Penalty u/s 271B shall not apply in case of delay of appointment of new Auditor

Facts and issues of the case

Briefly stated, the facts of the case are that the assessee furnished his return on 30-03-2016 declaring total income of Rs.8,56,050/-. Such return was accompanied by the tax audit report. The AO observed that the audit u/s.44AB was not carried out before the “specified date”, namely, 31-10-2015 and hence, the assessee was liable to be visited with penalty u/s.271B of the Act. On being called upon to explain the reasons for the delay, the assessee submitted that audit of the books of account for the immediately preceding year was carried out by M/s. S.M.R. For the year under consideration, the new auditor was appointed for conducting the audit on 22-08-2015. The new auditor called for objections, if any, to its appointment from the earlier auditor, who raised certain issues. Eventually, the issues were resolved and immediately thereafter the incumbent auditor undertook the audit work and completed the same, followed by the filing of the return along with the tax audit report. Not convinced, the AO imposed penalty of Rs.1,50,000/- u/s.271B of the Act. The ld. CIT(A) echoed the penalty, against which the assessee has come up in appeal before the Tribunal.

Observation by the court

After considering the rival submissions and going through the relevant material on record, it is observed that the assessee admittedly got the accounts audited beyond the due date u/s 139(1) of the Act, which was the reason for late filing of the audit report with the Department. Section 271B in such circumstances calls for imposition of the penalty. However, it is pertinent to note that section 271B is subject to section 273B, and the latter section emphasizes that if a “reasonable cause” is established for non-compliance of the requirements which led to imposition of penalty under certain sections, including 271B, then no penalty should be imposed. We are confronted with a situation in which there was a change of the auditor from the preceding year. The new auditor, as per the established procedure, sought a no objection from the earlier auditor, who raised certain objections. Those issues were resolved later on, which led to the delay in the audit of the accounts of the assessee. As and when the issues got resolved, the audit work was taken up and completed followed by the filing of tax audit report and the income-tax return. In our considered opinion, such reasons for the delay constitute a reasonable cause for the late auditing of the accounts and of furnishing the audit report belatedly. In the hue of section 273B r.w.s.271B, we hold that the ld. CIT(A) ought not to have confirmed the penalty. We, therefore, set aside the impugned order and direct to delete the penalty.