Delay in Filing Tax Audit Report as Tally Data got corrupted: ITAT finds reasonable cause and deletes penalty

This appeal is filed by the assessee aggrieved from the order of the National Faceless Appeal Centre, Delhi [Here in after referred as to “NFAC”/ CIT(A)] for the assessment year 2017-18 dated 10.10.2022, which in turn arises from the order passed by the National Faceless Assessment Centre (NFAC) Delhi passed under Section 271B of the Income tax Act, 1961 (in short ‘the Act’) dated 28.12.2021.

The assessee has marched this appeal on following grounds of appeal;

“1. That under the facts and in the circumstances of the case the Ld. CIT(Appeals), has erred in law and facts in confirming the penalty amounting to Rs. 1,50,000/- under Section 271B of the I.T. Act, 1961 which is wrong, unwarranted and bad in law. Kindly delete the same.

2. That the appellant craves permission to add to or amend or any of the above grounds of appeal or to withdraw any of them.”

Reason for delay in filing Tax Audit Report:

It was stated that accounts were maintained in the tally software and on the eleventh hour of due date, the entire data got corrupted so it took time to recover the data & get finalized the account again. Further, it was stated that they always filed the audit report within time and that no adverse finding was noticed by the AO during assessment proceedings.

ITAT Order

ITAT deleted the penalty as the tribunal agreed that there was sufficient reason to file the tax audit report.

7. We have heard the rival contentions, perused the material on record. There is no dispute that the assessee has submitted that audit report without issue of any notice but the audit report was filed delayed and after the due date of furnishing the date expired. The lower authorities did not find the explanation of the assessee that since the data crashed on the compute, they could get their books of accounted and there by they have based on the information rewrite the books and this has taken them three months’ time. As the assessee’s business turnover in the year under consideration is Rs. 3,54,07,472/-, assessee suppose to get their books of account audited and has to furnish a report of a Chartered Accountant by 31.10.2017. As explained by the assessee in her affidavit that the computer data crashed and therefore, the accounts rewritten and the audit report ultimately submitted on 07.02.2018. This fact is submitted by the assessee in a sworn affidavit. The revenue did not controvert this fact and also the fact that the assessee has voluntarily filed delayed audit report and subsequent scrutiny assessment was also completed without finding any fault. This shows that the assessee is compliant. The ld. AR of the assessee also submitted that in past also no such default is observed by the revenue and the assessee has voluntarily filed delayed report and revenue has nothing to loose as the assessee has filed the report and return by paying tax due thereon and the revenue has assessed their income accepting the returned income. Now coming to the provision of levy of penalty u/s. 271B. The provision of that sections is reiterated here under:

Section 271B.

If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or [furnish a report of such audit as required under section 44AB], [Assessing] Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of [one hundred fifty thousand rupees], whichever is less.]

7.1 Based on the above factual metrics of the case and provision of law, when the assessee has voluntarily complied the law, the revenue has not substantiated by placing anything on record that the explanation given by the assessee are not genuine. The assessee has filed the return has paid the taxes and the returned income is accepted by the revenue. Therefore, based on these facts and voluntary compliance made by the assessee the lower authorities should have exercised the discretion available with him in not penalizing the assessee as there is no direct or indirect loss of delay in submission of the audit report and there is no malafide intention and the assessee has voluntarily complied though belatedly. The reasons based on upon it the audit report was filed belated is explained by the assessee by filling a correct fact on record and the assessee immediately filed the audit report after getting rewriting the books of account and the reason placed on record are the genuine and it may happen to anyone and has to face technical bugs in the system and the delay based on that technical bug in filling the audit report is based on genuine reasons. Therefore, she has sufficient reason to file the audit report delayed. We find that this is a reasonable cause which has resulted into failure of the assessee to comply with the law. In view of this, we find that penalty levied under section 271B of the Act cannot be levied for the reason that there was a failure on the part of the assessee to obtain tax audit report was on account of a bona fide reason of crashing the compute data and thus has to rewrite the same. The revenue could not show that the belief of the assessee was mala fide. There are various judicial precedents of not levying the penalty under such circumstances. In view of this, we reverse the orders of the lower authorities and direct the learned assessing officer to delete the penalty of Rs. 1,50,000/- levied under section 271B of the Act.

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