2025 (1) TMI 277 - AT - Income Tax

Penalty u/s 271B - non compliance to provision of Sec. 44AB - assessee claims that due to honest and bonafide belief and under the impression that they are not required to file return of Income u/s 139 of the Act along with the tax audit report couldn t filed the ROI audit report within the due date. HELD THAT - Assessee submitted that even the internal auditors from the co-operative department also not appraised the management about the matter. It is only after getting the notice u/s 142(1) assessee sought opinion from a professional who advised them to get their accounts audited and file return of income at the earliest. Acting upon immediately they appointed a CA firm to carry out the tax audit and file their return of income which were ultimately filed on 13/03/2018. Reading of the relevant provisions of 273B r.w.s. 271B and r/w Section 44AB we are of the considered opinion that assessee demonstrated that there was a reasonable cause for the said failure as per the provisions contained in section 273B of the Act. We are also of the opinion that an honest belief founded upon reasonable grounds of the existence of a state of circumstances which assuming them to be true would reasonably lead any ordinary prudent and cautious man placed in the position of the person concerned to come to the conclusion that the same was the right thing to do. Our above view finds support from the various decisions cited by the assessee. From the conduct behavior and attitude of the assessee it is clear that as soon as notice u/s 142(1) was served on the assessee the assessee sought opinion from a professional who advised them to get their accounts audited and file return of income at the earliest. Immediately on advice they appointed a CA firm to carry out the tax audit and file their return of income which was ultimately filed on 13/03/2018. As the assessee society s total income after deduction u/s 80P of the Act was NIL and hence they on an honest and bonafide belief and under the impression that they are not required to file return of Income u/s 139 of the Act along with the tax audit report cannot be said to be without a reasonable cause within the meaning of Section 273B. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the penalty levied under Section 271B of the Income Tax Act, 1961, for failure to furnish the audit report within the due date, is justified.
• Whether the assessee had a "reasonable cause" for the delay in filing the audit report, thereby invoking the immunity under Section 273B of the Income Tax Act, 1961.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of Penalty under Section 271B

• Relevant legal framework and precedents: Section 271B imposes a penalty for failure to get accounts audited as required under Section 44AB. The penalty is either 0.5% of the total sales, turnover, or gross receipts, or Rs. 1,50,000, whichever is less.
• Court's interpretation and reasoning: The Tribunal noted that the assessee did file the audit report, albeit late, and the assessment was completed based on the audited accounts.
• Key evidence and findings: The audit report was filed on 13/03/2018, past the due date of 31/10/2017. The assessee claimed a bona fide belief that filing was not required due to NIL income after deductions.
• Application of law to facts: The Tribunal considered the assessee's explanation and found that the delay was not due to willful neglect but was based on a misunderstanding of the legal requirements.
• Treatment of competing arguments: The Revenue argued for the penalty based on statutory non-compliance, while the assessee argued the delay was due to reasonable cause, invoking Section 273B.
• Conclusions: The Tribunal concluded that the penalty under Section 271B was not justified as there existed a reasonable cause for the delay.

Issue 2: Existence of Reasonable Cause under Section 273B

• Relevant legal framework and precedents: Section 273B provides that no penalty shall be imposed if the assessee proves that there was a reasonable cause for the failure.
• Court's interpretation and reasoning: The Tribunal emphasized that the penalty is not automatic and should be considered in light of the reasonable cause presented by the assessee.
• Key evidence and findings: The assessee acted upon receiving notice under Section 142(1) and promptly filed the audit report, indicating a lack of willful default.
• Application of law to facts: The Tribunal found the explanation provided by the assessee to be credible and consistent with the provisions of Section 273B.
• Treatment of competing arguments: The Tribunal balanced the statutory obligation against the reasonable cause shown by the assessee, ultimately favoring the latter.
• Conclusions: The Tribunal held that the assessee demonstrated a reasonable cause, thus annulling the penalty under Section 271B.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of its obligation."
• Core principles established: The existence of a reasonable cause as per Section 273B can negate the imposition of penalties under Section 271B. The Tribunal emphasized the discretionary nature of penalty imposition, which must be exercised judicially.
• Final determinations on each issue: The Tribunal annulled the penalty imposed under Section 271B, allowing the appeal filed by the assessee, based on the reasonable cause demonstrated under Section 273B.

In conclusion, the Tribunal's judgment underscores the importance of considering the reasonable cause in penalty proceedings and highlights the judicial discretion involved in such determinations. The appeal was allowed, and the penalty under Section 271B was annulled.