The Banglore Bench of Income Tax Appellate Tribunal (ITAT) held that non-filing of audit reports electronically cannot be the reason for imposing penalty under Income Tax Act.
The assessee, M/s. SLV Housing Development Corporation initially engaged M/s K.P Rao & Company, Chartered Accountants for conducting tax audit and Shri Vinay Simha, CA, the partner of the above firm was looking after its case. However, the accounts finalised by them consisted of many mistakes and were not accurate. Hence a new chartered Accountant was engaged and a tax audit report obtained from him was filed before the AO. It was also submitted that the assessee has filed a complaint on misconduct of Vinay Simha before the ICAI.
The AO noticed that the department had identified certain bogus challans in the month of January, 2014 and in that regard, statements were recorded from Shri Vinay Simha, CA. The partner of the assessee firm Shri H Nagaraj also appeared on that date and pleaded ignorance of bogus challans. Further the assessee has filed complaint against thesaid CA in July, 2014. The AO also observed that the assessee has not stated as to when the new CA named Shri Sangamesh was appointed.
However, the tax audit report has been filed on 09-12-2016, i.e., just 23 days prior to the completion of the limitation period for conclusion of assessment. The AO also noticed that the assessee has been filing return of income as well as audit report belated in other years also. The AO also observed that the tax audit report should have been filed electronically as per Rule 12(2) of Income tax Rules, 1962, whereas the assessee has furnished the tax audit report manually. Accordingly, the AO rejected the explanations of the assessee and levied penalty u/s 271B of the Act.
The coram headed by the Vice President, N.V. Vasudevan and Accountant Member, B.R. Baskaran held that if the cause shown by the assessee appeals or satisfies any reasonable mind, then the same shall constitute reasonable cause.
The ITAT opined that the strained relationship with the earlier CA would constitute reasonable cause. The tax authorities have pointed out a time gap in getting a tax audit report from a new CA. However, it is a known fact that it might have taken some time to sever the relationship with the earlier CA. However, the fact remains that the tax audit report has been filed with the AO before completion of assessment. The tax authorities have mentioned about the non-filing of tax audit reports electronically.
The court noticed that the provisions of section 44AB do not mention the same. Hence non-filing of audit reports electronically cannot be the reason for imposing penalty u/s 271B of the Act.
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