2025 (2) TMI 232 - AT - Income Tax

First-time taxpayer from remote area escapes Section 271B penalty when CA failed to upload audit report

ITAT Patna allowed the appeal and cancelled penalty u/s 271B imposed for non-filing of tax audit report u/s 44AB. The tribunal found that the assessee, a ... Penalty u/s 271B - assessee failed to furnish any tax audit report and get its account audited u/s 44AB - HELD THAT:- The assessee belongs to a remote area where the facilities of a consultant may not be readily available. As stated that the assessment was made for the first-time u/s 144 of the Act and prior to that the assessee was not aware about the applicability of Income-tax Act. Non-filing of the audit report, it was stated before the Ld. CIT(A) that although he got his books of account audited by a CA, however, the audit report could not be uploaded due to failure on the part of the CA. Being in a remote area there was a default. CIT(A), it was claimed in the grounds of appeal that the books of account were already audited on 18.09.2017 but a mistake happened on the part of the CA that the return and the audit report had not been filed and uploaded respectively for the said year. A copy of the audit report was filed during the course of the appeal proceeding before the Ld. CIT(A). Thus, the assessment being made for the first-time and the assessee remaining in a remote area where the facility for such consultant may not be available, we are of the view that the assessee should not be penalised on account of the default committed by the CA as he is a small and first-time taxpayer and the default occurred due to lack of adequate guidance from the professional he had engaged. Hence, the penalty levied u/s 271B of the Act is cancelled and the appeal is allowed. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment was whether the penalty imposed on the assessee under Section 271B of the Income Tax Act, 1961, for failure to furnish a tax audit report, was justified. The Tribunal also considered whether the assessee had a reasonable cause for the failure to comply with the tax audit requirements, which could warrant the waiver of the penalty under Section 273B of the Act.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework involves Section 271B of the Income Tax Act, which mandates a penalty for failure to furnish a tax audit report as required under Section 44AB. Section 273B provides relief from penalties if the assessee can demonstrate reasonable cause for the failure. The precedent from the Supreme Court case of Motilal Padampat Sugar Mills Co. Ltd. was considered, which discusses the presumption of knowledge of law and the principle that ignorance of law is not an excuse.Court's Interpretation and ReasoningThe Tribunal acknowledged the assessee's claim of ignorance of tax laws due to his remote location and lack of resources. It considered the Supreme Court's observation that there is no presumption that every person knows the law, emphasizing that ignorance of law does not necessarily excuse liability but can be a factor in determining reasonable cause under Section 273B.Key Evidence and FindingsThe Tribunal noted that the assessee operated from a remote area with limited access to tax compliance resources. The assessee had engaged a Chartered Accountant (CA) who failed to file the audit report, despite having audited the books of accounts. The Tribunal found that the assessee had taken steps to comply by engaging a professional, indicating a lack of intent to evade tax obligations.Application of Law to FactsThe Tribunal applied Section 273B, which allows for penalty waiver if reasonable cause is demonstrated. The Tribunal found that the assessee's circumstances, including his remote location and reliance on a CA, constituted reasonable cause for the failure to file the audit report. The Tribunal concluded that penalizing the assessee for the CA's failure would be unjust.Treatment of Competing ArgumentsThe Department argued that ignorance of law is not an excuse and that the penalty was justified. However, the Tribunal balanced this with the assessee's argument of unintentional non-compliance due to lack of awareness and resources. The Tribunal favored a lenient approach, considering the assessee's proactive steps post-assessment to comply with tax laws.ConclusionsThe Tribunal concluded that the penalty under Section 271B was not warranted due to the reasonable cause demonstrated by the assessee. The appeal was allowed, and the penalty was canceled.SIGNIFICANT HOLDINGSCore Principles EstablishedThe Tribunal reinforced the principle that while ignorance of law is generally not an excuse, it can be considered in determining reasonable cause under Section 273B. The decision highlighted the importance of considering the totality of circumstances, including the assessee's location, resources, and reliance on professionals.Final Determinations on Each IssueThe Tribunal determined that the assessee had demonstrated reasonable cause for the failure to file the tax audit report, thus justifying the waiver of the penalty under Section 273B. The appeal was allowed, and the penalty was canceled, recognizing the unintentional nature of the non-compliance and the steps taken by the assessee to rectify the situation.