The Chandigarh Bench of Income Tax Appellate Tribunal (ITAT) has deleted the penalty under Section 27I(1)(b) of Income Tax Act holding that ties taken for legal remedy against the special audit shall be excluded from the prescribed time limit.
The assessee Apeejay Education Society, had approached the Punjab and Haryana High Court for stay of reference to special audit under Section 142(2A) of the Income Tax Act. It was submitted that the assessee had filed a Writ Petition and pursuing the matter before Punjab and Haryana High Court was very much in the knowledge of the Assessing officer. The High Court had also issued notice regarding the stay of the special audit and the proceedings were going on before the High Court.
It was submitted that it was incorrect to say that the letter/communication issued by the auditor had not been complied with. It was not the case of non-compliance rather the Assessee was pursuing alternate remedy before the Court.
Salil Kapoor, on behalf of the assessee submitted that the stay on special audit was not granted by the High Court and all the details were provided to Special auditor and the Special audit was thereafter completed on 21.06.2019 and on the basis of special audit report, the Assessment was completed by the AO vide his order dated 18.08.2019 passed under Section 143(3) of the Income Tax Act.
It was submitted that where the assessment proceedings have been completed taking into consideration the report of the Special auditor, there was effective compliance to the directions issued under Section 142(2A) of the Income Tax Act by the AO and the assessee could not t be penalised merely for the reason that it was pursuing alternate remedy before the High Court.
Amanpreet Kaur, on behalf of the assessee submitted that the assessee despite knowing all the above facts of the case that no stay of special audit proceedings had been granted,
had deliberately shown scant regard for the directions issued under Section 142(2A) of the Income Tax Act and being satisfied that it was a fit case for levy of penalty under Section 271(1)(b) of the Income Tax Act the AO imposed the penalty for failure to comply with the directions issued under Section 142(2A) of the income-Tax. Act.
The two-member Bench of Aakash Deep Jain, (Vice President) and Vikram Singh Yadav, (Accountant Member) observed that the penalty order had been passed by the AO on 3.05.2019 holding the assessee in violation of directions issued under Section 142(2A) of the Income Tax Act whereas the AO himself had extended the time limit for submission of the audit report to 21.06.2019.
Therefore, it was a case where the AO formed an opinion even prior to the completion of the extended time limit that the assessee had committed a default and was in violation of the directions issued under Section 142(2A) of the Income Tax Act, was completely incomprehensible to understand and appreciate as the same lacks the very foundation for fastening the charge on the assessee which was to furnish the audit report within the extended period so provided by him.
The Bench allowed the appeal filed by the assessee holding that, “Where the assessee is seeking a legal remedy available under the law against the action of the AO in ordering the special audit, the time taken from filing the writ petition to the disposal of the writ petition (even though no stay was granted) by the High Court deserve to be excluded. Apparently, considering the same where the AO has extended the time limit for submitting the report of the special auditor, the same cannot be held against the assessee.”
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