Bhavishaben Bhajivala Vs ITO (ITAT Surat)
Summary: The appeal was filed by the assessee against the exparte appellate order dated 23.02.2026 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, confirming the penalty levied under Section 271B of the Income Tax Act, 1961 for Assessment Year 2019-20. The assessee was an individual working as an agent of Surat District Co-operative Milk Producers Union Ltd., popularly known as SUMUL Dairy. She sold 500 ml milk pouches to regular retail customers and earned commission/trade discount of Rs. 5,36,844/- from SUMUL Dairy. During the year, Rs. 1,15,83,240/- was deposited from receipts relating to the sale of milk pouches.
The assessment was reopened through notice under Section 148 dated 23.03.2023. The assessee filed her return on 27.02.2024 declaring total income of Rs. 2,90,200/- and submitted her Profit and Loss Account, Balance Sheet, Capital Account, computation of income, bank book, bank statement, cash book, SUMUL Dairy ledger accounts and statement showing commission income/trade discount. The reassessment was completed on 15.03.2024 accepting the returned income without any variation.
Thereafter, penalty proceedings under Section 271B were initiated on the ground that the assessee had failed to get her books audited under Section 44AB. During the penalty proceedings, the assessee submitted that she had earned commission income, that her total income was below the threshold and that there was no obligation to obtain a tax audit. The Assessing Officer did not accept the submission and imposed a penalty of Rs. 57,916/- at 5% of the gross receipts. The assessee appealed to the CIT(A), which dismissed the appeal for non-prosecution.
Before the ITAT Surat, the assessee challenged both the exparte disposal and confirmation of the penalty. The Tribunal noted that although the assessee had not filed a return for A.Y. 2019-20 initially, the reassessment ultimately accepted the returned commission income. The Tribunal further noted that during the penalty proceedings the assessee had furnished relevant details and materials explaining the nature of her business and commission income and had requested that the penalty proceedings be dropped on the basis of reasonable cause.
The Tribunal observed that Section 273B provides that reasonable cause explained by the assessee can constitute a ground for dropping penalty proceedings. It found that this aspect had not been considered by the lower authorities, particularly when no addition had been made in the reassessment proceedings. The Tribunal therefore directed the JAO to delete the penalty levied under Section 271B and allowed the appeal.
Facts of the Case
The assessee was an individual working as an agent of Surat District Co-operative Milk Producers Union Ltd., popularly known as SUMUL Dairy. She sold milk pouches of 500 ml to end customers on a retail basis and earned commission/trade discount from SUMUL Dairy.
The commission/trade discount received from SUMUL Dairy was Rs. 5,36,844/-. The assessee deposited Rs. 1,15,83,240/- during the year from receipts relating to milk pouches sold to regular customers.
The assessment was subsequently reopened and notice under Section 148 of the Income Tax Act, 1961 was issued on 23.03.2023.
Reassessment Proceedings
The assessee filed her return of income on 27.02.2024 declaring total income of Rs. 2,90,200/-. In support of the return and the income disclosed, she furnished copies of the following documents:
- Profit and Loss Account, Balance Sheet and Capital Account for the year ended 31.03.2019;
- Computation of income for A.Y. 2019-20;
- Bank Book for the year ended 31.03.2019;
- Bank Statement maintained with the Surat District Co-operative Bank Ltd.;
- Cash Book for the year ended 31.03.2019;
- Ledger accounts from SUMUL Dairy; and
- Statement showing commission income/trade discount received from SUMUL Dairy from the books of SUMUL Dairy.
After considering the assessee’s reply, the Assessing Officer found no variation in the income returned. The reassessment was accordingly completed on 15.03.2024 accepting the returned income.
Penalty under Section 271B
After completion of the reassessment, penalty proceedings under Section 271B were initiated on the ground that the assessee had failed to get her books audited under Section 44AB. The assessee contended during the penalty proceedings that she had disclosed commission income/trade discount as the income earned during the year and therefore claimed that she had no obligation to obtain a tax audit. She also submitted that her total income was below the threshold and requested that the penalty proceedings be dropped.
