Introduction
The Income Tax Appellate Tribunal (ITAT), Pune Bench “A,” recently delivered a significant judgment on January 2, 2025, concerning the imposition of penalties under Section 271B of the Income Tax Act, 1961. This case involved Dr. Murugesh Shantveerya Hiremath, a renowned cardiologist, who appealed against the penalty imposed for failing to file the tax audit report on time for the Assessment Year (AY) 2018-19. The judgment, rendered by Shri R. K. Panda (Vice President) and Shri Vinay Bhamore (Judicial Member), provides crucial insights into the interpretation of reasonable cause under Section 273B of the Act.
Case Background
Dr. Hiremath, a medical professional, declared a total income of ₹4,39,14,050 in his return filed on March 27, 2019. His gross professional receipts for the financial year (FY) 2017-18 amounted to ₹6,84,08,433, necessitating compliance with the provisions of Section 44AB, which requires obtaining and furnishing a tax audit report by the due date. A survey under Section 133A was conducted on September 7, 2017, during which various documents, including receipt books, collection sheets, and other records, were impounded by the Income Tax Department.
Although the income returned by Dr. Hiremath was accepted, the Assessing Officer (AO) noted that the audit report was not filed by the due date as prescribed under Section 139(1). Consequently, a penalty of ₹1,50,000 was imposed under Section 271B for the delayed filing.
Appeal and Grounds
Dr. Hiremath challenged the penalty before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the delay was attributable to factors beyond his control. However, the CIT(A) upheld the penalty, prompting the appellant to approach the ITAT with the following grounds:
- The CIT(A) erred in confirming the penalty under Section 271B despite the existence of reasonable cause.
- The penalty of ₹1,50,000 should be canceled.
- The appellant reserved the right to modify or add grounds as necessary.
Arguments Presented
For the Appellant:
Counsel for Dr. Hiremath, Shri M. R. Bhagwat, presented a detailed account of the circumstances leading to the delay:
- During the survey, crucial documents required for finalizing the accounts were impounded, and copies were only made available on January 19, 2018.
- The delay in accessing these documents prevented the timely closure of accounts for FY 2016-17, which, in turn, delayed the finalization of accounts for FY 2017-18.
- The Chartered Accountant responsible for the audit ceased practice, necessitating the appointment of a new auditor who first completed the audit for FY 2016-17 before addressing FY 2017-18.
The counsel argued that these factors constituted reasonable cause under Section 273B and emphasized that the appellant’s actions were not deliberate but a consequence of unavoidable procedural hurdles.
For the Respondent:
The Department’s representative, Shri Ramnath P. Murkunde, countered that compliance with Section 44AB is mandatory and that the delay in filing the audit report was a clear violation warranting the penalty. He urged the Tribunal to uphold the decisions of the lower authorities.
Tribunal’s Observations and Findings
The Tribunal examined the submissions and relevant records, noting the following:
- Reasonable Cause Established: The impounding of documents during the survey significantly hindered the appellant’s ability to finalize accounts for FY 2016-17. Since the audit for FY 2016-17 was a prerequisite for completing the subsequent year’s accounts, the delay was unavoidable.
- Procedural Delays: The Tribunal acknowledged the impact of appointing a new Chartered Accountant and the sequential nature of the audits, which further contributed to the delay.
- Judicial Precedents: The Tribunal relied on the decision in APL (India) Pvt. Ltd. vs. JCIT (ITA No. 4796/MUM/2012), where penalties under similar circumstances were deleted due to reasonable cause.
Key Excerpt from the Precedent:
The Tribunal quoted:
“3. We have heard both parties and their contentions have carefully been considered. According to section 273B, no penalty shall be imposable on the person or the assessee, as the case may be for any failure which interalia include the defaults mentioned in section 271B, if he proves that there was reasonable cause for the said failure. A plain reading of section 273B makes it clear that the same is a procedural law with regard to the question of imposition of penalty under different sections which include section 271B. Section 271B maintains imposition of penalty on the failure but, by reason of rule of evidence provided under section 273B, such imposition of penalty is dependent on the proof that there was no reasonable cause for the failure. Omission of the particular phrase from the substantive law and incorporation thereof in the procedural law bears the legislative intent to make the provision of section 271B coercive instead of penal. The amendment was intended to remove the scope of any confusion with regard to the characteristics and nature of the proceedings under section 271B. The word “may” employed under section 271B though may be interpreted as discretionary yet that discretion is limited within the convenience of section 273B providing the A.Y.08-09 procedure thereof. The word “may” has been used only to accommodate the procedural law enabling the assessee to prove that there was a reasonable cause for the failure. Unless it is proved that there was reasonable cause for the failure there is no escape from the imposition of penalty. Section 271B does not leave any discretion at the hands of the authority except as provided in section 273B. It is only when reasonable cause for the failure is proved, the penalty can be avoided. Therefore, the liability in the form of penalty can be imposed simply on the default if it is not explained by proving reasonable cause for the default. There can not be any proposition conceived of to the extent that if there was a substantive compliance or if there was no absolute default then penalty can not be imposed. But the statute has used the expression “may” employed in 271B which can not be treated to be mandatory. It has left a discretion that the taxing authority in given facts and circumstances may not impose penalty if they are satisfied that there was sufficient ground for not imposing penalty. But it depends on the facts of each case and having regard to the materials placed before it or where the finding is such that it can conceive of two alternate meaning, then the meaning beneficial to the assessee has to be accepted. Reference in this regard can be made to the decision of the Hon’ble Calcutta High Court in the case of CIT vs. Capital Electronics (261 ITR 4).
3.1 If the facts of the present case are examined in the light of law laid down in the aforementioned decision then even according to facts and circumstances of this case there is material on record according to which it can be said that the Assessee was prevented by sufficient cause for non-compliance with the provisions of section 44AB. The reason given in the present case for non-compliance with the statutory provisions of section 44AB is late completion of statutory audit by the auditors which was completed on 21.04.2009. After completion of the said statutory audit, within a reasonable time i.e. within a period of little more than 2 A.Y.08-09 months, the assessee obtained tax audit report on 25/06/2009 and return was e-filed on 03.09.2009. Without completing statutory audit, the Assessee could not have obtained tax audit report, which constitutes reasonable cause. This plea was raised by the assessee even before the AO and AO has not doubted such contention of the assessee. The Hon’ble Punjab & Haryana High Court in the case of CIT vs. Punjab State Leather Development Corporation Ltd. (171 CTR 451) has held that delay in completion of statutory audit was reasonable cause for non- compliance with section 44AB and it was held that the Tribunal was right in cancelling penalty levied under section 271B.
- In view of our discussion, we are of the opinion that CIT(A) was not right in upholding the levy of penalty under section 271B. Penalty is directed to be deleted.
- Appeal by the assessee is allowed.”
Applying this principle, the Tribunal held that the appellant’s delay in filing the tax audit report was justified.
Judgment
In light of the above findings, the ITAT concluded that the appellant was prevented by reasonable and genuine cause from meeting the prescribed timelines. The penalty of ₹1,50,000 imposed under Section 271B was deemed unjustified and directed to be deleted. The appeal filed by Dr. Hiremath was allowed.
Citiation: Dr. Murugesh Shantveerya Hiremath, vs DCIT, Central Circle-1(5), Pune. ITA No.1558/PUN/2024 Assessment Year : 2018-19
