ITAT rules delay in audit report filing not penalized under Income Tax Act

The ITAT ruled in favor of the assessee, holding that the delay in filing the audit report constituted a technical venial breach and did not warrant a penalty under section 271B of the Income Tax Act. The penalty imposed by the CIT(A) was deleted, and the appeal of the assessee was allowed by the ITAT.

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Issues:
Levy of penalty u/s. 271B for delayed filing of return and audit report.

Analysis:

Issue 1: Levy of Penalty u/s. 271B
The case involved the appeal against the order of the CIT(A) regarding the imposition of a penalty under section 271B of the Income Tax Act for delayed filing of the return and audit report. The Assessing Officer had issued a notice to the assessee for explanation on the delay in getting the accounts audited under section 44AB, which led to the penalty imposition of Rs. 1,50,000. The CIT(A) upheld the penalty, stating that there was a delay of 17 months in getting the accounts audited, and no satisfactory reason was provided by the assessee. The CIT(A) also noted that the penalty proceedings were independent of the assessment proceedings. The assessee argued that the delay was due to the filing of returns for earlier assessment years and a survey operation on the business premises. However, the CIT(A) found these reasons unsatisfactory as the accounts for the earlier years were audited within the due dates. The CIT(A) confirmed the penalty, leading to the appeal before the ITAT.

Issue 2: Reasonable Cause for Penalty Waiver
During the appeal before the ITAT, the assessee contended that there was a reasonable cause for the delay in getting the accounts audited, as they had to carry forward balances from earlier years. The ITAT considered the judgments cited by the assessee and observed that no prejudice was caused to the revenue as the audit report was available to the Assessing Officer before the completion of assessment proceedings. The ITAT held that the delay constituted a technical venial breach and did not warrant a penalty under section 271B. Drawing an analogy from a Madras High Court judgment, the ITAT concluded that the penalty should be deleted. Consequently, the ITAT allowed the appeal of the assessee and deleted the penalty under section 271B.

In conclusion, the ITAT ruled in favor of the assessee, holding that the delay in filing the audit report constituted a technical venial breach and did not warrant a penalty under section 271B of the Income Tax Act.

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