ITAT quashes levy of Penalty by AO for not Auditing Books of Accounts/ furnishing Report of Audit of Books of Accounts on due date of filing ITR

The Income Tax Appellate Tribunal (ITAT), Delhi Bench has quashed the levy of penalty by Assessing Officer (AO) for not auditing books of accounts/ furnishing reports of the audit of books of accounts on the due date of filing Income Tax Return (ITR).

The assessee, M/s. Vrinda Sales P. Ltd. a private limited company, was engaged in the business of providing gift items and other allied items to banks, financial institutions, and LIC, etc.

For the year under consideration, the assessee was required to file its return of income on the due date prescribed for companies i.e. 30 September 2010, but the assessee did not file its return of income. The assessment for the year under consideration was reopened under section 147 of the Income-tax Act as the Assessing Officer had information that the company had taxable income for the year under consideration but no return of income was filed.

The Assessing Officer levied penalty of Rs.1,00,000/- in terms of provision of section 271B of the Act.

The Assessee contended that in view of the Circular No. 3/2009 dated 21/05/2009 issued by the CBDT, the assessee was not required to furnish a physical copy of Audit Report with the Income Tax Department and was only required to fill out the relevant columns in the form of the return of income on the basis of such report.

According to the assessee, though the Audit Report was obtained before the due date, since no return of income was filed by the assessee, there was no occasion to fill the relevant column of the form of the return of income on the basis of Audit Report.

CIT(A), however, not accepted the contention of the assessee and held that it could not be established that the report was really obtained before the due date of filing of return of income.

The two-member bench consisting of Judicial Member, Bhavnesh Saini, and Accountant Member O.P. Kant held that in section 44AB the word “obtain before” has been substituted by the word “ furnish by” with effect from July 1, 1995, and therefore for the relevant obtaining the report before the specified date is not relevant.

“We set aside the order of the learned CIT(A) and delete the penalty of Rs. 1.00 lakh levied by the AO u/s 271B of the Act for violation of the provisions of section 44AB of the Act. The grounds raised by the assessee are allowed,” the tribunal said.