Anant Cutting Edge Private Limited Vs ITO (ITAT Pune Bench)
Return Was Late, but Income Was Not Hidden: Taxes Paid & Audit Report Uploaded Before Reopening Save Assessee From Penalties u/s 270A & 271B – ITAT Pune
Summary: The assessee-company was an authorised distributor of cemented carbide cutting tools, abrasive products and grinding wheels. It did not file its return of income for AY 2020-21 within the prescribed time.
Based upon information regarding substantial financial transactions, the AO reopened the assessment by issuing notice u/s 148 on 29.02.2024. In response, the assessee filed its return on 11.05.2024 declaring total income of ₹27,17,950.
The AO completed the reassessment by accepting the returned income without making any addition. However, since the return had been filed only after issuance of notice u/s 148, the AO initiated proceedings for under-reporting and levied penalty of ₹27,17,950 u/s 270A.
The AO also levied the maximum penalty of ₹1,50,000 u/s 271B for failure to obtain and furnish the tax audit report within the prescribed time. The CIT(A), NFAC, confirmed both penalties.
Before the Tribunal, the assessee explained that its financial statements had been audited on 20.12.2021 and the tax audit report had been uploaded on the income-tax portal on 11.01.2022, much before the reassessment notice dated 29.02.2024.
The assessee had also paid taxes of ₹1 lakh on 20.02.2020, ₹7 lakh on 31.03.2021 and ₹67,000 on 06.01.2022. Thus, the income and tax liability had been substantially disclosed and discharged long before the Department initiated reassessment.
The return could not be filed within time because the relevant period was affected by the pandemic and there were serious disputes among the company’s directors. Due to these disputes, the accounts could not be finalised within the statutory period. One of the directors subsequently resigned in May 2022 and a new director was appointed.
On the penalty u/s 270A, the assessee invoked section 270A(6)(a). This provision excludes from under-reported income an amount for which the assessee offers a bona fide explanation, discloses all material facts supporting it and satisfies the competent authority regarding the explanation.
The assessee argued that there was no concealment or misrepresentation. The audited financial statements and tax audit report were already available on the Department’s portal before reopening, and the taxes had also been paid. During reassessment, the assessee furnished all information called for by the AO, who ultimately accepted the returned income without variation.
The assessee also challenged the penalty notice as vague because it merely alleged under-reporting without specifying the precise basis, amount of under-reported income, tax sought to be computed or the penalty percentage proposed.
The Tribunal noted the admitted facts. Though the return was filed only in response to notice u/s 148, the assessee had uploaded the tax audit report on 11.01.2022 along with audited financial statements dated 20.12.2021. The relevant taxes were paid before the audit report was uploaded and all this occurred before issuance of the reassessment notice.
Most importantly, the AO accepted the income declared in the return filed pursuant to notice u/s 148 and made no further addition.
Considering the prior disclosure, payment of taxes, production of audited accounts and acceptance of returned income, the Tribunal held that the case fell within the exclusion contained in section 270A(6)(a). Penalty for under-reporting was therefore not leviable. The AO was directed to cancel it.
Turning to section 271B, the assessee accepted that the tax audit report was filed late but pleaded reasonable cause. The delay arose from the pandemic conditions and disputes between the directors, which prevented timely finalisation of the accounts. The report was uploaded immediately after finalisation, and the Department had access to it well before reassessment commenced.
The Tribunal found force in this explanation. It observed that section 271B does not justify penalty where the assessee establishes reasonable cause for the failure.
Reliance was placed upon Sebastian Joseph v. ACIT, where the Pune Tribunal held that the purpose of section 44AB is to enable the AO to correctly determine taxable income. Where the returned income is accepted and the delayed furnishing of the audit report causes no prejudice to the assessment, the lapse may constitute only a technical breach not warranting penalty.
In the present case also, the reassessment was completed by accepting the returned income. The delayed audit report did not prevent the AO from determining the correct taxable income. Considering the pandemic, internal management dispute, prior tax payments and availability of the audit report before reopening, the Tribunal held that this was not a fit case for penalty u/s 271B.
The AO was accordingly directed to cancel the penalty of ₹1.50 lakh. Both appeals were allowed.