The Assessing Officer, however, held that the turnover was above Rs. 1 crore and that the assessee ought to have got her books audited under Section 44AB. A penalty of Rs. 57,916/- was consequently imposed under Section 271B, stated to be 5% of the gross receipts.
Section 271B concerns penalty for failure to get accounts audited as required under Section 44AB. TaxGuru’s detailed publication on Section 44AB of the Income Tax Act also discusses the tax-audit requirement and the corresponding penalty provision.
Proceedings Before CIT(A)
Aggrieved by the penalty order, the assessee filed an appeal before the CIT(A). The CIT(A) dismissed the appeal for non-prosecution, resulting in an exparte appellate order dated 23.02.2026.
The assessee thereafter approached the ITAT Surat against the exparte order and the confirmation of the penalty.
Assessee’s Submissions Before the Tribunal
The assessee challenged the exparte disposal of the appeal, contending that the CIT(A) had decided the matter without granting a fair, proper and meaningful opportunity of being heard.
On the penalty issue, the assessee challenged the confirmation of the penalty under Section 271B for failure to get the accounts audited under Section 44AB.
During the penalty proceedings, the assessee had also submitted that she had disclosed commission income/trade discount, that her total income was below the threshold and that there was no escapement of income. She requested that the penalty proceedings be dropped.
ITAT Surat’s Observations and Findings
The Tribunal heard the rival submissions and perused the material available on record. It noted that the assessee had not filed a return of income for A.Y. 2019-20 initially, which resulted in reopening of the assessment.
However, the Tribunal noted that in the reassessment proceedings the Assessing Officer accepted the return filed by the assessee, including the commission income earned from the sale of milk pouches.
The Tribunal further observed that, during the penalty proceedings, the assessee had submitted relevant details and materials explaining the nature of her business and the commission earned. The assessee had also requested that the penalty proceedings be dropped by explaining the reasonable cause for failure to get the books audited.
The Tribunal found that this aspect was not considered by the Assessing Officer or the CIT(A). In particular, the Tribunal noted the relevance of Section 273B, which provides for consideration of reasonable cause in relation to the specified penalty provisions.
TaxGuru also has publications discussing the relationship between Section 271B and reasonable cause, as well as tax-audit requirements under Section 44AB.
Tribunal’s Decision
The Tribunal held that the reasonable cause explained by the assessee had not been considered by the lower authorities. It also took note of the fact that there was no addition made in the reassessment proceedings.
Accordingly, the Tribunal directed the JAO to delete the penalty levied under Section 271B of the Income Tax Act, 1961.
The Grounds raised by the assessee were allowed and the appeal filed by the assessee was allowed.
Final Outcome
ITAT Surat allowed the assessee’s appeal and directed deletion of the Rs. 57,916/- penalty imposed under Section 271B. The Tribunal’s decision was based on its finding that the assessee’s explanation concerning reasonable cause had not been considered by the lower authorities, in a case where the reassessment accepted the returned income without any addition.
The order was pronounced under Rule 34 of the ITAT Rules, 1963 on 30.07.2026.
FULL TEXT OF THE ORDER OF ITAT SURAT
This appeal is filed by the assessee as against the exparte appellate order dated 23.02.2026 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the confirmation of penalty levied u/s. 271B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2019-20.
2. Brief facts of the case are, the assessee is an individual and working as an agent of Surat District Co-operative Milk Producers Union Ltd, popularly known as SUMUL Dairy. The assessee was selling the milk pouches of 500 ml and earning the commission income from such sales to the end customer. The assessee earned commission/trade discount from SUMUL Dairy of Rs. 5,36,844/-. The assessee deposited of Rs. 1,15,83,240/- during the year which was from the receipt of Milk Pouches sold to the regular customers on retail basis. The assessment was reopened and a notice u/s 148 of the Act was issued on 23.03.2023. The assessee filed her return of income on 27.02.2024 declaring total income of Rs. 2,90,200/-. The assessee filed as follows:
(1) Copy of Profit and Loss A/cs, Balance Sheet and Capital A/cs for the year ended on 31-03-2019
(2) Copy of computation of Income for the AY 2019-20
(3) Copy of Bank Book for the year ended on 31-03-2019
(4) Copy of Bank Statement maintained with the Surat District Cooperative Bank Ltd
(5) Copy of Cash Book for the year ended on 31-03-2019
(6) Copy of Ledger accounts from the SUMUL Dairy
(7) Copy of Statement Showing the Commission Income/Trade Discount received from SUMUL Dairy from the Books of SUMUL Dairy.
