Penalty u/s 271B deleted for frequent change of MD resulting delay in statutory audit

Penalty u/s 271B deleted for frequent change of Managing Director resulting delay in statutory audit causing delay in audit u/s 44AB within stipulated period.

ABCAUS Case Law Citation:
ABCAUS 2967 (2019) (05) ITAT

Important Case Laws Cited/relied upon by the parties:
Rajasthan Rajya Vidhyut Utpadan Nigam Ltd. vs. ACIT
CIT vs. Punjab State Leather Development Corporation Ltd. reported in 119 Taxman 258 (P&H)
Johns Biwheelers vs. ACIT

The appeal by the assessee was directed against the order of the CIT(A) ) in law in confirming the levy of penalty u/s 271B of the Income Tax Act, 1961 (the Act).

The assessee was a State Government Undertaking. There was a delay in filing the audit report as per section 44AB of the Act on or before the due date of filing the return of income under section 139(1) of the Act.

The Assessing Officer (AO) levied a penalty under section 271B of the Act. The assessee challenged the action of the AO before the CIT (A) but could not succeed.

Before the Tribunal the assessee submitted that there is a reasonable cause for delay in getting the accounts audited u/s 44AB. It was explained that the main reason for delay is that there were frequent change of the Managing Director of the company and for a considerable period there was no regular Managing Director. Therefore, the meeting of Board of Director for the adoption of audited financial statements could not be convened and consequently the statutory audit was delayed.

It was submitted that the assessee had to even make an application to the Registrar of Companies  for extension of time for holding the AGM. Accordingly, the statutory audit was conducted late and also the tax audit u/s 44AB and both the reports were filed online on the same date.

The assessee, relying upon several decisions, contended that as per settled law levy of penalty u/s 271B is subject to the provision of section 273B which provides that no penalty shall be imposable on the assessee if it proves that there is a reasonable cause for the failure. Penalty cannot be levied mechanically for mere contravention of the provision of section 44AB without examining whether there was reasonable cause as advanced by the assessee for the said failure or default.

The Tribunal noted that as explained the reason for delay in filing the audit report was frequent change of Managing Director of the company which resulted in the delay of statutory audit of the financial statements of the assessee undertaking and therefore the audit under section 44AB was not completed within the stipulated period.

The Tribunal observed that the Coordinate Bench in a similar case had deleted the penalty u/s 271B where there had been a delay in completion of statutory audit, holding that there existed a reasonable cause for the delay in completion and submission of the tax audit report under section 44AB of the Act.

The Tribunal further noted that in another case, another Bench of the Tribunal has also considered an identical issue. The assessee had contented that the delay in filing the return of income was due to damage to computer system due to virus infection which was a reasonable cause as prescribed u/s 273B. The Tribunal noted that the the assessee made available the audit report to the Assessing Officer and no prejudice had been caused to the Revenue. The Tribunal deleted the penalty holding that the assessee had committed only technical venial breach for which he could not be penalized.

Accordingly, in the instant case also the Tribunal deleted the penalty u/s 271B and opined that the assessee had explained a reasonable cause for delay in getting the accounts audited under section 44AB of the Act.

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