Wesleyan Board of Chrestian Institution Vs ITO (ITAT Raipur)
School Society Wins Audit Penalty Appeal—But the Order Takes a Different Route
₹1.50 Lakh Penalty Set Aside
The Raipur Bench of the Income Tax Appellate Tribunal allowed an educational society’s appeal against a penalty of ₹1.50 lakh under Section 271B , invoking the protection of reasonable cause under Section 273B .
However, the order contains a material inconsistency. The assessee’s statement of facts expressly disputed the applicability of Section 44AB and complained that the CIT(A) had wrongly attributed a viral-fever explanation to it. The Tribunal nevertheless granted relief by accepting that very explanation as reasonable cause.
The outcome favoured the society, but the decision must be reported with this distinction intact. It does not expressly decide that the society’s educational activities were outside Section 44AB .
Society Operated Seven Schools
According to the statement of facts reproduced in the order, the assessee was a registered society engaged in educational activities and operating seven schools .
In response to a notice under Section 148, it filed ITR-5 on 18 April 2023 , declaring total income of ₹25,82,960 . The return used business computation schedules and described its activity as secondary or senior-secondary education.
Operating receipts of ₹4,90,26,689 comprised admission fees, tuition fees, annual fees, bus fees and other school-related collections. The return computed income under the head “Profits and gains from business or profession” .
At the same time, the society expressly answered “No” to liability for audit under Section 44AB . It relied on this declaration as contemporaneous evidence of its bona fide belief regarding the audit requirement.
Assessment Accepted, Audit Penalty Initiated
During reassessment, the society furnished financial statements, bank statements and other documents. The AO accepted the explanation that cash deposits of ₹4,33,88,000 represented fees collected from students.
The explanations concerning school buses, interest income and receipts from deployment of a bus on election duty were also accepted. The assessment was completed without variation to the returned income.
Nevertheless, the AO noted that receipts of ₹4,90,26,689 appeared as turnover and that a Section 44AB audit report had not been furnished. Penalty proceedings under Section 271B followed.
The penalty authority calculated 0.5% of the receipts and restricted the levy to the statutory maximum of ₹1.50 lakh , by an order dated 9 August 2024 .
The Actual Defence Was Non-Applicability of Tax Audit
The society’s written submission dated 2 July 2024 stated that it was a non-profit educational institution , that its schools were recognised or affiliated, and that its accounts were audited.
It also stated that approval under Section 10(23C)(vi) had been accorded. Its contention was that Section 44AB applied to persons carrying on business and did not apply to its educational activity.
The submission referred to Tribunal decisions involving educational or charitable institutions, including Ankur Udbodak Samiti, National Law University, United Education Society, Sant Baba Rangi Ram Charitable Trust and Bhartiya Shiksha Prachar Samiti .
Thus, the defence concerned whether a tax audit obligation arose at all, rather than merely whether an admittedly required report had been filed late.
CIT(A) Proceeded on a Different Factual Narrative
The CIT(A) treated Section 44AB applicability as undisputed and recorded that the assessee had admitted obtaining the audit report beyond the stipulated time.
It further stated that the assessee attributed a three-month delay to viral fever , but had furnished no medical certificate or other supporting evidence.
The society’s statement of facts before the Tribunal specifically challenged this narrative. It asserted that no such admission or illness explanation appeared in its return, reassessment order, written submission or Form 35.
Despite this objection, the CIT(A)’s discussion of illness and delay was reproduced extensively in the Tribunal’s order.
Tribunal Granted Relief Under Section 273B
No representative appeared for the assessee before the Tribunal. The Bench examined the documents on record and heard the Departmental Representative.
It reproduced Section 273B, which provides protection from specified penalties, including Section 271B, where reasonable cause for the failure is proved .
The Tribunal then stated that a three-month delay had occurred because of viral fever. It observed that the Department had rejected the explanation for want of documentary evidence, while also noting that the Revenue had produced no report refuting it.
Holding that penalty should not be imposed once reasonable cause was explained, the Tribunal set aside the CIT(A)’s order and allowed the appeal .
Author’s Comments
The favourable result should not obscure the inconsistency within the reasoning. The society denied advancing the illness explanation, yet that explanation became the basis of relief. This makes the order unsuitable for a broad proposition that unsupported illness claims necessarily establish reasonable cause.
