The Chennai Bench of the Income Tax Appellate Tribunal examined whether penalty imposed under Section 271B of the Income Tax Act, 1961 for failure to furnish the tax audit report within the prescribed time was sustainable, in a case where the assessee pleaded existence of reasonable cause under Section 273B of the Act.

The assessee, a partnership firm engaged in the business of textile dyeing and processing, was required to furnish its audit report for the Assessment Year 2018-19 as its turnover exceeded the prescribed threshold. The Assessing Officer imposed a penalty of ₹1,50,000 under Section 271B on the ground that the audit report was not filed within the statutory time limit. The penalty was confirmed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre.

Before the Tribunal, the assessee submitted that its business operations were severely disrupted due to liquidation proceedings initiated under the National Company Law Tribunal. It was further contended that the partner who was primarily responsible for maintaining the accounts had expired after prolonged illness. Supporting documents, including NCLT records, death certificate of the partner, and GST returns reflecting slowdown of business, were placed on record. It was argued that these circumstances constituted reasonable cause within the meaning of Section 273B, warranting deletion of the penalty.

The Tribunal observed that the initiation of liquidation proceedings and the demise of the partner handling the accounts were undisputed facts supported by documentary evidence. Taking into account the totality of circumstances, the Tribunal held that the assessee had established reasonable cause for the delay in furnishing the audit report. The Tribunal further noted that the audit report had been filed well before completion of the assessment and that the Assessing Officer had the benefit of the audit report while framing the assessment order.

The Tribunal held that the lapse on the part of the assessee constituted only a venial breach which did not result in any loss to the Revenue. In view of the reasonable cause demonstrated by the assessee and the absence of any prejudice to the exchequer, the Tribunal concluded that the penalty under Section 271B was not justified.

Accordingly, the Tribunal deleted the penalty imposed under Section 271B and allowed the appeal filed by the assessee.

Source Link - https://itat.gov.in/public/files/upload/1768210262-WZKe5Z-1-TO.pdf

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