Author’s Comment
This decision draws an important distinction between failure to file the return on time and deliberate under-reporting of income. A late return may attract its own statutory consequences, but penalty u/s 270A is not automatic merely because the income appears for the first time in a return filed pursuant to notice u/s 148.
The surrounding conduct mattered: taxes were already paid, audited statements existed, Form 3CD was uploaded before reopening, full information was supplied and the AO accepted the returned income without addition. These facts supported bona fides u/s 270A(6)(a).
Likewise, penalty u/s 271B is subject to reasonable cause. The combination of pandemic disruption and director disputes, coupled with eventual compliance before reassessment, persuaded the Tribunal to treat the delay as non-penal.
In short, the assessee missed the return deadline—but it had not hidden the accounts, income or tax until the Department knocked. Delay invited scrutiny; it did not, on these facts, establish guilt.
Cases Discussed
- Sebastian Joseph vs. ACIT (ITAT Pune)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, PUNE
The above 2 appeals filed by the assessee are directed against the separate orders dated 31.01.2026 of the Ld. CIT(A) / NFAC, Delhi confirming the levy of penalty u/s 270A and 271B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) respectively for assessment year 2020-21. For the sake of convenience, both these appeals were heard together and are being disposed of by this common order.
ITA No.1522/PUN/2026
2. Facts of the case, in brief, are that the assessee is a private limited company and is an authorized distributor of Zhuzhou Cemented Carbide Cutting Tools Co. Ltd., China, Grindwell Norton Ltd. & Apidor Abrasive Products Pvt. Ltd. and serving bonded & coated abrasive products and all types of Grinding wheels. The assessee has not filed its return of income for the year under consideration. The case of the assessee was reopened on the basis of information that the assessee has made huge transactions of Rs.19,79,26,102/- during the relevant financial year. The assessee in response to the notice issued u/s 148 of the Act dated 29.02.2024 filed its return of income on 11.05.2024 declaring total income at Rs.27,17,950/-. The Assessing Officer completed the assessment accepting the returned income. However, the Assessing Officer initiated penalty proceedings u/s 270A(3) of the Act and accordingly a notice u/s 274 r.w.s. 270A(3) of the Act was issued and served on the assessee for under-reporting of income thereof. Rejecting the various explanations given by the assessee, the Assessing Officer levied penalty of Rs.27,17,950/- u/s 270A(3) of the Act on the ground that the assessee filed return of income in response to the notice u/s 148 of the Act.
3. In appeal, the Ld. CIT(A) / NFAC upheld the penalty levied by the Assessing Officer by observing as under:
7.1.1 I have perused the submissions of the appellant as well as the assessment order. The only contention of the appellant is this that once the returned income of the appellant was accepted by the AO, then, there was no difference between the returned income and assessed income. Therefore, penalty u/s 270A of the Act shouldn’t be levied.
Here it is pertinent to mention that despite having taxable income, the appellant didn’t file return of income for the year under consideration. Return of income was filed only after the matter come to the notice of department. Therefore, prime facie, it is the appellant who is at fault here. Mere acceptance of returned income in proceedings u/s 148 does not grant immunity from penalty u/s 270A of the Act. In this regard, the provisions of section 270A(2) & 270A(3) are quoted below:
270A.
(2) A person shall be considered to have under-reported his income, if—
(a) the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143;
(b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished or where return has been furnished for the first time under section 148;
(3) The amount of under-reported income shall be,—
(i) in a case where income has been assessed for the first time,—
(a) if return has been furnished, the difference between the amount of income assessed and the amount of income determined under clause (a) of sub-section (1) of section 143;
(b) in a case where no return of income has been furnished or where return has been furnished for the first time under section 148,—
(A) the amount of income assessed, in the case of a company, firm or local authority; and
From simple reading of the above-mentioned table, it is evident that since the return of income was filed in response to the notice issued u/s 148 of the Act despite having taxable income. Therefore, returned income i.e. assessed income of the appellant is the under reported income which attracts penalty u/s 270A of the Act.
Further, the appellant has not furnished any other contention which can substantiate the ground raised by the appellant. In view of this, I found no infirmity in the penalty order passed by the appellant. I have no reason to interfere with the penalty levied by the AO. Accordingly, Ground No. 1 & 2 are dismissed.
