FAT EAST TRADING ESTABLISHMENT,KAYAMKULAM V. ITO, WARD NO.1, ALAPPUZHA

ITA 817/COCH/2024

AI Insights

The case involves Far East Trading Establishment, a partnership firm engaged in retail business, which faced a penalty for not submitting the prescribed audit report under section 44AB of the Income Tax Act, 1961, within the due date. The firm filed its return for the Assessment Year 2018-19 on time but submitted the audit report three years later. The Income Tax Officer (ITO) imposed a penalty citing a violation of section 44AB, which was upheld by the CIT(A). The Tribunal, however, found merit in the appellant's argument referencing a similar case by the Kerala High Court, leading to the deletion of the penalty.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 316022 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2018-2019
• Other Referred Cases: CIT v. A.N. Arunachalam [1994} 208 ITR 481, Chavakkad Service Co-op. Bank Ltd. [2024] 169 taxmann.com 45 (Kerala)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LEENA LAL
• Assessee Lawyers: SREEJITH R.
• Keywords: Reasonable cause
• Section: 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH BEFORE SHRI GEORGE GEORGE K., VP AND SHRI INTURI RAMA RAO, AM ITA No. 817 /Coch/2024 Assessment Year: 2018-19 Far East Trading Establishment .......... Appellant KMC XXI/89C, Sathrathil Builders, Kuttithervu Pullikanakku P.O., Kayamkulam 690537 [PAN: AABFF5728M] vs. The Income Tax Officer, Ward - 1, Alappuzha .......... Respondent Appellant by: Shri Sreejith R., Advocate Respondent by: Smt. Leena Lal, Sr. D.R. Date of Hearing: 13.05.2025 Date of Pronouncement: 14.05.2025 O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)], dated 19.07.2024 for Assessment Year (AY) 2018-19. 2. Brief facts of the case are that the appellant is a partnership firm engaged in retail business. The return of income for AY 2018- 19 was filed on 31.03.2019 disclosing total income of Rs. 10,75.563/-. The appellant also filed prescribed audit report u/s. 44 AB of the Income Tax Act, 1961 (the Act) on 31.03.2022. Against 2 ITA No. 817/Coch/2024 Far East Trading Establishment the said return of income, the assessment was completed by the ITO, Ward -1, Alappuzha (hereinafter called \"the AO\") accepting the returned income vide order dated 02.02.2021 passed u/s. 143(3) of the Act. During the courses of assessment proceedings the AO noticed that the gross sales of the appellant for 2018-19 was Rs. 3,84,25,527/-. The appellant was required to obtain prescribed audit report u/s. 44AB of the Act on or before the due date specified u/s. 139(1) of the Act and submit the same before the due date. However, the appellant firm had obtained the prescribed audit report u/s. 44AB on 31.03.2022. In the circumstances the AO formed an opinion that the appellant firm had violated the provisions of section 44AB of the Act. Accordingly, a show cause notice was issued calling upon the appellant to explain as to why penalty should not be imposed u/s. 271B of the Act. In response to the show cause notice the appellant filed reply on 03.10.2022 stating that the delay in obtaining the prescribed audit report was caused on account of the fact that the Accountant of the appellant firm, Shri Pavithra Kumar met with a serious motorcycle accident in the month of July, 2018. He was hospitalised and later discharged with instruction to take bed rest for a least 6 months. He had injured his spinal cord. The assessee submitted a copy of discharge summary of Mr. Pavithrakumar issued by Believers Church Medical College Hospital, Thiruvalla. However, the AO rejected the above explanation by holding that the books of accounts were audited by 3 ITA No. 817/Coch/2024 Far East Trading Establishment one Chartered Accountant, namely Shri Jayakumar Vasudevan Nair, not by Shri Pavithra Kumar. Therefore, he proceeded with levy of penalty of Rs. 1,50,000/-. 3. Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO. 4. Being aggrieved, the appellant is in appeal before us in the present appeal. 5. The learned A.R. submitted that penalty cannot be levied as the audit report was furnished before completion of the assessment in view of the judgement of Hon'ble Madras High Court in the case of CIT v. A.N. Arunachalam [1994} 208 ITR 481. 6. On the other hand, the learned Sr. DR, placing reliance on the orders of lower authorities submitted that no interference is called for. 7. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the Hon'ble Jurisdictional High Court in the case of Chavakkad Service Co-op. Bank Ltd. [2024] 169 taxmann.com 45 (Kerala) has observed as under: - “Where assessee co-operative societies did not file audit report as mandated under section 44AB within time limit specified thereunder, however, audit reports were made available before Assessing Authority at time of finalization of assessments, since delay in obtaining audit reports from statutory auditors under Kerala Co-operative Societies Act 4 ITA No. 817/Coch/2024 Far East Trading Establishment and Rules could be seen as a reasonable cause for delayed submission of audit reports, no penalty under section 271B was to be imposed on assessee.” 8. The facts of the case on hand are identical as discussed above. Thus, respectfully following the same, we delete the penalty imposed by the Revenue. 9. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 14th May, 2025. Sd/- Sd/- GEORGE GEORGE K. VICE PRESIDENT (INTURI RAMA RAO) ACCOUNTANT MEMBER Cochin, Dated: 14th May, 2025 n.p. Copy to: 1. The Appellant 2. The Respondent 3. The Pr. CIT concerned 4. The Sr. DR, ITAT, Cochin 5. Guard File By Order Assistant Registrar ITAT, Cochin "