Non-Filing of Audit Report Electronically cannot be reason for imposing Penalty under Income Tax Act

The Income Tax Appellate Tribunal (ITAT Bangalore )’s Bench ruled that failure to file audit reports electronically cannot be used to impose a penalty under the Income Tax Act.

M/s SLV Housing Development Corporation initially hired M/s K.P Rao & Company, Chartered Accountants to undertake a tax audit, and Shri Vinay Simha, CA, the firm’s partner, was in charge of the case. However, the accounts they completed were riddled with errors and inaccurate. As a result, a new chartered accountant was hired, and the AO received a tax audit report from him. It was also stated that the assessee had filed a complaint with the ICAI over Vinay Simha’s misbehavior.

In January 2014, the AO discovered that the department had identified a number of fraudulent challans, and statements from Shri Vinay Simha, CA, were taken in this regard. Shri H Nagaraj, a partner in the assessee firm, also arrived on that date and claimed ignorance of the fraudulent challans. In July of 2014, the assessee filed a complaint against the abovementioned CA. The AO further noted that the assessee has not specified when Shri Sangamesh, the new CA, was appointed.

The tax audit report, on the other hand, was filed on December 9, 2016, just 23 days before the assessment’s limitation period expired. The assessee had also been filing returns of income and audit reports late in previous years, according to the AO. The AO also noted that, pursuant to Rule 12(2) of the Income Tax Rules, 1962, the tax audit report should have been filed electronically, while the assessee had submitted the tax audit report manually. As a result, the AO dismissed the assessee’s answers and imposed a penalty under section 271B of the Act.

The coram, which was chaired by Vice President N.V. Vasudevan and Accountant Member B.R. Baskaran, held that if the assessee’s cause appeals or satisfies any reasonable mind, there is reasonable cause.

The ITAT determined that the tense relationship with the previous CA was reasonable cause. The IRS has identified a delay lag in receiving a tax audit report from a new CA. However, it is well recognized that terminating the relationship with the previous CA may have taken some time. The truth remains, however, that the tax audit report was filed with the AO before the assessment was completed. The non-electronic filing of tax audit reports has been mentioned by the tax authorities.

The court noted that section 44AB makes no mention of the situation. As a result, non-electronic filing of audit reports cannot be used to impose a penalty under section 271B of the Act.

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