Case Law Details
Attinkara Electronics Vs ITO (ITAT Cochin)
ITAT Cochin held that the delayed audit report, due to the illness of a partner and hardware damage, constituted a technical venial breach that did not result in any loss to the exchequer. The audit report was filed before the completion of the assessment proceedings, and the reasons provided by the appellant were deemed reasonable causes for the delay. Consequently, the ITAT concluded that the penalty under section 271B of the Income Tax Act was not applicable in this case.
The case of Attinkara Electronics vs ITO (ITAT Cochin) pertains to the assessment year 2012-13 and involves the levy of penalty under section 271B of the Income Tax Act. The appellant, Attinkara Electronics, failed to get its accounts audited as required by section 44AB of the Act before the specified date. The Assessing Officer imposed a penalty of Rs. 1,50,000 on the appellant for this failure.
The appellant provided two reasons for the delay in getting the accounts audited. Firstly, it claimed that the partner, Mr. Naushad S, was suffering from an illness called Lumbago Sciatica (Low Back Pain) from 20/09/2012 to 19/10/2012, which prevented the finalization of the books of accounts for audit. Secondly, it stated that there was a hardware damage to one of the desktop computers on 25/10/2012, resulting in the loss of all data. The appellant had to re-enter all the lost data, which took additional time considering the volume of sales and number of branches.
The Assessing Officer and the Commissioner of Income Tax (Appeals) (CIT(A)) upheld the penalty, stating that the appellant failed to prove reasonable cause for the delay. The CIT(A) observed that the claim of ill health of the partner was not valid since the delay was due to the loss of data caused by hardware damage, and the appellant did not provide evidence that it did not have accounts on any other computer or that the accounts were actually reconstructed.
The appellant appealed to the Income Tax Appellate Tribunal (ITAT) challenging the imposition of the penalty. The ITAT referred to previous tribunal decisions and held that the delay in filing the audit report was a technical venial breach that did not cause any loss to the exchequer. The audit report was made available to the Assessing Officer before the completion of the assessment proceedings. The ITAT also considered the illness of the partner and the hardware damage as reasonable causes for the delay. Therefore, the ITAT concluded that this was not a suitable case for levying a penalty under section 271B.
FULL TEXT OF THE ORDER OF ITAT COCHIN
This appeal filed by the assessee is directed against the order of the CIT(A), Kottayam dated 29/10/2018 and pertains to assessment year 2012-13.
2. The only issue in this appeal is with regard to levy of penalty u/s. 271B of the Act.
3. The facts of the case are that the assessee filed its return of income for AY 2012-13 on 27/03/2014 declaring total income of Rs.7,09,690/-. As per the profit and loss account furnished along with the return, the assessee had turnover of Rs.22,07,67,094/- during the AY 2012-13. As the total turnover of the business exceeded Rs.40 lakhs in the previous year, the assessee was liable to get his accounts audited before the specified date. As the assessee had failed to get the accounts audited u/s. 44AB of the Act, the Assessing Officer after rejecting the explanation of the assessee levied penalty u/s. 271B of the Act amounting to Rs.1,50,000/- by observing as under:
” As the assessee failed to get his accounts audited and to furnish the report of such audit before the specified date as required under section 44AB of the Income Tax Act, 1961, a notice was issued on 26/03/2015 requiring the assessee to show cause to why penalty under section 271 B of the Act should not be imposed on the assessee. In response to the above, the assessee filed an explanation stating that the managing partner was undergoing medical treatment for Lumbago Sciatica (Low Back Pain) during the period from 20/09/2012 for 30 days and could not finalize the books of accounts to submit for audit by the accountant.
On verification of the copy of medical certificate filed along with the letter, it was observed that the certification dated 19/10/2012 was to the effect that Mr. S Naushad was under treatment for Lumbago Sciatica (Low Back Pain) from 20/09/2012 to 18/10/2012. However he could finalize the audit after 14 months of completion of his treatment only. The assessee or the Authorized Representative had not furnished any explanation for the delay occurred after 19/10/2012 till the date of filing the report. No cause or material evidence was brought on record to explain that the delay was due to reasons beyond the control of the assessee.
Under the above circumstances, I am completely satisfied that the assessee had failed to get his accounts audited and to furnish the report of such audit before the specified date as required under section 44AB of the Income Tax Act, 1961 without reasonable cause for the said failure and as such the provisions of section 271 B of the Income Tax Act, 1961 are clearly attracted the case. I therefore hereby direct that the assessee shall pay, by way of penalty, a sum of Rs.1,50,000/- which being less than the sum equal to one half percent of the total sales of Rs.22,07,67,094/- in the previous year relevant to Assessment Year 2012-13, Accordingly I, the undersigned, do hereby impose a penalty of Rs.1,50,000/- as per Sec.271B of the Act. This should be paid as per the demand notice and challan enclosed herewith.”
4. Before the CIT(A), the filed a letter 10.04.2015, explaining the reasons for the delay in getting the accounts audited as follows:
a) Ill health of the partner Mr. Naushad S from 20.09.2012 to 19.10.2012 supported by Medical Certificate dated 19.10.2012
b) At the time of finalization on 25.10.2012 there was a hardware damage and the entire data was lost. The assessee had to re-enter all the lost data in the system and this took more time considering the volume of sales and number of branches of the assessee. The learned assessing officer failed to consider the genuine reason of hardware damage.