2.1. After considering the reply of the assessee, the ld. AO found that there is no variations in the income returned. Therefore, the reopening of the assessment was completed accepting the returned income by passing reassessment order dated 15.03.2024. Thereafter, penalty proceedings u/s. 271B of the Act was initiated as the assessee failed to get her books audited u/s. 44AB of the Act. During the penalty proceedings, the assessee submitted as follows:-
“I have disclosed the commission income/trade discount being income earned by me during the year under assessment. Therefore, I have no obligation to make tax audit for the year under assessment as I have earned the income being a commission only and further, my total income is below threshold limit and hence, your contention of levying the penalty u/s 271B for non-audit of books of accounts is illegal. Therefore, on the basis of legal and factual position of the case and the details/documents/materials filed on your records there is no escapement of income as well as no taxable and hence, considering the above settled lawful position and circumstances of the case, I have once again to request you to drop the penalty proceedings under section 271B of the Act taking lenient view and oblige.”
2.2. Above submissions were considered by the AO and held that since the turn over is above 1 crore. The assessee ought to have get her books audited u/s. 44AB of the Act and failure of the same imposed penalty of Rs. 57,916/- u/s. 271B of the Act namely @ 5% of the gross receipts.
3. Aggrieved against the penalty order, assessee filed an appeal before ld. CIT(A) who has also dismissed the appeal for non prosecution.
4. Aggrieved against the exparte appellate order, assessee is in appeal before us, raising following Grounds of Appeal:-
1. On the facts and in the circumstances of the case as well in law, the learned CIT (Appeals) has erred both on facts and in law in deciding the appeal ex-parte in violation of the principles of natural justice and without granting to the assessee a fair, proper and meaningful opportunity of being heard and the inferences of the CIT (Appeals) that the appellant is not interested in pursuing the appeal is without jurisdiction, perverse, invalid, arbitrary, bad in law and hence, liable to be struck down.
2. On the facts and in the circumstances of the case as well in law, the learned CIT (Appeals) has erred both on facts and in law in confirming the penalty levied u/s 271B of the Act on account of failure to get accounts audited u/s 44AB of the Act and hence, the order of both the lower authority lacks standing in the eyes of law and therefore, liable to be struck down.
3. Your appellant further reserves his rights to add, alter, amend or modify any of the aforesaid grounds before or at the time of hearing of an appeal.
5. We have heard rival submissions and perused the materials available on record. It is undisputed fact, the assessee has not filed return of income for A.Y 2019-20 which has resulted in reopening of the assessment but in the reassessment also the ld. AO concluded accepting the returned of income filed by the assessee namely commission income earned on sale of Milk Pouches. Though, the penalty is being levied u/s 271B for not getting the books audited, the assessee during the penalty proceedings submitted all the relevant details, materials explaining the nature of business and commission earned and requested to drop the penalty proceedings and the reasonable cause for the failure to get its book audited. The same was not considered by the AO as well as by ld. CIT(A). Section 273B of the Act clearly provides any ‘reasonable cause’ explained by the assessee is a ground to drop the penalty proceedings. This was not considered by the lower authorities especially in a case where there is no addition made in the re-assessment proceedings. Therefore, we hereby direct the JAO to delete the penalty levied u/s 271B of the Act. Thus, the Grounds raised by the assessee are hereby allowed.
6. In the result, the appeal filed by the assessee is allowed.
Order is pronounced under provision of Rule 34 of ITAT Rules, 1963 on 30-07-2026
