I have found the following order of ITAT Mumbai as very important as it has been held that Merely because, the assessee did not furnish the report before the due date of filing of the return, that may not automatically attract the penalty.
In this case the assessee could not furnish audit report before the due date of filing of return of income, the assessee claimed that due to floods the records were damaged, hence there was a delay in the filing of audit report. However the AO did not accept the explanation of assessee and levied penalty.
The Tribunal relying upon the Judgment of SC in landmark case of Hindustan Steel Ltd vs. State of Orrisa (Supra) held that
"As the penalty proceedings like the present one is quasi criminal proceedings, the A.O. has to make out the case that it was a deliberate act of the assessee. Merely because, the assessee did not furnish the report before the due date of filing of the return, that may not automatically attract the penalty. In our opinion, there is no justification to levy the penalty on the facts of this case."
The observation of SC in Hindustan steel case as under is very important one and is a must read for every tax professional and should be kept in mind on the issues of penalty in tax laws:
"An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty to conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute."
Full order of ITAT is as follows:
Pneumech Engineers Versus Income Tax Officer
No. - ITA No. 1375/Mum./2009,
Dated - January 28, 2010
P.M. Jagtap, R.S. Padvekar, JJ.
D.H. Save for the Appellant
Chandra Ramakrishnan for the Respondent
ORDER
R.S. Padvekar:-
1. The assessee has filed this appeal challenging the impugned order of the Ld CIT(A)-XVIII, Mumbai dated 7.11.2008 for the A.Y. 2005-06.
2. The only issue before us is whether the A.O. is justified to levy the penalty of Rs. 30,912/- u/s. 271B for the violation of Sec. 44AB of the Act.
3. The fact which reveal from the record are as under:-
The assessee filed the return of income for the A.Y. 2005-06 on 12.4.2006 declaring a total income of Rs. 55,879/-. There is no dispute about the fact that the provisions of Section 44AB of the Act are applicable to the assessee for this assessment year as the total turnover of the assessee is of Rs. 61,82,429/- which is admittedly more than Rs. 40 lakhs. As per the provisions of Section 44AB, there is a statutory obligation on the assessee to get is accounts duly audited and also to furnish the tax audit report before the due date of filing of the Return of income, if the total turnover of the assessee exceeds Rs. 40 lakhs. As the assessee did not furnish the tax audit report before 31.10.2005 which was the due date for filing of the return of income for the A.Y. 2005-06. The A.O. issued the Show Cause notice dt. 2.4.2007 seeking the explanation of the assessee why the penalty should not be levied u/s. 271B of the I.T. Act. The assessee filed the reply dt. 7.4.2007 to the A.O. In the reply, it was contended by the assessee that due to the heavy raining, there was floods in Mumbai on 26th July 2005 and the books of accounts and all the relevant documents like purchase bills etc., were damaged and due to that the assessee faced lot of problems for collecting the relevant documents and other things, and hence, there was a delay in furnishing the report. The A.O. was not convinced with the explanation of the assessee as, in his opinion, it was not reasonable cause as the audit report was signed on 28.10.2005, the A.O. levied the penalty of Rs. 30,912/-. The assessee challenged the same before the Ld CIT(A), but without success. Now the assessee is in appeal before us.
4. We have heard the parties. The facts are not in dispute. The contention of the assessee that there was a flood and hence, the entire record was damaged. The Ld Counsel also relied on the decision of Hon'ble Supreme Court in the case of Hindustan Steel Ltd. V/S. State of Orissa-83 ITR 26 (S.C.). In the case of Hindustan Steel Ltd., (Supra), the Hon'ble Supreme Court has held as under:-
"An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty to conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute."
5. We have perused the order of the A.O. levying the penalty. It is not the case of the A.O. that the Act of the assessee is deliberate or acted in conscious disregard of its obligation. As the penalty proceedings like the present one is quasi criminal proceedings, the A.O. has to make out the case that it was a deliberate act of the assessee. Merely because, the assessee did not furnish the report before the due date of filing of the return, that may not automatically attract the penalty. In our opinion, there is no justification to levy the penalty on the facts of this case. We, accordingly, delete the same and cancel the penalty order.
6. In the result, assessee's appeal is allowed.
Order pronounced in the open court on 28.01.2010.
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