Act, the AO levied a penalty of Rs. 1,50,000 under section 271B of the Act. In the present case, it is undisputed that for the same reasons the penalty levied under section 271B of the Act was deleted in the assessment year 2017-18. We find that the learned AR is the other director of the assessee company, who has also signed Form no.36 of the present appeal and has claimed to be not well-versed with the daily affairs of the company and other accounting aspects. Therefore, when the loss return has been accepted by the Revenue and the audit report filed belatedly was available with the AO during the assessment proceedings, we are of the view that no adverse inference can be drawn against the assessee for not filing the audit report within the prescribed time. In view of the above, we are of the considered view that the assessee had reasonable cause in terms of section 273B for not furnishing the audited report under section 44AB of the Act in time. Thus, the AO is directed to delete the penalty of Rs.1,50,000 levied under section 271B of the Act. As a result, the grounds raised by the assessee are allowed.
10. In the result, the appeal by the assessee is allowed.
Order pronounced in the open Court on 27/07/2023
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