4. Aggrieved with such order of the Ld. CIT(A) / NFAC the assessee is in appeal before the Tribunal by raising the following grounds:
1. In the facts of the case and under the circumstances and in law, the Ld. CIT(A) has erred in upholding levy of penalty under section 270A(3) for under reporting of income without appreciating section 270A(6)(a) which states that no penalty shall be levied for bonafide actions and disclosure of material facts by the assessed. Hence the order passed is bad and therefore, deserves to be quashed.
2. In the facts of the case and under the circumstances and in law, the Ld. CIT(A) has erred in upholding levy of penalty under section 270A(3) for under reporting of income without appreciating the replies filed by the appellant during the course of proceedings, thereby violating the principles of natural justice. The impugned order thus is not a speaking / reasoned order, and hence, needs to be quashed.
3. In the facts of the case and under the circumstances and in law, the Ld. CIT(A) has erred in upholding validity of the Show cause notice (the SCN) u/s 274 r.w.s. 270A, as the notice is vague, with no specific charge and with no specific mention of the amount of penalty sought to be levied. The Show cause notice therefore is illegal. The Show cause notice and the consequent penalty order needs to be quashed.
4. Your appellant craves leave to add, amend, modify alter and/or delete any of the above grounds of appeal on or before the date of hearing.
5. The Ld. Counsel for the assessee at the outset submitted that the tax audit report for the impugned assessment year was filed on income tax portal on 11.01.2022 along with the audited financial statements dated 20.12.2021. Referring to page 25 of the paper book, he drew the attention of the Bench to the payment of advance tax and self assessment tax paid of Rs.1,00,000/- on 20.02.2020, Rs.7,00,000/- on 31.03.2021 and Rs.67,000/- on 06.01.2022. He submitted that before the issue of notice u/s 148 on 29.02.2024 the entire income was disclosed and the taxes were paid well before initiation of re-assessment proceedings. Further, all the information asked during the course of re-assessment proceedings were properly provided to the Assessing Officer and no addition has been made by the Assessing Officer in the order passed u/s 147 / 143(3). Therefore, the case of the assessee falls within the Exclusions provided u/s 270A(6)(a) of the Act that if a valid explanation was offered, all material facts were disclosed and there was no concealment or misrepresentation, then the re-assessed income shall not be treated as under-reported income for the purpose of levy of penalty u/s 270A of the Act.
6. The Ld. Counsel for the assessee referring to the order of the Ld. CIT(A) / NFAC submitted that the reasons provided during the first appellate proceedings were not considered while confirming the order of the Assessing Officer. He submitted that there was a pandemic situation in the assessment year 2020-21. Further, there were disputes between the directors during that period for which the accounts could not be finalized in time and therefore the return could not be filed. He submitted that after finalization of the accounts one of the directors has resigned in May, 2022 and one new director was appointed. Referring to the show cause notice, copy of which is placed in the paper book at pages 17 and 20, he submitted that the said show cause notice contained only one line allegation that the assessee has under-reported the income and referred to the assessment order. However, the reason for allegation made, amount of income sought to be under-reported, tax on such under-reported income and the percentage and the amount of penalty sought to be demanded are not available in the show cause notice issued by the Assessing Officer. He accordingly submitted that the penalty levied by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC is not justified.
7. The Ld. DR on the other hand heavily relied on the order of the Ld. CIT(A) / NFAC.
8. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that the assessee has not filed its return of income for the impugned assessment year and filed the return of income only in response to the notice issued u/s 148 of the Act. It is also an admitted fact that the returned income has been accepted without making any addition after considering the submissions made by the assessee from time to time. It is also an admitted fact that the assessee has paid advance tax and self assessment tax before submission of the tax audit report and the tax audit report was also uploaded in the portal by the assessee on 11.01.2022 along with the audited financial statements dated 20.12.2021. In other words, the assessee has uploaded the audit report, paid the due taxes before issue of notice u/s 148 of the Act.
9. We find the provisions of section 270A(6)(a) of the Act read as under:
“Penalty for under reporting and misreporting of income.
270A…..
….
