ITAT Order : Audit Report in Prescribed Format(Non Produced) would attract Penalty

The Income Tax Appellate Tribunal (ITAT) (Cochin bench) has held that the non-production of the audit report in the prescribed format can be a reason to impose a penalty under Section 271B of the Income Tax Act, 1961.

IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
BEFORE S/SHRI CHANDRA POOJARI, AM & GEORGE GEORGE K., JM

ORDER

Per CHANDRA POOJARI, AM :
These appeals filed by the Revenue and the assessee are directed against the different orders of the CIT(A), Trivandrum and pertain to the assessment years 2013-14 & 2014-15. The assessee has also filed Cross Objection in C.O. No.10/Coch/2019 and Stay petitions in S.P. Nos.43 & 06/Coch/2018 for the assessment years 2013-14 and 2014-15.

2. First we shall take up the appeal in ITA No. 141/Coch/2019 for the assessment year 2013-14. This appeal is directed against the order of the Pr. CIT, Trivandrum passed u/s. 263 of the Act vide order dated 24/03/2017.

2.1 The facts of the case are that original assessment was completed u/s. 143(3) of the Act. The assessees income was assessed at Rs.1,04,84,857/- against the nil income returned by the assessee. On examination of the records, the CIT(A) was of the opinion that the Assessing Officer has not made proper enquiry and there was a serious error in the order of the Assessing Officer which caused prejudice to the interest of the Revenue. In view of the same, he initiated revision proceedings u/s. 263 of the Act directing the Assessing Officer to frame the assessment order a fresh in the following manner:

A. Compute profit and gains of business and profession in accordance with
provisions of Chapter IV-D including verification of the following:
i. ensuring that the proof and identity of persons to whom interest payable is debited is established before granting deduction u/s. 80P of the Act.
ii. making necessary disallowance of provisions and reserves and other
ineligible similar sums.

iii. disallowance of sums including sums paid in cash in violation of section 40A(3), including interest, rent, salary and other business expense where payment in cash exceeding Rs.20,000 and not covered by Rule 6DD.

iv. disallowance of interest and other sums under section 40(a)(i), if
any, if section 195 is violated.

v. disallowance under section 40(a)(ia), after due examination (due care is to be taken not to disallow sums mentioned in section 194A(3)(viia).

vi. examining whether contingency expense claimed is an allowable
item.

vii. Ensure that interest income on deposits is accounted for in accordance with provisions of section 145.

viii. computation of income in accordance with cash or mercantile system as applicable.

ix. consideration of Form 3CD which is to be called for.

B. Determine income from house property, capital gains and income from
other sources, if any, in accordance with provisions of relevant chapters after making due enquiries and calling for information.

C. Compute Gross Total Income being A+B above.

D Determine profits from accounts eligible to be deducted under section 80P(2)(a) to (f) covering only items included in each of the sub-sections.

E. Determine assessed income at C-D (if any) subject to provisions of section
80AB.

F. The assessee must be given opportunity of being heard before finalizing
the computation and for furnishing relevant information adequate time within the statutory time limit under section 153 is to be granted.

2.2 The CIT also observed that as judicial discipline is vital, the decision in case of Chirakkal Servicce Co-operative Bank Ltd. vs. CIT (284 ITR 490) subject to final decision in SLP in admitted case of Karakulam SCB Ltd. for the assessment year 2008-09 is to be borne in mind by the Assessing Officer at the time of giving effect to this order. Against this, the assessee is in appeal before us.

3. We have heard the rival submissions and perused the record. Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner is well within his powers to treat an order as erroneous on the ground that the Assessing Officer should have made further inquiries before accepting the wrong claims made by the assessee. The Assessing Officer cannot remain passive in the face of a claim, which calls for further enquiry to know the genuineness of it. In other words, he must carry out investigation
where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The Assessing Officer was statutorily required to make the assessment under Section 143(3) after scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. The Assessing Officer should protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return. The order passed by the Assessing Officer becomes erroneous when an enquiry has not been made before accepting the genuineness of the claim which resulted in loss of revenue.

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