ITAT Upholds Rs.1.5L Penalty on Jewellery Firm for Tax Audit Non-Compliance [Read Order]

The Income Tax Appellate Tribunal (ITAT), Surat Bench, has upheld a penalty of Rs.1,50,000 imposed on a Jewellery for failure to comply with mandatory tax audit requirements under Section 44AB of the Income Tax Act, 1961, for the Assessment Year 2012–13.

The appellant, Pristine Jewellery, had challenged the penalty order under Section 271B on the grounds that the delay in furnishing the tax audit report was due to unavoidable circumstances, including the partners being senior citizens and the firm incurring heavy losses in its first year of business. The assessee had filed its return for AY 2012–13 belatedly on 27 April 2019 in response to a notice under Section 148, whereas the original return under Section 139 had not been filed. The Assessing Officer noted that the firm had total receipts of Rs.8.53 crore during the year and was mandatorily required to get its accounts audited under Section 44AB.

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Since no audit report was furnished either during the return filing or in response to multiple show cause notices, the Assessing Officer levied the maximum penalty permissible under Section 271B. The penalty amount of Rs.1,50,000 was determined based on 0.5% of the firm's turnover. The assessee contended that its audit report was dated 23 September 2013 and argued that the procedural lapses should be condoned due to reasonable cause under Section 273B.

The appeal before the CIT(A) was also dismissed. The Commissioner observed that the assessee had contradicted its own submissions by initially claiming that the accounts were audited, but later admitting that they were not due to financial distress. The CIT(A) found no trace of the audit report being filed on the department’s portal and concluded that the assessee had failed to establish any reasonable cause for the non-compliance.

Before the Tribunal, the assessee cited several ITAT rulings in support of its position and further submitted that it was a new business facing hardship in its early years. However, the Tribunal held that such explanations do not amount to reasonable cause under Section 273B. It noted that despite claiming to have obtained an audit report, the assessee failed to file it with the department or submit profit and loss accounts or balance sheets. The Tribunal also distinguished the cited rulings, observing that in those cases audit reports were at least filed belatedly or were available to the Assessing Officer, unlike the present case.

The Bench, comprising Pawan Singh (Judicial Member) and Bijayananda Pruseth (Accountant Member), found that the assessee’s turnover was well above the threshold for mandatory audit and that the firm had admitted in its submissions that it failed to comply with the audit requirement. The Tribunal, therefore, dismissed the appeal and upheld the penalty of Rs.1,50,000.

To Read the full text of the Order CLICK HERE

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