Equally, it cannot be cited as a concluded ruling that all educational societies are exempt from Section 44AB. The Tribunal did not resolve the society’s principal contention concerning the character of its activities and the resulting audit obligation.
For practitioners, the case highlights the need to distinguish absence of an audit obligation from reasonable cause for breaching an existing obligation . Those are separate defences. Here, the appeal succeeded under Section 273B, while the underlying tax-audit applicability question remained expressly unadjudicated.
Cases Discussed
- Ankur Udbodak Samiti — cited in the assessee’s written submissions on audit applicability; no separate analysis in Tribunal’s operative reasoning.
- National Law University — cited in the assessee’s written submissions; no individual finding recorded.
- United Education Society — cited by assessee concerning educational societies and tax audit.
- Sant Baba Rangi Ram Charitable Trust — cited by assessee; not separately analysed.
- Bhartiya Shiksha Prachar Samiti — cited by assessee; not separately analysed.
- CIT v. Apex Laboratories Ltd. (described in the reproduced CIT(A) order as 384 ITR 364; statement of facts identifies 284 ITR 364) — CIT(A) declined to apply without examining its factual context; assessee disputed that it had cited the decision.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, Delhi dated 09.06.2026 for the assessment year 2019-20 as per the grounds of appeal on record.
2. At the time of hearing none appeared for the assessee. However, documents on record are carefully perused, considered and submissions of the Ld. Sr. DR are recorded and the matter stands heard.
3. As per the statement of facts, the point of contention raised by the assessee are as follows:
“1. The appellant, THE WESLEYAN BOARD OF CHRESTIAN INSTITUTION, PAN AADAT4469J, is a society registered under the Societies Registration framework and is engaged in educational activities. The reassessment order dated 10.03.2024 expressly records that the assessee is “an educational society, which operates seven schools.”
2. Proceedings under section 148 were initiated for AY 2019-20. The appellant filed ITR-5 on 18.04.2023, acknowledgement no. 11 93086501 80423, in response to the notice under section 148. In Part B-TI, the return reports total income of Rs.25,82,960 after rounding; Schedule BP/PGBP contains the pre-rounding figure of Rs.25,82,956.
3. The ITR describes the appellant as an AOP/B01 with sub- status “Society Registered under Societies Registration Act- 1860 or any law corresponding to that Act.” Under Nature of Business/Profession, it uses code 17002, “Secondary/senior secondary education.”
4. Most importantly, in the Audit Details of the filed return, the appellant answered “Yes” to maintenance of accounts under section 44AA but expressly answered “No” to the question “Whether liable for audit under section 44AB ?”. No particulars of a section 44AB tax audit were consequently furnished in that field.
5. The ITR uses the trading/P&L and business computation schedules. The Rs.4,90,26,689 operating-receipt figure is made up of admission fee, amalgamated fees, annual fees, bus fees, tuition fees, vehicle fees and science fees. Other credits also include Right To Education fees and other school-related receipts, besides interest and miscellaneous receipts.
6. The return computes Rs.25,82,956 under the head “Profits and gains from business or profession” and does not show exempt income in Schedule El. The appellant does not conceal this fact. It is relied upon by the Revenue as an adverse classification, while the appellant relies on the same return’s express 44AB “No” declaration as contemporaneous evidence of its bona fide legal belief regarding the audit obligation.
7. The reassessment order was passed under section 147 read with section 144E 10.03.2024, DIN ITBA/AST/S/147/2023-24/1062342892(1), at total income of Rs.25,82,960. The AO made no variation to the returned income.
8. During reassessment, the appellant produced computation of income, bank statements, financial statements, loan documents, salary details and vehicle documents. The AO examined cash deposits of 4,33,88,000 and accepted the explanation that they represented fees received from students.
9. The learned AO also accepted the explanation regarding purchase of school buses, the tax treatment of interest income, and the explanation concerning Rs.1,33,202 received for plying a school bus on election duty. The order expressly records that no variation was being made.
10. At the conclusion of assessment, the learned AO noted that the return showed Rs.4,90,26,689 as turnover and that CPC 2.0 reflected non-furnishing of an audit report under section 44AB . Penalty proceedings under section 271 B were initiated. The assessment order does not discuss the ITR’s express answer that section 44AB audit liability was “No”, nor does it undertake a separate section 2(13) analysis of the educational activity.
