KHEMANI DISTILLARIES PVT LTD.,DAMAN V. ACIT, VAPI

ITA 550/SRT/2024

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Khemani Distilleries Pvt. Ltd. appealed against the penalty of Rs. 1,50,000 imposed under Section 271B for failing to file an audit report within the prescribed time. The assessee argued that the delay was caused by disputes among directors and the COVID-19 pandemic, which hindered their ability to hold necessary meetings. The Assessing Officer and the Commissioner of Income Tax (Appeals) rejected these reasons, leading to the appeal before the Tribunal. The Tribunal considered various precedents and the unique circumstances of the COVID-19 pandemic, ultimately deciding in favor of the assessee.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 26426 (ITAT-SURAT)
• Duration Of Justice: 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-10-2024
• Assessment Year: 2020-2021
• Appeal Filed On: 10-05-2024
• Other Referred Cases: Gujarat Federation of Tax Consultant vs. UOI, ITO vs. Alwin Steels, Jigneshbhai Rasikbhai Savaliya vs. ITO, ITO vs. Narendra Kumar, CIT vs. Rawat Singh and Sons, CIT vs. Apex Laboratories (P.) Ltd., Senith Processing Mills vs. CIT, CIT vs. Gujarat Oil & Allied Industries, CIT vs. Sitaram Bhagwandas, Addl. CIT vs. Muralidhar Mathuura Prasad, Oriental Medicines P. Ltd. vs. ACIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH JAIN
• Assessee Lawyers: TUSHAR P. HEMANI; SENIOR
• Keywords: Set aside; Reasonable cause; Period of limitation; TDS
• Section: 201; 274; 44AB; 273B; 271B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER & SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER ITA No. 550/SRT/2024 for AY: 2020-21 (Hybrid hearing) Khemani Distrilleries Pvt. Ltd., Ringanwala, Kachigam Road, Nani Daman, Daman - 396210 PAN : AAACK9738N Vs The ACIT, Vapi Circle, Vapi APPELLANT RESPONDEDNT Appellant by Shri Tushar P. Hemani, Senior Advocate With Shri Parimalsinh B. Parmar, Advocate Respondent by Shri Mukesh Jain, Sr. DR Date of Institution 10/05/2024 Date of hearing 09/10/2024 Date of pronouncement 30/10/2024 Order under Section 254(1) of Income tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (in short ‘NFAC’), Delhi, dated 18.04.2024 for Assessment Year (AY) 2020-21. Section 271B deals with the provisions for levy of penalty for failure of assessee to furnish audit report as required under section 44AB of the Act by any person whose total turnover is in excess of Rs.1.00 Crore in previous year. The assessee has raised the following grounds of appeal: “This appeal is preferred against the Appellate order passed by the Commissioner of Income Tax (Appeals), NFAC, Delhi, and relates to Assessment Year 2020-21. 1. Both lower authorities have erred, in Law and on Facts, in levying penalty of Rs.1,50,000/- u/s 271B of the Income-tax Act, 1961. 2. Based on the facts and in the circumstances of the case as well as law on the subject, both lower authorities have erred in levying penalty of Rs.1,50,000/- u/s 271B of the Act without appreciating the typical facts of the case and written submissions filed by the Appellant. ITA No.550/SRT/2024/AY.2020-21 Khemani Distilleries Pvt. Ltd. 2 3. Both lower authorities, erred in levying penalty u/s 271B of the Act of Rs.1,50,000/- by disregarding the fact that the Appellant had demonstrated ‘sufficient cause’ for the delay in filing the tax audit report. 4. The above Grounds of Appeal are without prejudice to and are independent of each other. 5. Your Appellant craves, leave to amend, alter, delete and/or add to foregoing Grounds of Appeal any time before the appeal is decided.” 2. Brief facts of the case are that that assessment for AY.2020-21 was completed u/s 143 r.w.s. 144B on 13.09.2021, determining total income at Rs. ‘Nil’ and accepting book profit under Minimum Alternative Tax (MAT) of Rs.7.77 Crores. The Assessing Officer while passing the assessment order, issued show cause notice under section 274 r.w.s. 271B on the allegation that the assessee has not filed audit statement in the form of audit report before due date prescribed in the assessment year. The assessee filed its reply dated 22.09.2022 and submitted that audit report was completed within time allowed under the Act in spite of Covid Pandemic period. However, due to dispute amongst the directors about ownership of company, the meeting of board of directors could not be held in time for accepting / adopting the actual accounts. Secondly, there was Covid Pandemic period which directly or indirectly caused delay in conveying meeting of boards of directors. One of the directors of assessee was staying in Bombay and other with his family members in Daman and due to restriction of precautionary situation, it was not possible to call director to travel to Daman, which resulted in delaying in compliance. To support their contention, the assessee relied on the precedent of case laws Gujarat High Court in the case of Gujarat Federation of Tax Consultant