2024 (8) TMI 107 - AT - Income Tax

Levy of penalty u/s 271B - delayed furnishing of Tax Audit Report as required u/s 44AB - cause for the delay was attributed to the delay in finalization of the statutory audit of the assessee-company due to dispute between the Board of Directors with one of the nominee directors of the Government of Gujarat undertaking who refused to allow the payment of interim dividend declared by the Board during the year. HELD THAT - We find that the assessee had reasonable cause for the delay. Since its audited accounts itself were delayed for finalization it is but obvious that the Tax Audit Report could be prepared only thereafter. As gone through the order of the AO and CIT(A) find that no reason has been given by both of them for finding this explanation of the assessee to be unreasonable. AO in his order states that the assessee was required in the first place to take approval from the nominee-director of the Govt. undertaking while declaring interim dividend which it failed to do so which ultimately led to all disputes and finally the delay in getting the audit results finalized and approved and the Tax Audit Report being subsequently filed. AO contends that this failure of the assessee-company to adhere to the agreement cannot be said to be a reasonable cause for delay in filing the Tax Audit Report. CIT(A) agrees with the AO. No merit in this reasoning of the Revenue Authorities for dismissing the assessee s explanation as being unreasonable. Whosoever may have been responsible for the dispute and standoff between the Board of Directors of the assessee-company and the nominee-director of the Govt. undertaking the fact remains that the audited results of the assessee were delayed for approval as a consequence of which the Tax Audit Report was also delayed for filing since it was dependent on the audited results. We hold that there was sufficient cause adduced by the assessee for the delay in filing the Tax Audit Report and therefore there is no case for levying any penalty u/s 271B of the Act. The penalty so levied directed to be deleted. Appeal of the assessee allowed.

Summary

Issues Involved:
1. Invocation of Section 271B after six years, violating Section 275(1) of the Income Tax Act.
2. Confirmation of penalty of Rs. 1,50,000/- for delayed furnishing of Tax Audit Report under Section 44AB.

Issue-wise Detailed Analysis:

1. Invocation of Section 271B after six years, violating Section 275(1) of the Income Tax Act:
This issue was raised by the assessee but was not pressed before the Tribunal. Consequently, it was dismissed as not pressed.

2. Confirmation of penalty of Rs. 1,50,000/- for delayed furnishing of Tax Audit Report under Section 44AB:
The core of the dispute revolved around the delayed submission of the Tax Audit Report for the Assessment Year 2016-17. The assessee admitted the delay but contended that there was a reasonable cause for it. The explanation provided by the assessee was that the delay was due to a dispute between the Board of Directors and a nominee director from the Gujarat Venture Finance Limited (GVFL), a Government of Gujarat undertaking.

The assessee had raised Rs. 250 lakhs from GVFL in January 2008, and as per the Venture Capital Assistance Agreement, GVFL's nominee director's approval was required for finalizing accounts, declaring dividends, and changing accounting policies. In FY 2015-16, the Board decided to pay an interim dividend, which was initially not objected to by the GVFL nominee. However, during the statutory audit in July 2016, the GVFL nominee objected to the dividend payment, leading to a standoff and delay in finalizing the accounts.

The delay in finalizing the statutory audit resulted in the Tax Audit Report being filed late. The assessee provided detailed documentation, including minutes of Board meetings and the Registrar of Companies' approval for extending the AGM deadline, to substantiate the delay.

The Tribunal found that the explanation provided by the assessee constituted a reasonable cause for the delay. The delay in finalizing the audited accounts directly impacted the filing of the Tax Audit Report. The Tribunal noted that the Assessing Officer and the Commissioner of Income Tax (Appeals) did not provide any substantial reasons for rejecting the assessee's explanation. The Tribunal concluded that the delay was due to circumstances beyond the assessee's control and directed the deletion of the penalty of Rs. 1,50,000/- imposed under Section 271B.

Conclusion:
The appeal was partly allowed, with the Tribunal holding that there was sufficient cause for the delay in filing the Tax Audit Report and directing the deletion of the penalty. The order was pronounced in the open court on 30/07/2024 at Ahmedabad.