2023 (9) TMI 1701 - AT - Income Tax

Penalty under Section 271B for non-furnishing audit details barred by limitation, cannot be extended under Section 275

The ITAT Surat held that the penalty order under section 271B for non-furnishing audit details under section 44AB was barred by limitation, as the order ... Penalty u/s 271B - period of limitation - non-furnishing the details of audit under provision of section 44AB - HELD THAT:- Penalty order got time barred on 30.06.2020 and the order was passed on 08.08.2021 therefore, it is barred by limitation. If the AO has not been able to impose penalty within period of limitation due to certain practical difficulties, the period of limitation cannot be extended. If penalty is not levied within time prescribed u/s 275 of the Act, it is barred by limitation and existence of reasonable cause for failure of the AO to levy penalty is immaterial. For this reliance can be placed on the judgment of Paharpur Cooling Towers Ltd.[2006 (9) TMI 210 - ITAT CALCUTTA-B] We note that if after initiating penalty proceedings, no action is taken either for imposing or not imposing penalty, within the time-limit given u/s 275 of the Act, the penalty proceeding will become time-barred. In such a case, the Competent Authority cannot reinitiate penalty proceedings after the original penalty proceeding has become time barred. Considering the facts and circumstances, we quash the penalty. Penalty order passed by the AO is barred by limitation. Therefore, we have quashed the penalty order passed by the AO u/s 271B of the Act. Appeal of the assessee is allowed. 1. ISSUES PRESENTED and CONSIDERED Whether penalty imposed under section 271B of the Income Tax Act, 1961 for failure to furnish audit report under section 44AB can be sustained. Whether the penalty order passed under section 271B is barred by limitation as per the provisions of section 275 of the Income Tax Act, 1961. Whether reasonable cause exists for non-furnishing of audit report and return of income within prescribed time. Whether additional ground of limitation can be admitted at the appellate stage despite not being raised earlier. Applicability and computation of limitation period for penalty proceedings under section 271B in light of statutory provisions and judicial precedents. Effect of non-filing of appeal against assessment order on finality of assessment and limitation for penalty proceedings. Relevance of immunity granted under section 245H of the Income Tax Act and effect of subsequent orders of the Settlement Commission and the Supreme Court on limitation for penalty proceedings. Whether ignorance of law or lack of knowledge of compliance by partners constitutes reasonable cause for non-furnishing of audit report. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of penalty imposed under section 271B for failure to furnish audit report under section 44AB Legal framework and precedents: Section 44AB mandates audit of accounts and furnishing of audit report where turnover exceeds prescribed limits. Section 271B imposes penalty for failure to comply with section 44AB. Section 273B provides that no penalty shall be imposed if reasonable cause is proved for failure. Court's interpretation and reasoning: The Assessing Officer noted that the assessee's receipts exceeded the threshold under section 44AB, necessitating audit and filing of audit report. The assessee failed to furnish audit report within due date. The assessee's plea of ignorance and lack of knowledge by senior citizen partners was rejected by the Assessing Officer as ignorance of law is no excuse. The penalty was accordingly levied. Key evidence and findings: The assessee did not file audit report despite notices and show cause notices. The reply submitted did not establish reasonable cause. The appellate authority confirmed the penalty on same grounds. Application of law to facts: Non-filing of audit report despite turnover exceeding limit is a clear contravention of section 44AB. Absence of reasonable cause disentitles the assessee from exemption under section 273B. Treatment of competing arguments: Assessee's argument of first year of operation and ignorance was rejected as not constituting reasonable cause. Revenue's stand on mandatory compliance upheld. Conclusion: Penalty under section 271B was rightly imposed on merits for non-furnishing of audit report. Issue 2: Limitation for passing penalty order under section 271B and applicability of section 275 Legal framework and precedents: Section 275 prescribes limitation for imposition of penalty: no penalty order shall be passed after two years from the end of the financial year in which proceedings initiating penalty were completed or six months from end of month in which penalty action was initiated, whichever is later. Judicial precedent establishes strict adherence to limitation period without extension for practical difficulties. Court's interpretation and reasoning: The penalty proceedings were initiated on 24.12.2019 concurrent with assessment order. The penalty order was passed on 08.08.2021. Limitation expired on 30.06.2020 (six months from end of month of initiation). Hence, penalty order is time barred. Key evidence and findings: No appeal was filed against assessment order dated 24.12.2019, making assessment final. Show cause notice for penalty issued on 24.12.2019. Last reply from assessee dated 09.01.2020. Penalty order passed after expiry of limitation period. Application of law to facts: Since penalty order was passed beyond prescribed limitation period under section 275, it is barred by limitation and liable to be quashed. Treatment of competing arguments: Revenue's contention