vs. UOI, in Civil Appeal No.13653 of 2020, dated 13.01.2021 wherein it was held that when ITA No.550/SRT/2024/AY.2020-21 Khemani Distilleries Pvt. Ltd. 3 extension of filing tax audit report was not granted by Central Board of Direct Taxes (CBDT), in such cases, the lenient view be taken, while levying the penalty. The reply of assessee was not accepted by Assessing Officer. The Assessing Officer held that due date for filing audit report was 15.01.2021 and such order audit report was filed on 22.02.2022. Reasons for family dispute amongst the board of directors and Covid restriction is not a valid reason. The AO was of the view that meeting could not have been conveyed through online mode in a video conferencing. All other affairs of assessee-company were not affected by such affair in the family of assessee. The Assessing Officer noted that total turnover of relevant assessment year is Rs.313.22 Crores. Thus, he levied minimum penalty of Rs.1,50,000/-, vide order dated 26.03.2023. 3. Aggrieved by the penalty levied under section 271B of the Act, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee filed similar submission, as filed before Assessing Officer. In addition to assessee submitted that assessee-company was incorporated in 1993 and has always made all legal compliance. The assessee never delayed any income-tax compliance or in making advance tax compliance or making in compliance returns of TDS payment. No penalty was ever imposed upon the assessee for non-compliance Income-tax Act. This is the first time of unique default that due to circumstances beyond their control. To support their submissions, the assessee also relied on various case laws. 4. The ld. CIT(A) after considering the submission of assessee, held that on the one hand the assessee claimed that there were circumstances beyond ITA No.550/SRT/2024/AY.2020-21 Khemani Distilleries Pvt. Ltd. 4 due to dispute amongst the directors and because of Covid pandemic and on the other the assessee also cited reasons of technical glitches on the portal. The assessee filed return of income on 13.02.2021 but tax audit report was filed on 22.02.2022. So the assessee filed return on the basis of such accounts which will still be adopted. Therefore, the delay in filing audit report cannot be accepted as a bonafide reason. Further aggrieved, the assessee has filed present appeal before Tribunal. 5. We have heard the submission of Sh. Tushar P. Hemani, learned Senior Advocate assisted by Shri Parimalsinh B. Parmar, Advocate [hereinafter referred as ‘ld. Senior Counsel’] for assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the Revenue. The ld. Senior Counsel for the assessee submits that tax audit report dated 13.07.2021 was furnished during assessment proceeding. The audit report was uploaded on portal on 22.02.2022. The assessment was completed under section 143 r.w.s. 143B on 01.09.2022. Thus, the tax audit report was available before the Assessing Officer before completing assessment proceeding. The assessee in response to show cause notice issued by Assessing Officer, filed their reply on 22.09.2022. In the reply, the assessee submitted that audit report could not be submitted due to dispute amongst the board of directors. And there was Covid-19 outbreak and physical meeting of board of director was not possible, furthermore, one of the directors was residing in Daman and other director in Mumbai. The time limit for making various statutory compliances were extended by Hon'ble Apex Court in Suo Motu Writ Petition (Civil) No.3 of 2020, dated ITA No.550/SRT/2024/AY.2020-21 Khemani Distilleries Pvt. Ltd. 5 10.01.2022, from the period of 15.03.2020 to 28.03.2022 and further 90 days’ time was also allowed. Thus, the case was for making statutory compliance or for furnishing audit report during such period is also covered by the decision of Hon'ble Apex Court. In such situation, no such penalty under section 271B was liable to be imposed. 6. In alternative submission, the ld. Senior Counsel submits that section 273B prescribed for reasonable cause for levying different type of penalty. The assessee clearly demonstrated that audit report was furnished well before passing of the assessment order, though it was late, the delay was beyond the control of assessee, it was reasonable cause. Thus, no penalty u/s 271B was liable to be levied. To support such submission, the ld. Sr. Counsel relied upon the following decision;  ITO vs. Alwin Steels, ITA No. 1806/Ahd/1995, dated 17.01.2000,  Jigneshbhai Rasikbhai Savaliya vs. ITO, (2023) 149 taxmann.com 276 (Surat – Trib.),  ITO vs. Narendra Kumar, (2006) 103 TTJ 594 (Jodhpur)  CIT vs. Rawat Singh and Sons (1979) 120 ITR 65 (Rajasthan) 7. In other alternative submission, the ld. Senior Counsel submits that penalty under section 271B should not be levied unless there is a deliberate defiance of law or assessee is guilty of contumacious or dishonest conduct or assessee has acted in conscious disregard of his obligation. To support such view, he relied upon the decisions in Oriental Medicines P. Ltd. vs. ACIT, (2007) 163 Taxman 142 (Cochin – Mag). 