4.1 A certificate of the system maintenance firm M/s. Ampadi Systems, Chengannur was filed before the CIT(A) which reads as follows:
To whomsoever it may concern
We hereby certify that we are doing the maintenance of the Computers of M/s. Attinkara Electronics, Chengannur. We were intimated on 25.10.2012 that one of their desktop computer was not working. Our system maintenance staff attended the complaint on that date and found that the entire data was lost due to hardware damage. We could not recover any data entered /saved in the system.
sd/-
Manager
Systems Maintenance
For Ampadi Systems
10/04/2015
4.2 Thus, it was submitted that there were genuine reasons for the delay. According to the Ld. AR, provisions of Section 273B provide that no penalty shall be imposable on the assessee if he proves that there is a reasonable cause for the said failure.
5. The CIT(A) confirmed penalty levied by the Assessing Officer by observing that the assessee was liable to get his accounts audited as per the provisions of the section 44AB of the Act and failure to comply with the provisions of section 44AB of the Act would attract penalty under section 271 B of the Act. However, according to the CIT(A), levy of such penalty is subject to provisions of section 273B of Income Tax Act, 1961. As per the provisions of section 273B, it is for the assessee to prove that there was reasonable cause for failure to get the accounts audited as required under section 44A8. The CIT(A) observed that the claim of ill health of the partner as a reasonable cause was not valid for the delay in getting the accounts audited since the delay was on account of loss of data due to hardware damage of the computer.
5.1 On perusal of the certificate issued as above, the CIT(A) found that the contents of the letter did not indicate that the one desktop computer which got damaged was containing accounts data of the assessee. Further, according to the CIT(A), there was no evidence brought on record by the assessee that it did not have accounts on any other computer or the accounts were actually reconstructed. Thus, the CIT(A) held that the assessee had not brought on record any material to prove that there was reasonable cause for not getting the accounts audited within the prescribed time under the section 44AB of the Act and therefore, confirmed the penalty levied by the Assessing Officer under section 271B of the Act.
6. Against this, the assessee is in appeal before us.
7 The Ld. DR relied on the order of the lower authorities.
8. We have heard the rival contentions and perused the record. The assessee was required to get his books of account audited as per the provisions of section 44AB of the Act before 30/09/2012 for the A.Y. 2012-13. The assessee got the books audited on 24/03/2014 and the same was furnished before the Assessing Officer on 27/03/2014. The assessment order was passed by the Assessing Officer on 26/03/2015. However, there was delay in furnishing the audit report in compliance with section 44AB of the Act. The contention of the Ld. AR is that the reason for delay in furnishing the audit report belatedly was due to the ill health of the partner Shri Naushad S. from 20.09.2012 to 19.10.2012 coupled with malfunctioning of the computer and loss of entire data due to hardware damage. For this purpose, the Ld. AR relied on the decision of the co-ordinate Bench of this Tribunal in the case of Star Agencies vs. ITO (23 CCH 646) wherein it was held that even though assessee could not get the accounts audited within time but having filed the audit report along with the return, no penalty u/s. 271B was attracted. Further, illness of one of the partners constituted reasonable cause for the delay. He also relied on the recent decision of this Tribunal in the case of Johns Biwheelers vs. ACIT in ITA No.411/Coch/2018 dated 05/02/2019 wherein it was held as under:
“7. We have heard the rival submissions and perused the record. In this case, the assessee was required to get his books of account audited and filed along with the return of income u/s. 44AB within the due date of 30/09/2012 for the assessment year 2012-13.. However, the audit report was furnished only on 28/03/2014. The contention of the Ld. AR was that the delay in filing the return of income was due to damage to computer system due to virus infection which is a reasonable cause as prescribed u/s. 273B of the I.T. Act. The Ld. AR relied on the following judgments in support of his contentions:
i) CIT vs. Malayalam Plantations Ltd. (1976) (103 ITR 835) (Ker.)
ii) ACIT vs. Amar Chand Raj Kumar (2004) (89 ITD 96)(ITAT, Chandigarh)
iii) Prem Prakash Senapati vs. ITO (ITA No.459&185/CTK/2017 dated 17/04/2018) ) (ITAT, Cuttack).
7.1 From the material available on record, we are of the view that the assessee got his books of accounts audited on 28/03/2014 which was made available to the Assessing Officer and no prejudice has been caused to the Revenue. Now the short question that arises is whether in this scenario, penalty u/s. 271B of the Act can be levied or not. In our considered opinion, the assessee had only committed technical venial breach which does not create any loss to the exchequer as the audit report was available to the Assessing Officer before the completion of the assessment proceedings. The Madras High Court in the case of CIT vs. A.N. Arunachalam (208 ITR 481) in the context of filing of audit report for claiming deduction u/s. 80J of the Act, observed that once audit report has been made available before the Ld. Assessing Officer before the completion of assessment proceedings, the assessee should be granted deduction u/s. 80J of the Act. We observe that this judgment was rendered in the context of adjudication of quantum of deduction claimed by the assessee. Hence, the said analogy can very well be drawn and used in the penalty proceedings like that of the assessee. To sum up, we hold that the assessee had committed only technical venial breach for which he cannot be penalized. In view of the above, we are inclined to delete the penalty made by the assessee u/s. 271B of the Act.
8. In the result, the appeal of the assessee is allowed.
8.1 In our opinion, the case of the assessee will squarely fit into the ratio laid down in the above cases cited supra. The assessee has comitted only technical venial breach which does not create any loss to the exchequer. The audit report was filed before the Assessing Officer before the completion of the assessment. The ill health of the partner Shri Naushad S and the malfunctioning of the computer due to hardware damage are reasonable causes for not furnishing the audit report before the Assessing Officer within the stipulated time. Hence, we are inclined to hold that this is not a fit case for levying penalty u/s. 271B.
9. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on this 01 March, 2019