11. In response to the penalty show-cause notice, the appellant filed a detailed written submission dated 02.07.2024. It stated that the society is a non-profit educational institution, its schools are recognized/affiliated, its accounts are audited, and it had been accorded approval under section 10(23C)(vi). The appellant contended that section 44AB applies to persons carrying on business and was not applicable to its educational activity.
12. The 02.07.2024 submission cited multiple Tribunal decisions on section 271 B in the context of educational/charitable institutions, including Ankur Udbodak Samiti, National Law University, United Education Society, Sant Baba Rangi Ram Charitable Trust and Bhartiya Shiksha Prachar Samiti.
13. The penalty authority nevertheless passed order dated 09.08.2024 under section 271 B, DIN ITBA/PNL/F/271B/2024-25/1067540320(1), treating 4,90,26,689 as sales/gross receipts, computing 0.5% at X2,45,133 and restricting the penalty to the statutory maximum of Rs.1,50,000.
14. The appellant filed Form No. 35 on 10.09.2024. Its statement of facts again stated that the appellant is a not- for-profit educational institution, is not carrying on business, section 44AB is not applicable and the section 271B penalty deserves deletion.
15. By order dated 09.06.2026 under section 250, DIN ITBA/NFAC/S/250/2026- 27/1089506739(1), the learned CIT(A), NFAC dismissed the appeal and confirmed the penalty.
16. The impugned appellate order, however, proceeds on a materially different factual narrative. It records that it was “undisputed” that section 44AB applied, that the appellant admitted a delayed audit report, and that the appellant pleaded viral fever as the reason for a three-month delay. No such plea or admission appears in the supplied Form 35, the written submission dated 02.07.2024, the reassessment order, or the filed ITR.
17. The impugned order also refers to CIT v. Apex Laboratories Ltd. as “384 ITR 364” and as a decision cited by the appellant. That authority does not appear in the supplied written submission; the reported Madras High Court citation concerning Apex Laboratories is 284 ITR 364.”
4. In this regard, the Ld. CIT(Appeals)/NFAC has held and observed as follows:
“3.2 ANALYSIS OF FACTS
It is an undisputed fact that the appellant was required to get his accounts audited under Section 44AB of the Income Tax Act, 1961 for the Assessment Year 2019-20. The appellant has admitted that the audit report under Section 44AB was obtained beyond the stipulated time. The appellant has contended that he was suffering from viral fever and could not file the audit report within the stipulated time. However, no documentary evidence such as medical certificate or any other supporting document has been furnished to-substantiate this claim. The appellant has relied upon various judicial pronouncements to support his case that penalty under Section 271B should not be levied for delayed filing of audit report.
3.3 APPLICATION TO THE PRESENT CASE
The appellant has contended that he was suffering from viral fever and could not file the audit report within the stipulated time. However, no documentary evidence has been furnished to substantiate this claim. No medical certificate or any other supporting document has been placed on record. Viral fever is generally a temporary ailment which does not last for several months. Even if it is accepted that the appellant was suffering from viral fever at some point of time, it does not explain the delay of three months in filing the return of income along with the audit report. The appellant has not explained why he could not engage a Chartered Accountant to get the accounts audited and file the return within the due date, or why he could not seek extension of time from the appropriate authority if there was genuine difficulty.
The appellant has not demonstrated any reasonable cause for the failure to furnish the audit report within the prescribed time limit. The appellant is carrying on business and is expected to be aware of his statutory obligations under the Income Tax Act, including the requirement to get accounts audited and file the return of income within the prescribed time limit. The requirement to get accounts audited under Section 44AB and to furnish the audit report within the prescribed time is a mandatory statutory obligation. Non-compliance with this obligation attracts penalty under Section 271 B. While it is true that the word “may” in Section 271 B gives discretion to the authorities to levy or not to levy penalty, such discretion must be exercised judiciously. In the absence of any reasonable cause or bonafide explanation for the delay, the discretion should normally be exercised in favour of levying penalty to ensure compliance with statutory obligations. The judicial precedents cited by the appellant need to be examined in the context of the specific facts and circumstances of those cases. Each case is decided on its own facts. The ratio decidendi of those cases cannot be applied mechanically to the present case without examining whether the facts of the present case are similar to the facts of those cases.