6) The under-reported income, for the purposes of this section, shall not include the following, namely:—
(a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered;
10. Since the assessee in the instant case has filed the tax audit report on 11.01.2022 along with the audited financial statements dated 20.12.2021, paid advance tax and the self assessment tax before submission of the tax audit report, the Assessing Officer has accepted the income declared in the return filed in response to the notice u/s 148 of the Act, therefore, in view of the provisions of section 270A(6)(a) of the Act, penalty u/s 270A(3) in our opinion is not leviable. We, therefore, set aside the order of the Ld. CIT(A) / NFAC and direct the Assessing Officer to cancel the penalty. The grounds raised by the assessee are accordingly allowed.
ITA No.1523/PUN/2026
11. The only issue raised in the grounds of appeal is regarding the levy of penalty of Rs.1,50,000/- u/s 271B of the Act.
12. Facts of the case, in brief, are that the assessee has not filed its return of income for the impugned assessment year. The case was reopened on the basis of information available with the department that the assessee has made huge transactions of Rs.17,79,26,102/- during the financial year 2019-20 relevant to the assessment year 2020-21. Accordingly, a notice u/s 148 of the Act was issued to the assessee in response to which the assessee filed its return of income on 11.05.2024 declaring total income of Rs.27,17,950/-. The assessment was completed u/s 147 r.w.s. 144B of the Act accepting the returned income. Since the assessee has made huge transactions amounting to Rs.17,79,26,102/- but failed to get its books of account audited u/s 44AB of the Act within the stipulated time, the Assessing Officer initiated penalty proceedings u/s 271B of the Act. The assessee in its reply filed on 06.01.2025 and 04.04.2025 has stated that the audit report u/s 44AB was filed by the assessee on 11.01.2022 which was furnished during the assessment proceedings, therefore, the penalty proceedings initiated u/s 271B of the Act should be dropped. However, the Assessing Officer rejected the explanation given by the assessee and levied penalty of Rs.1,50,000/- u/s 271B of the Act.
13. In appeal, the Ld. CIT(A) / NFAC upheld the penalty levied by the Assessing Officer by observing as under:
7.1.2 I have carefully perused the submissions of the appellant as well as the penalty order.
In this regard, it is pertinent to mention that for the first time, the appellant filed return of income in response to the notice issued u/s 148 of the Act. For the year under consideration, the assessee had a total turnover/sales of Rs. 6,06,74,412/-. Therefore, the assessee was under statutory obligation to get its books of account audited and furnish the audit report before the due date within the meaning of section 44AB. However, in the instant case, the appellant has failed to do so.
Further, It is also worth mentioning that section 44AB creates a statutory obligation to get the books of accounts audited if turnover exceeds limits. It is independent of the fact how income is later assessed. It is the pre-requisite of assessment. Merely filing the return of income in response to notice issued under section 148 and payment of advance tax do not absolve the appellant from compliance with the mandatory provisions of section 44AB. It is also noted that hardships are the part & parcels of business. Once, the appellant is under statutory obligation to furnish the audit report within prescribed time limit, general hardships doesn’t substantiate any reasonable cause for not doing the same.
In view of above, I am of the considered opinion that the appellant has failed to substantiate any reasonable cause within the meaning of section 273B for not getting the books of account audited. Accordingly, Ground No. 1, 2 & 3 are dismissed.
14. Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal.
15. The Ld. Counsel for the assessee submitted that the delay in filing of the tax audit report was due to genuine difficulty and the reasons beyond the control of the assessee. He submitted that there was a pandemic situation in assessment year 2020-21 and there were also disputes between the directors during that period which lead to delay in finalization of accounts and therefore, the tax audit report could not be filed within the time. Further the assessee has paid all the taxes i.e. advance tax and self assessment tax before issue of notice u/s 148 of the Act and the Assessing Officer had full access to the tax audit report well before the initiation of the re-assessment proceedings u/s 147 of the Act. Referring to the provisions of section 271B of the Act, he submitted that if there is a reasonable cause for delay, then no penalty u/s 271B of the Act should be levied.
