Failure to submit Tax Audit Report: No Penalty if there is Reasonable cause

The chronology of the events is that the assessee is a public sector company wholly owned by the Govt. of India and subsidiary to Air India Ltd. had e-filed its return of income on 24.09.13 declaring current year loss of Rs. 93, 14, 039/-. The accounts of the assessee were not audited as on date of filing of the original return. Subsequent to this, the assessee company revised its return of income on 12.12.2014, declaring total income at Rs. Nil after claiming carry-forward of current year’s loss at Rs. 93,14,039/-. The revision of returns was reasoned to be for claiming additional TDS. The assessee company again revised its return of income on 07.01.2015, declaring total income at Rs. 1,36,45,690/-. Subsequent to the tax audit report (TAR) dated 23.01.14, the return was revised to offer the correct income as per the audited accounts. After processing the return u/s 143(1) of I.T. Act, 1961, the case was selected for scrutiny and assessment order u/s. 143(3) of the Income Tax (IT) Act was passed on 04.03.2016.

During the assessment proceedings, the P & L Account revealed that assessee had received gross business receipts to the tune of Rs. 74,79,10,876/-. The contention of the AO was that as per section 44AB of the IT Act, the assessee ought to have got its account audited for the AY 2013-14 by an auditor before the specified date and subsequently should have furnished such report in the prescribed form duly signed and verified with such particulars on or before 30.09.2013 for AY 2013-14. But the tax audit report in Form 3CD was filed with much delay only on 17.09.2014 and the assessee has thus failed to comply with the provision of section 44AB of the Act. Accordingly, penalty proceedings u/s. 271B of the Act was initiated by the AO at the time of passing the assessment order on 04.03.16 by issuing show cause notice u/s 274 r.w.s. 271B of the Act on 04.03.16 for its failure to comply with the provisions of section 44AB of the Act. In pursuant to this, the order u/s 271B of the Act was passed by the AO on 28.09.16 levying penalty of Rs. 1,50,000/- which was subsequently confirmed by Ld. CIT(A) on 27.02.19. Consequent upon such order passed by Ld. CIT(A), assessee is in further appeal before the Tribunal.

Tribunal Order:

6. We have carefully considered the submission of the rival parties and perused the material placed on record. We find that the facts are not in dispute. It is evident that assessee being a company incorporated under the Companies Act and also PSU had to undergo the process of obtaining statutory audit report followed by the report of Comptroller & Auditor General of India (CAG) which was completed on 23.01.14 and March 2014 respectively. Thereafter compiling of the said in Form 3CD was carried on after completion of both the audits and the report dated
17.09.14 u/s 44AB was obtained from Tax Auditors. These facts were elucidated during the proceedings before the AO and Ld. CIT(A). The provision of section 273B may be highlighted hereunder which states that

“no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions,, if he proves that there was reasonable cause for the said failure.”

7. The fate of the appeal depends upon the answer to the question whether there was reasonable cause for the delay in filing the audit report by the assessee company. Therefore, it is necessary to peruse the facts stated by the assessee being a public sector company wholly owned by Air India Ltd which was wholly owned by Govt. of India will come under the purview of section 44B which requires every person carrying on business whose total turnover gross receipts of Rs. 1 crore in any previous year has to get its accounts of such previous year audited by an accountant before the specified date and furnished by that date. We would like to place reliance on the decision of Spl. Bench of ITAT, Hyderabad in the case of ACIT Vs. Gayatri Traders [1996] 58 ITD 121 (Hyd), wherein a Spl. Bench was constituted noticing the conflict in the interpretation placed in section 271B by various Benches of the Tribunal. The Hon‟ble President of ITAT has been pleased to constitute Spl. Bench for resolving the following issues and disposing of the appeal : “(Whether the provision of section 271B of the I.T. Act provides for penalty only for the absolute failure of the assessee to get the accounts audited or obtaining report thereon or they provide also for penalty for delay in getting the accounts audited and obtaining the report thereon beyond the specified date u/s 44AB).” The facts that let to the filing of the said appeal are identical to the present case before us, which are as under:-

The subsequent act of the assessee in obtaining the report of audit after the expiry of the specified date may not automatically erase or obliterate the default committed earlier. However, the subsequent conduct of the assessee in obtaining the report of audit with least practicable delay certainly lends support to his plea that his failure to obtain the audit report before the specified date was for a reasonable cause and was not due to any intentional or deliberate act on his part. Thus, the subsequent act of the assessee in obtaining the audit report becomes relevant for judging the reasonableness or otherwise of the cause shown by the assessee for not complying with the requirements of section 44AB before the specified date.

8. Similar view has been taken by Hon‟ble Calcutta High Court in the case of CIT vrs. Capital Electricals (Garaihat) reported in 261 ITR-4. It has also been held in this decision that mere failure to file audit report on time will not justify the levy of penalty as power u/s 271B is discretionary. The same view has also been taken by the Hon‟ble Madras High Court in the case of Thanjavur Silk Handloom Weavers Co-operative Production and Sales Society Ltd. Vs. Union of India reported in 263 ITR 334.

9. We find some force in the submission of assessee that assessee being a Public sector company Act had to submit its audit report in Form 3CA in which report u/s 44AB is required to be submitted for the said purpose. The Tax Audit report u/s section 44AB of I.T. Act has to be provided with copy of statutory audit report alongwith audited P & L Account and balance sheet. The Tax Auditor in the case of assessee whose accounts are required to be audited on any other law will have to commence his work only on the basis of such audited accounts together with information required to be submitted in Form 3CD. Being a public sector unit, the assessee company after completion of statutory audit under Companies Act is required to obtain report by CAG. The assessee accounts for the year ended 31.03.13 were not finalized and audited before the specified dated i.e. 30th September 2013. The statutory audit was completed only on 23rd January 2014 and the reports from the CAG was obtained in March 2014, thereafter the tax audit report was undertaken only after April 2014 and the report u/s 44AB was obtained on 17th September 2014. These facts were stated by the assessee before the AO as well as before Ld. CIT(A).

10. Considering the totality of the facts of the case, we are of the opinion that there was reasonable cause for the assessee for not getting the accounts audited before the statutory due date. In spite of best effort of the assessee to get it accounts audited and obtained audit report before the specified date, it could not be so due to circumstances beyond its control. Therefore, we are inclined to hold that assessee has shown reasonable cause for its failure to comply with the requirement of section 44AB before the specified date. This being the case, we are of the opinion that this is not a fit case for levy of penalty u/s 271B of the Act. We, therefore, set aside the order of Ld. CIT(A) and quash the impugned penalty order.