8. In other alternative submission, the ld. Sr. Counsel submits that return of income was accepted while passing the final assessment order. Thus, penalty under section 271B not to have been levied. To support such view, ITA No.550/SRT/2024/AY.2020-21 Khemani Distilleries Pvt. Ltd. 6 the ld. Sr. Counsel relied upon the decisions of Surat Tribunal in Jigneshbhai Rasikbhai Savaliya (supra). 9. On the other hand, learned Senior Departmental Representative (ld. Sr. DR) supported the order of lower authorities. The ld. Sr. DR submits that assessee has not shown any reasonable cause for not levying penalty. The assessee has filed return of income in time but not complied mandatory provision for furnishing audit report within the prescribed period allowed for the year under consideration. 10. We have considered the submission of both the parties and gone through the order of lower authorities carefully. We have also deliberated upon the various case laws relied upon by the ld. Senior Counsel for the assessee. We find certain facts of the case are not much in dispute. It is not in dispute that assessee has filed return of income on 13.02.2021. However, the tax audit report was filed on 22.02.2022. However, facts remain the same that tax audit report was furnished prior to completion of assessment. It is also admitted position that in the scrutiny assessment no addition was made by the Assessing Officer and return income was accepted as it is. We find that Madras High Court in the case of CIT vs. Apex Laboratories (P.) Ltd., 284 ITR 364 held that when accounts were audited and the assessee got audit report but the same was filed along with returned income which was filed belatedly, penalty could not be imposed under section 271B of the Act. 11. We further find that Hon'ble Gujarat High Court in the case of Senith Processing Mills vs. CIT, 219 ITR 721 and in CIT vs. Gujarat Oil & Allied ITA No.550/SRT/2024/AY.2020-21 Khemani Distilleries Pvt. Ltd. 7 Industries, 201 ITR 327 held that auditing of accounts is a mandatory requirement, however, furnishing of audit report is a procedural requirement which is directory in nature. Substantial compliance with this requirement would be sufficient for the purpose of statutory provision, meaning thereby that if the audit report is made available by the assessee to the Assessing Officer before taking up of the assessment and the Assessing Officer has an opportunity to apply is mind, the requisite condition contained in Section 44AB would be treated as fulfilled. A similar view has been taken by the Hon'ble Patna High Court in the case of CIT vs. Sitaram Bhagwandas,102 ITR 560 and Allahabad High Court in the case of Addl. CIT vs. Muralidhar Mathuura Prasad, 118 ITR 392. We find that these decisions have, of course, been rendered in the context of the deduction allowable under section 80J. However, in our humble view the principles enunciated by their High Court are applicable with equal force in the matter of compliance with the provisions of Section 44AB. The provisions contained under section 44AB would, thus be treated as complied with if the assessee furnished the audit report along with the return so that the same is available to the Assessing Officer while processing the return or making the assessment. Applying these principles, in the instant cases, no penalty under section 271B would be leviable since the audit reports have been furnished by the assessee well before the assessments are made. 12. Further, we find that during the relevant period, the country was passing through severe Covid-19 Pandemic and the Hon'ble Apex Court by taking Suo Motu Writ Petition (Civil) No. 3 of 2020, dated 10.01.2022 of such fact ITA No.550/SRT/2024/AY.2020-21 Khemani Distilleries Pvt. Ltd. 8 directed that period of limitation of various statutory compliance from 15.03.2020 to 28.02.2022 shall be excluded. We find that impugned period which is the subject matter of dispute in the present appeal squarely falls within such period. Therefore, no penalty under section 271B in such situation was to be levied. Thus, we find merit in the submission of the ld. Sr. Counsel of the assessee. In the aforesaid discussions, penalty levied under section 271B by Assessing Officer dated 26.03.2023 is set aside. Considering the facts that we have accepted two primary submissions of the ld Senior Counsel, therefore discussions of other submission have become academic. In the result, the grounds of appeal raised by the assessee are allowed. 13. In the result, the appeal of the assessee is allowed. Order pronounced on 30/10/2024 in the open court. Sd/- Sd/- (BIJAYANANDA PRUSETH) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 30/10/2024 SAMANTA Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR 6. Guard File By Order Assistant Registrar/Sr.PS/PS, ITAT, Surat "