16. Referring to the decision of the Co-ordinate Bench of the Tribunal in the case of Sebastian Joseph vs. ACIT vide ITA No.610/PUN/2022 order dated 03.02.2023 for assessment year 2016-17, the Ld. Counsel for the assessee submitted that the Tribunal in the said decision has deleted the penalty levied u/s 271B of the Act on the ground that the returned income was accepted by the Assessing Officer which shows that no prejudice was caused to the Assessing Officer on account of delay in submission of the tax audit report. It has been held that the delay in filing of tax audit report is merely a technical breach of law, which does not warrant levy of penalty u/s 271B of the Act. He accordingly submitted that the penalty levied by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC be deleted.
17. The Ld. DR on the other hand heavily relied on the order of the Ld. CIT(A) / NFAC.
18. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that due to delay in filing of the tax audit report the Assessing Officer levied penalty of Rs.1,50,000/- u/s 271B of the Act which has been upheld by the Ld. CIT(A) / NFAC. It is the submission of the Ld. Counsel for the assessee that due to the disputes between the directors during that period the accounts could not be finalized in time for which the tax audit report could not be filed within the stipulated time. The moment the accounts were finalized the tax audit report was uploaded. Further, the assessee has paid due taxes well before the submission of the tax audit report.
19. We find some force in the above arguments of the Ld. Counsel for the assessee. It is an admitted fact that the assessee has uploaded the tax audit report in the income tax portal on 11.01.2022 along with the audited financial statements dated 20.12.2021. Further, all taxes i.e. advance tax and self assessment tax were paid before submission of the tax audit report. It is also an undisputed fact that it was a pandemic situation in assessment year 2020-21. Further, the submission of the Ld. Counsel for the assessee that there were disputes between the directors during that period which is also one of the reasons for non-finalization of the accounts within the stipulated period shows that there was a reasonable cause for such delay in filing of the audit report. As per the provisions of section 271B, no penalty u/s 271B is imposable for any failure referred to in the said provision if the assessee proves that there was a reasonable cause for the said failure. In the instant case, since there were disputes between the directors which led to the delay in finalization of the accounts and it was a pandemic year, therefore, we find force in the argument of the Ld. Counsel for the assessee that there was a reasonable cause on the part of the assessee for failure to get the accounts audited in time.
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20. We find the Co-ordinate Bench of the Tribunal in the case of Sebastian Joseph vs. ACIT (supra) has observed as under:
“8. We heard the ld. Sr. DR and perused the material on record. The issue in the present appeal relates to the exigibility of penalty u/s 271B for failure of the assessee to get accounts audited in respect of the previous year relevant to the assessment year under consideration as required u/s 44AB and furnished to the Assessing Officer before specified due date i.e. due date for filing the return of income. It is pertinent to note that w.e.f. 01.07.1995, it obligatory on behalf of the assessee that tax audit report has to be got completed by specified date, as specified in clause (ii) of section 139(1) and tax audit report has to be furnished by such specified date. However, admittedly, in the present case, it is the case of the appellant that the tax audit report as required to be filed along with return of income though the tax audit report was obtained before the specified date. The submission of the assessee that the audit report was obtained before the specified date remains uncontroverted. The very object behind enactment of the provisions of section 44AB is only to enable the Assessing Officer to determine the correct taxable income in accordance with the provisions of the Act. The fact that the returned income was accepted by the Assessing Officer goes to show that no prejudice was caused to the Assessing Officer on account of delay in submission of tax audit report. The delay in submission of the tax audit report is mere only technical breach of law, which, in our considered opinion, does not warrant levy of penalty u/s 271B of the Act. In the circumstances, we direct the Assessing Officer to delete the penalty of Rs.1,50,000/- levied u/s 271B of the Act.”
21. In view of the above discussion and relying on the decision of the Co-ordinate Bench of the Tribunal in the case of Sebastian Joseph vs. ACIT (supra), we are of the considered opinion that it is not a fit case for levy of penalty u/s 271B of the Act. We, therefore, set aside the order of the Ld. CIT(A) / NFAC and direct the Assessing Officer to cancel the penalty levied u/s 271B of the Act. The grounds raised by the assessee are accordingly allowed.
22. In the result, both the appeals filed by the assessee are allowed.
Order pronounced in the open Court on 10th September, 2026.
