No Penalty Can Be Levied U/S 271B Of IT Act If No Prejudice Is Caused To Dept On Account Of Belated Furnishing Of Audit Report: Kerala HC
Pankaj Bajpai
26 Dec 2024 3:30 PM IST
The Kerala High Court held that circumstances under which AO can absolve a taxpayer from payment of penalty u/s 271B are discernible from a reading of Sec 273B, which states that no penalty can be imposed on an assessee u/s 271B for breach of the provisions, if he proves that there was "reasonable cause" for the said failure.
The provision of Section 44AB of Income tax Act prescribes a procedure of audit of accounts by certain categories of assessees and deals inter alia with the manner in which reports of such audit have to be submitted before the AO.
Whereas, Section 271B of Income tax Act deals with the consequences of a failure to get accounts audited in the manner contemplated u/s 44AB.
Significantly, u/s 271B, the phraseology of "may" is used while dealing with the discretion of the AO with regard to whether or not a penalty should be imposed and the phrase "shall" is used while specifying the quantum of penalty that is to be imposed.
The Division Bench of Justice Dr. A K Jayasankaran Nambiar and Justice K V Jayakumar observed that no penalty shall be imposed on assessees u/s 271B, if no prejudice is caused to Revenue Department on account of any belated furnishing of audit report as per Sec 44AB.
Facts of the case:
The Bench observed that the moot question is whether the assessee societies had demonstrated a reasonable cause for the delay in submitting audit reports as mandated u/s 44AB before the AO?
If the assessees could demonstrate that there were valid reasons for the delay occasioned in submitting the audit reports before the AO, and that they were on account of reasons beyond the control of the assessees, then the threshold of reasonable cause would be crossed by the assesses, added the Bench.
Moving forward, the Bench noted that the delay in submitting the audit reports was occasioned solely because there was a corresponding delay in receiving the audit reports from the statutory auditors appointed under the Kerala Co-operative Societies Act and Rules.
Finding that the assessee society had virtually no control over completion of audit by the statutory auditors, the Bench observed that delay occasioned by statutory auditors in finalising the audit reports was in no way attributable to the conduct of assessee.
At any rate, the audit reports were made available before the AO at the time of completion of assessment, and hence, there was really no prejudice caused to the Department in the matter of finalisation of assessment, added the Bench.
The Bench found that the AO, at first instance, did not even look into the aspect of "reasonable cause" and proceeded to confirm the penalty on the assumption that penalty u/s 271B was automatic whenever there was a delay in submission of the audit report beyond the prescribed due date.
The Kerala Co-operative Societies Act and Rules revealed that the auditors had time that extended to six months after expiry of the financial year to submit their audit report, and if they took more time than was allowed under the Statute, then societies had no option but to await the audit report, added the Bench.
Thus, the High Court held that the assessee cannot be seen as persons who did not establish a reasonable cause for belated filing of the audit reports.
While therefore concluding that peremptory phraseology used in Sec 273B mandated that no penalty u/s 271B be imposed, the High Court allowed Assessee's appeal.
Case Title: CHAVAKKAD SERVICE COOPERATIVE BANK vs. ITO
Case Number: ITA No.9 of 2023
Counsel for Appellant/ Assessee: Advocates Arjun Raghavan, T R Harikumar, Pooja Pankaj, and P C Sasidharan
Counsel for Respondent/ Revenue: P G Jayashankar and Keerthivas Giri