In the case of CIT vs. Apex Laboratories Ltd. (384 ITR 364) cited by the appellant, the Hon’ble Madras High Court deleted the penalty under Section 271B. However, the specific facts and circumstances of that case need to be examined to determine whether the ratio of that case is applicable to the present case. Without having the benefit of the detailed facts of that case, it is difficult to apply the ratio of that case to the present case. Moreover, it is a settled principle of law that each case must be decided on its own facts and circumstances. The mere fact that penalty was deleted in some other case does not automatically mean that penalty should be deleted in the present case as well. In the present case, the appellant has failed to demonstrate any reasonable cause for the delay in furnishing the audit report. The explanation that the appellant was suffering from viral fever is not supported by any documentary evidence and does not adequately exbIzin the delay of three months.
The appellant has also not demonstrated that the delay was bonafide and not deliberate, or that there were any exceptional circumstances which prevented him from complying with the statutory obligation within the prescribed time.
3.4 CONCLUSION ON MERITS
After careful consideration of all the facts and circumstances of the case, the grounds of appeal, the penalty order, and the legal provisions, I am of the considered view that the Assessing Officer was justified in levying penalty under Section 271B of the Income Tax Act, 1961. The appellant has failed to get his accounts audited and furnish the audit report within the prescribed time limit as required under Section 44AB of the Income Tax Act, 1961. The appellant has not demonstrated any reasonable cause for the failure to comply with the statutory obligation within the prescribed time limit.
The explanation offered by the appellant that he was suffering from viral fever is not supported by any documentary evidence and does not adequately explain the delay of three months in filing the return of income along with the audit report. The requirement to get accounts audited under Section 44AB and to furnish the audit report within the prescribed time is under Section 271B. The levy of penalty under Section 271B is intended to ensure compliance with the audit requirements and to deter non- compliance with statutory obligations. If penalty is not levied in cases of non-compliance without reasonable cause, it would defeat the object and purpose of the provision.
The judicial precedents cited by the appellant do not support the appellant’s case when examined in the context of the specific facts and circumstances of the present case. In view of the above, I find no infirmity in the order of the Assessing Officer levying penalty of Rs.1,50,000/- under section 271B of the Income Act, 1961.
4. DECISION
In view of the detailed discussion and findings recorded above, all the grounds of appeal raised by the appellant are dismissed. Assessment centre, Delhi under Section 271B of the Income Tax Act, 1961 levying penalty of Rs.1,50,000/- is hereby confirmed and upheld.”
5. Before proceeding further, it would be relevant to extract Section 273B of the Income Tax Act, 1961 (for short ‘the Act’) which reads as follows:
“273B. Notwithstanding anything contained in the provisions of [clause (b) of sub-section (1) of] [section 271, section 271-A] [section 271-AA] [, section 271B, ] [section 271-BA][, section 271-BB,] [section 271C, section 271-CA] section 271D, section 271E][section 271F] [section 271-FA,] [ [section 271FAB, section 271FB, section 271G, section 271GA] [Section 271GB] [Section 271H] [ (Section 271-I] [section 271J] clause (c) or clause 9d) of sub section (1) or sub section (2) of section 272A, sub section (1) of section 272AA] or [section 272B or][sub section 91A)] of section 272BB or][sub section (1) of section 272BBB or ]clause (b) of sub section (1) or clause (b) or clause (c) of sub-section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure].
6. The assessee has contended that delay of 3 months had occurred since he was suffering from viral fever and could not file audit report within the stipulated time. The Department has disregarded this contention in absence of documentary evidence such as medical certificate etc. At the same time, Revenue has failed to produce any report refuting the submissions of the assessee.
7. Considering the case laws relied upon by the assessee as well as provisions of Section 273B of the Act as afore-stated, once reasonable cause is explained by the assessee, there should not be any imposition of penalty u/s.271B of the Act. Hence, the order of the Ld. CIT(Appeals)/NFAC is set aside.
8. In the result, appeal of the assessee is allowed. Order pronounced in open court on 06th day of October, 2026.
