Case Details: Chavakkad Service Co-Operative Bank Ltd. vs. Income Tax Officer - [2024] 169 taxmann.com 45 (Kerala)
Judiciary and Counsel Details
- A.K. Jayasankaran Nambiar & K.V. Jayakumar, JJ.
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P.C. Sasidharan, Arjun Raghavan, Smt. Pooja Pankaj & T.R. Harikumar, Advs. for the Appellant.
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P.G. Jayashankar & Keerthivas Giri, SCs for the Respondent.
Facts of the Case
The assessee co-operative society filed its returns of income but failed to file the audit report within the prescribed time limit. However, the audit report was made available before the Assessing Authority at the time of finalisation of the assessments. The Assessing Authority completed the assessments by relying on the said audit reports. While passing the assessment orders, the Assessing Authority initiated penalty proposals under section 271B for alleged breach of the procedure contemplated under section 44AB.
The CIT(A) upheld the penalty proceedings which was further confirmed by the Tribunal. Aggrieved by the order, an appeal was filed to the Kerala High Court.
High Court Held
The High Court held that the Co-operative Societies, being regulated by the provisions of the Kerala Co-operative Societies Act and Rules, accounts had to be mandatorily audited in terms of the said statutory provisions and the delay in submitting the audit reports before the Income Tax Authorities was occasioned solely since there had been a corresponding delay in receiving the audit reports from the statutory auditors appointed under the Kerala Co-operative Societies Act and Rules.
The issue to be examined is whether the delay in obtaining the audit reports from the statutory auditors under the Kerala Co-operative Societies Act and Rules can be seen as a reasonable cause for the delayed submission of the audit reports before the Assessing Authority under the IT Act.
It can be seen from a perusal of the statutory framework that the assessee Co-operative Societies had virtually no control over the completion of the audit by the statutory auditors. It was also noted that nothing on record would suggest that the delay occasioned by the statutory auditors in finalising the audit reports was in any way attributable to the conduct of the assessees in these appeals. It was also found that the audit reports were made available before the Assessing Authority at the time of completion of the assessment. Hence, there was really no prejudice caused to the Department in the matter of finalisation of the assessment.
In the present appeals, the Assessing Authority did not even look into the aspect of ‘reasonable cause’. It proceeded to confirm the penalty on the assessees on the assumption that the penalty under section 271B was automatic whenever there was a delay in submitting the audit report beyond the prescribed due date.
Also, it is found from a perusal of the CBDT Circular No.3/2009 dated 21-5-2009 issued in exercise of the powers under section 139C that under certain circumstances, the Board has permitted a belated production of the audit reports by assessees such as the appellants, as and when called for by the Income Tax authorities. The said Circular would align with the Scheme of penalty under the Income Tax Act especially in the context of sections 271B and 273B that deal with penalty for non-compliance with the provisions of section 44AB.
The Circular suggested that a penalty need not be imposed on assessees if no prejudice is caused to the Department on account of any belated furnishing of an audit report. The Circular, being of a binding nature, insofar as the Department is concerned, the Assessing Authority, First Appellate Authority, and the Appellate Tribunal ought to have taken due note of it while deciding on whether or not a penalty was called for in relation to the assessees.
Thus, the assessee cannot be seen as someone who did not establish a reasonable cause for the belated filing of the audit reports before the Assessing Authority. Therefore, the peremptory phraseology used in section 273B mandated that no penalty under section 271B be imposed on them.
List of Cases Reviewed
- Orders passed by Tribunal ITAT Cochin Bench in IT Appeal Nos. 29 & 30 of 2023 dated 12-6-2023
- IT Appeal No. 31 of 2023 dated 30-6-2023
- IT Appeal No. 951 of 2022 dated 28-4-2023
- IT Appeal No. 105 of 2023 dated 5-6-2023 [Para 12] – Partly set aside
- Peroorkkada Service Co-operative Bank Limited v. Income Tax Officer [2020] 114 Taxman.com. 18 (Kerala) [Para 12] – distinguished
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