The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) ruled that Section 271B penalty of the Income Tax Act, 1961, applies only when accounts are not audited as required under Section 44AB, not merely for a delay in the submission of the audit report
Vardhabhai Jethabhai Patel, the assessee, is an individual engaged in contractual work and filed an income tax return for the Assessment Year (AY) 2012-13, declaring a total income of Rs. 3,57,350.
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The revenue department reopened the assessee’s assessment under Section 147 of the Income Tax Act based on information regarding gross contract receipts of Rs. 1,32,30,498, which exceeded the threshold for mandatory audit under Section 44AB of the Income Tax Act, 1961.
The reassessment was finalized under Section 143(3) r.w.s. 147 determining total income at Rs. 13,23,50,000, with an addition of Rs. 9,65,700 as profit on contract receipts.
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The Assessing Officer (AO) imposed a penalty of Rs. 66,152 under Section 271B of the Income Tax Act citing the assessee’s failure to file the audit report within the prescribed time.
The assessee argued that the accounts were audited on September 30, 2012, within the stipulated time, and the audit report was filed on March 26, 2013, along with the income tax return. The delay was solely in filing not in conducting the audit.
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On appeal, the Commissioner of Income Tax (Appeals) upheld the penalty explaining that the audit report was filed after the due date for the income tax return.
The single-member bench comprising Suchitra Kamble (Judicial Member) observed that the assessee had complied with the auditing requirement under Section 44AB and filed the audit report along with the income tax return.
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The tribunal held that the penalty under Section 271B of the Income Tax Act was not justifiable as the requirement for auditing the accounts was fulfilled, even if the filing was delayed. The tribunal set aside the penalty order and allowed the appeal in favor of the assessee.
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