Recently, the ITAT Delhi Bench in SPA Lifestyle (P.) Ltd. vs.Assistant Commissioner of Income-tax, Circle 9(1), New Delhi held that merely non furnishing of the audit report in form 3CA could not be a ground to impose penalty under section 271B, if the assessee had furnished form 3CB alongwith return of income. This would be considered sufficient compliance of provisions of Section 44AB and no penalty will be imposed.

Facts of the case:

For the relevant assessment year, the assessee filed its return declaring loss. The assessee had obtained tax audit report in form 3CB alongwith form 3CD and relevant details were furnished in the return of income. The Assessing Officer taking a view that since audit report was not furnished in form 3CA, there was no sufficient compliance of provisions of section 44AB, passed a penalty order under section 271B. The Commissioner (Appeals) confirmed the penalty order.  Therefore a second appeal was made.

It was held that:

The controversy in the present appeal is that if an assessee is required to get its account audited under any other law but the said audit has not been completed by the specified date for furnishing the return of income then could he furnish tax audit report in form 3CB or not and if assessee has furnished the report in form 3CB whether any default can be imputed to assessee or not.

The assessee cannot be accepted to furnish a further report in form prescribed under the proviso (Form 3CA) if following conditions are not satisfied:

(a)    Assessee is required by or under any law to get his accounts audit;

(b)   Such person gets the accounts of such business or profession audited under such law before the specified date;

(c)    Such person furnishes by the specified date the report of the audit as required under such other law.

In the present case these ingredients were not fulfilled and, therefore, operation of second proviso was ruled out. Now the second question arises as to whether in such a situation assessee is required to wait till completion of statutory audit under the relevant provision of the Act or it has to furnish the tax audit report as contemplated under section 44AB. The answer to this is obvious and assessee cannot take the plea of not getting its account audited beyond the specified date and, therefore, is required to furnish the tax audit report as per the provisions of section 44AB.

In such a situation the assessee is left with no other alternative but to furnish the report in form 3CB along with form 3CD to make substantial compliance with the provisions of section 44AB.

It is well settled that law does not require an assessee to do impossible. It is further noticeable that form 3CB, form 3CA are not mutually exclusive but form 3CA is only supplemental to form 3CB. In view of the above discussion, the order of the Commissioner (Appeals) is set aside and the penalty levied under section 271B is cancelled.

Thus, primarily the only difference in form 3CA and form 3CB is that in form 3CA the Auditors are not required to give separate audit report. But in form 3CB, since that deals with the case of an assessee whose accounts have not been audited, mandates a comprehensive audit report. Thus, when an assessee had furnished the tax audit report in form 3CB then it cannot be said that it has not complied with the provisions of section 44AB merely because the report is not in form 3CA which was not possible for assessee to furnish.