No Penalty for bona fide delay in filing tax audit report

The Income Tax Appellate Tribunal, Jaipur in the case of M/s. Gemorium 1969, Dhabaji Ka Khurra, Ramganj Bazar, Jaipur vs. The ITO, Ward- 5(1) Jaipur having PAN/GIR No.: AACFG 7515 N being ITA No. 514/JP/2014 has held that no penalty for bona fide delay in filing tax audit report. It has been categorically stated that penalty for delay in filing tax audit report should not be levied if there is no mala fide reason for the delay by the assessee. In this connection it was held that any dispute with auditor is a reasonable cause under the provisions of section 273B of the Income Tax Act for the delay in filing the tax audit report.

Lawyers engaged by the parties:

The Assessee was represented by Shri Rohan Sogani and Shri Rajiv Sogani, CA.

The Revenue was represented by Shri R.A. Verma, Addl.CIT -DR

Date of Hearing:

The hearing was concluded on 24.08.2016

Date of Pronouncement:

The order was pronounced in open court on 14 .09.2016

Backgrounds of the appeal:

The assessee filed the appeal against the order of the ld. CIT (A) – 2, Jaipur dated 13.5.2014 for the assessment year 2008-09 raising the following grounds that in the facts and circumstances of the case and in law the ld. CIT (A) was absolutely wrong in confirming the act of the Assessing Officer in imposing penalty under the provisions of section 271B of the Income Tax Act amounting to Rs. 1, 00,000 / -. It was urged that the action of the ld. CIT (A) was illegal and not justified.

It was pleaded that relief may please be provided by setting aside the penalty of Rs. 1, 00,000 / -imposed under the provisions of section 271B of the Act.

Brief facts of the case:

In the order, the ld. CIT (A) stated that upon considering the facts of the case, penalty order and appellant’s submission, it was observed that the Assessing Officer levied penalty under the provisions of section 271B for not getting accounts audited and not submitting the same within time.

It was stated that it was not disputed that appellant got the accounts audited after due date of filing return of income as such, penalty should be levied unless there were bona fide reasons for the said delay.

The Appellant submitted that delay was caused by an auditor with whom the assessee had some dispute in connection with audit fees.

The appellant also submitted that for the first time such delay took place and after the said year teh assessee also changed the auditor.

However, the Assessing Officer examined the auditor to corroborate explanation given by the appellant.

The Assessing Officer concluded that the delay in audit was caused by late submission of accounts by the auditor. The said Auditor confirmed that there was no dispute regarding his fees and it was not the reason for delay. The auditor submitted that delay was caused by the appellant that finally resulted in delay in audit.

Considering the appellant’s submission, it was held that the assessee had no justifiable reason and therefore, it was directed to levy penalty under section 271B of the Act. The penalty levied by the AO was confirmed.

During the hearing, the ld. Counsel of the assessee submitted that the delay was due to the dispute with the auditor regarding fees for which the explanation of the assessee was not accepted by the AO and he imposed the penalty under the Act.

The ld. Counsel of the assessee submitted that there was no delay in filing of the return for the last many years. It was pointed out that the delay was made only during assessment year under consideration and after changing the auditor, there was no delay in filing the return of income for the following assessment years.

It was contended that the penalty was levied by relying on the statements of the auditor and no opportunity was provided to the assessee to cross examine the statements made by him. The counsel relied on following precedents amongst others:

(i) Azadi Bachao Andolan vs. UOI, (2001) 252 ITR 471 (Del.)

(ii) Indian Handloom Textiles vs. ITO (1999) 68 ITD 560 (Kolkata Tribunal)

The ld. Counsel of the assessee prayed for setting aside the penalty imposed by the lower authorities.

The ld. Counsel of the Revenue relied on the orders of the lower authorities.

The judgment:

Upon hearing the rival contentions and after perusing the materials on record, it was noted from that the assessee firm filed the return of income in connection with the assessment year 2008-09 on 23.5.2009.

The assessment under section 143(3) of the Act was completed on 27.12.2010 and penalty proceedings were initiated as the assessee could not get the accounts audited within time limit prescribed under section 44AB of the Act.

It was noted that due date of filing of return was 30.09.2008. However, the assessee got the accounts audited on 1.05.2009 and filed the return of income on 23.05.2009 after a bona fide delay of  8 months.

It was noted from the submissions of the assessee that there was bona fide delay in getting the accounts audited occurred in connection with assessment year 2008-09.

Also read:

Penalty under section 271(1) (c) of the Income Tax Act