that penalty order is valid despite delay was rejected. Practical difficulties or ignorance of Assessing Officer does not extend limitation. The assessee's additional ground on limitation was admitted and upheld. Conclusion: Penalty order under section 271B is barred by limitation and is quashed. Issue 3: Admission of additional ground of limitation at appellate stage Legal framework and precedents: Supreme Court ratio permits admission of additional grounds at appellate stage if purely legal and facts are on record. Court's interpretation and reasoning: Additional ground of limitation was raised for the first time before the Tribunal. Since it is a pure legal issue and all facts are on record, the Tribunal admitted the ground. Key evidence and findings: No further inquiry required as limitation facts are undisputed. Application of law to facts: Admission of additional ground allowed in interest of justice. Treatment of competing arguments: Revenue's objection on non-raising before lower appellate authority was overruled. Conclusion: Additional ground of limitation was admitted for adjudication. Issue 4: Effect of non-filing of appeal against assessment order on finality and limitation Legal framework and precedents: Absence of appeal against assessment order renders assessment final. Limitation for penalty runs from completion of assessment proceedings. Court's interpretation and reasoning: No appeal was filed against assessment order dated 24.12.2019. Therefore, assessment order attained finality on that date. Penalty proceedings initiated simultaneously. Limitation for penalty runs from this date. Key evidence and findings: No appeal filed by assessee against assessment order. Application of law to facts: Finality of assessment fixes limitation timeline for penalty proceedings. Treatment of competing arguments: Revenue's stand that penalty can be imposed after assessment order finality was accepted but within limitation period only. Conclusion: Limitation period for penalty starts from date of final assessment order. Issue 5: Reasonable cause for non-furnishing of audit report Legal framework and precedents: Section 273B exempts penalty if reasonable cause is shown. Ignorance of law is not reasonable cause. Court's interpretation and reasoning: Assessee's claim of ignorance and first year operation was not accepted as reasonable cause. Partners' senior citizen status and lack of knowledge do not excuse non-compliance. Key evidence and findings: No documentary evidence or credible explanation for non-filing was furnished. Application of law to facts: Absence of reasonable cause disentitles exemption from penalty. Treatment of competing arguments: Revenue's reliance on settled legal position upheld. Conclusion: No reasonable cause established; penalty on merits sustainable. Issue 6: Effect of immunity under section 245H and subsequent orders of Settlement Commission and Supreme Court on limitation for penalty Legal framework and precedents: Immunity granted under section 245H suspends limitation period for penalty. Immunity lasts until order is set aside by competent authority. Supreme Court's setting aside of Settlement Commission order revokes immunity. Court's interpretation and reasoning: The Tribunal extensively analyzed a precedent involving immunity granted by Settlement Commission and its effect on limitation. It was held that immunity under section 245H begins on the date of order under section 245D(4) and lasts until set aside by Supreme Court order. Once Supreme Court set aside order, immunity ceased and penalty proceedings could proceed within limitation. Key evidence and findings: Immunity period and its termination date were critical to limitation calculation. Service of Supreme Court order on authorities was held irrelevant for limitation purposes. Application of law to facts: Immunity period excluded from limitation computation. Penalty must be imposed within 30 days from cessation of immunity. Treatment of competing arguments: Revenue's argument that service of Supreme Court order is necessary was rejected. Practical difficulties faced by Assessing Officer do not extend limitation. Conclusion: Immunity period properly excluded. Penalty imposed beyond limitation period post immunity is invalid. Issue 7: Effect of non-response to repeated show cause notices during penalty proceedings Legal framework and precedents: Non-response to notices does not absolve assessee of liability. Assessing Officer may decide penalty based on available record and replies. Court's interpretation and reasoning: Despite multiple notices, assessee did not respond except initial reply. Assessing Officer relied on initial reply and record to impose penalty. Key evidence and findings: Multiple notices issued after initial reply; no further response from assessee. Application of law to facts: Non-response treated as waiver of further submissions; penalty imposed on merits. Treatment of competing arguments: No merit in non-response argument for relief. Conclusion: Penalty imposition valid on merits despite non-response. Issue 8: Effect of quashing penalty order on merits of penalty Legal framework and precedents: If penalty order is quashed on limitation grounds, merits need not be adjudicated. Court's interpretation and reasoning: Since penalty order was quashed as barred by limitation, merits of penalty were not considered. Key evidence and findings: Limitation bar is a complete defense. Application of law to facts: Merits rendered academic and infructuous. Treatment of competing arguments: Both parties argued merits but Tribunal refrained from opinion. Conclusion: Penalty quashed solely on limitation grounds.