ITAT rules against a penalty for non-filing of audit report electronically

ITAT rules against a penalty for non-filing of audit report electronically

It said that under the Income Tax Act there was no mention of penalization

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that non-filing of the audit reports electronically could not be the reason for imposing a penalty under the Income Tax (IT) Act, 1962.

The assessee, SLV Housing Development Corporation initially engaged K.P Rao & Company, chartered accountants for conducting the tax audit. The chartered accountant and partner Vinay Simha was looking after the case. However, the accounts consisted several mistakes and were not accurate. Hence a new chartered accountant was engaged.

Thereafter, a tax audit report was filed before the assessing officer (AO). It was also submitted that the assessee had filed a complaint on the misconduct of Simha before the Institute of Chartered Accountants of India (ICAI).

The AO, however, noticed that the department had identified certain bogus challans in the month of January 2014. In that regard, statements of Simha were recorded. However, the assessee firm's partner H Nagaraj pleaded ignorance of the bogus challans. The assessee then filed a complaint against him. The AO also observed that the assessee had not stated when another chartered accountant named Sangamesh was appointed.

However, the tax audit report had been filed in December 2016, about 23 days prior to the completion of the limitation period for the conclusion of the assessment. Meanwhile, the AO noticed that the assessee had even earlier been belatedly filing the return of income as well as the audit report.

He also observed that the tax audit report should have been filed electronically as per the IT Rules, but the assessee furnished it manually. Accordingly, the AO rejected the explanations of the assessee and levied a penalty.

The Coram headed by the Vice President, N V Vasudevan and accountant member, B R Baskaran held that if the cause shown by the assessee satisfied anyone it would constitute a reasonable cause.

The ITAT opined that the strained relationship with the earlier CA would constitute a reasonable cause. The tax authorities had pointed out a time gap in getting a tax audit report from the new CA. However, it could be understood that it would have taken some time to sever the relationship with the earlier CA. The fact remained that the tax audit report was filed before the completion of the assessment year.

The court noticed that the provisions of the Act did not mention that not filing the audit report electronically would entail a penalty.