The Hyderabad bench of the Income Tax Appellate Tribunal (ITAT) has recently held that no penalty should be levied under Section 271B of the Income Tax Act, 1961 if there is reasonable cause for not getting the accounts audited.
Section 271B of the Income Tax Act, 1961 provides that when a person failed to audit his account in respect of any previous or year relevant to the assessment year such person shall be liable to pay a penalty.
Assessee Suryavathi is an individual engaged in the business of trading in automobile parts under the name and style of ‘Durga Automobiles’. After filing the return the assessee the assessing officer initiated penalty proceedings under Section 271B of the Income Tax Act on the ground that the assessee had filed the audit report t on 10.3.2018 which is beyond the extended due date of filing of the return that is 7.11.2017 and as such there is a failure on the part of the assessee to file the audit report within the due date.
Against this action, the assessing officer, the assessee filed an appeal before CIT(A). But the CIT(A) confirmed the penalty levied by the Assessing Officer. Thereafter the assessee filed a second appeal before the tribunal.
T. Rajendra Prasad, counsel for the assessee submitted that the assessee was not in a position to obtain the audit report in time for which the delay occurred. Further Referring to provisions of Section 273B of the Income Tax Act since there is a reasonable cause the penalty levied by the Assessing Officer under Section 271B and confirmed by the CIT(A) is not justified.
K.P.R.R. Murthy, counsel for the revenue submitted that the assessee is duty-bound to obtain the Audit Report before the specified date. In the instant case, the assessee obtained its audit report with a delay of 123 days therefore, the CIT(A) was fully justified in sustaining the penalty levied by the Assessing Officer under Section 271B of the Income Tax Act, 1961.
While considering the contentions the tribunal observed that due to health reasons, the assessee was unable to obtain the audit report and file the same within the due date, the fact was already brought to the notice of the Assessing Officer therefore, the Assessing Officer was not justified in levying the penalty under Section 271B of the Income Tax Act, 1961 and the CIT(A) was not justified in sustaining penalty levied by the Assessing Officer.
Therefore, the two-member bench of the tribunal considered that there was a reasonable cause on the part of the assessee for not getting the accounts audited timely and filing the same on or before the due date.
Moreover, the bench of Shri R.K. Panda, Accountant Member and K. Narasimha Chary, Judicial Member allowed the appeal filed by the assessee and held that as per the provisions of Section 273B of the Income Tax Act, no penalty shall be imposable under section 271B Income Tax Act on the person or the assessee as the case may be for any failure referred to in the said provision if the assessee proves that there was a reasonable cause for the said failure.
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