Vipdan Sahkari Sanstha Maryadit Sabalgarh Vs ITO (ITAT Agra)
Bona Fide Belief That Co-operative Audit Was Sufficient Saves Society from Section 271B Penalty
Summary: The Agra Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a ₹1,39,288 penalty under Section 271B, accepting that a co-operative society genuinely believed its audit under the governing State legislation satisfied the tax audit requirement.
In Vipdan Sahkari Sanstha Maryadit Sabalgarh v. ITO, Morena, ITA No. 687/Agr/2026, pronounced on 4 November 2026, the Tribunal held that the explanation constituted **“
Bona Fide Belief in Co-operative Audit Justifies Tax Audit Delay: ITAT Deletes Section 271B Penalty
The Agra Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a ₹1,39,288 penalty under Section 271B, accepting a co-operative society’s bona fide belief that its audit under the governing State legislation sufficiently met the audit requirement.
In Vipdan Sahkari Sanstha Maryadit Sabalgarh v. ITO, Morena, ITA No. 687/Agr/2026, pronounced on 4 November 2026, the Tribunal held that the explanation constituted “reasonable cause” under Section 273B.
The decision concerned Assessment Year 2020-21. Relief was granted against the penalty; the Tribunal did not hold that an audit under the Co-operative Societies Act invariably replaces the requirements of Section 44AB.
Background: Society Served Farmers at Tehsil Level
The assessee was a 65-year-old, tehsil-level co-operative society engaged in marketing agricultural produce and distributing items including fertilisers and kerosene to farmers.
It was registered under the Madhya Pradesh Co-operative Societies Act, 1960, and its accounts were audited through the audit authority of the Department of Co-operative Societies.
The Assessing Officer noted that the society had not furnished its return for AY 2020-21 within the prescribed period.
An order under Section 148A(d) and notice under Section 148 were issued on 18 March 2024. The society subsequently filed its return on 5 June 2024.
Reassessment Led to Separate Audit Penalty Proceedings
The reassessment was completed under Section 147 read with Section 144B, determining total income of ₹40,566.
The officer denied the society’s Section 80P deduction by applying Sections 80A(5) and 80AC, noting that the return had not been filed within the due date under Section 139(1).
Separately, the officer found that the tax audit report had been filed on 4 June 2024, beyond the applicable deadline.
Since the society’s turnover was ₹2,78,57,647, the officer considered it liable to comply with Section 44AB and initiated penalty proceedings under Section 271B.
The appeal before the Tribunal concerned this penalty.
Society Explained Its Understanding of Audit Compliance
During penalty proceedings, the society submitted that its accounts were regularly audited under the Madhya Pradesh Co-operative Societies Act.
It explained that it had not historically undergone a separate audit apart from the audit conducted under that legislation.
The society therefore believed that the existing statutory audit sufficiently addressed its audit obligations.
It also referred to CIT v. District Co-operative Bank, in which the Allahabad High Court had considered penalty in circumstances involving an audit under co-operative legislation.
The society’s central defence was that its failure arose from a genuine understanding of compliance, rather than an attempt to avoid scrutiny of its accounts.
Assessing Officer and CIT(A) Rejected the Explanation
The Assessing Officer did not accept the society’s defence.
He relied on the turnover exceeding the threshold considered applicable and imposed a penalty of ₹1,39,288 under Section 271B.
The CIT(A), National Faceless Appeal Centre, upheld the penalty.
According to the appellate authority, an audit under the Co-operative Societies Act did not, by itself, establish compliance with Section 44AB. The relevant audit report and further report by an accountant had to be furnished in the prescribed forms.
The society challenged that conclusion before the ITAT, particularly invoking the protection available under Section 273B.
Section 273B Required Examination of Reasonable Cause
The Tribunal focused on whether the society had demonstrated reasonable cause for the failure.
It noted that Section 273B provides protection against specified penalties, including Section 271B, where the assessee proves reasonable cause.
This required consideration of the explanation for non-compliance, rather than treating the missed deadline as automatically decisive.
The society reiterated that its longstanding State-law audit arrangement, together with its understanding of the Section 80P exemption claim, led it to believe that a separate tax audit was unnecessary.
The Departmental Representative supported the lower authorities’ orders.
Tribunal Accepted the Bona Fide Belief
The ITAT accepted the society’s explanation.
It specifically noted the assessee’s character as an old, small, tehsil-level co-operative society serving farmers.
The accounts were already being audited by the Department of Co-operative Societies under the governing State legislation.
The Tribunal was satisfied that the failure to obtain the tax audit report within time arose from the society’s bona fide belief that this audit constituted sufficient compliance with Section 44AB.
It held that this explanation amounted to reasonable cause within the meaning of Section 273B.
Penalty Deleted; Appeal Allowed
The Tribunal deleted the entire ₹1,39,288 penalty and allowed the appeal.
The ruling distinguishes failure to satisfy an audit requirement from whether that failure warrants a penalty after examining reasonable cause.
It does not decide the society’s entitlement to the Section 80P deduction or generally exempt co-operative societies from tax audit compliance.
Its conclusion rests on the accepted explanation, existing State-law audit and circumstances of this particular society. On that record, the Tribunal found the statutory protection under Section 273B sufficient to remove the penalty.
Cases Discussed
1. CIT Vs District Co-operative Bank (Allahabad High Court); [2013] 36 taxmann.com 318 / 217 Taxman 145 (Mag.). The assessee relied upon this decision concerning levy of penalty under Section 271B where a co-operative society’s accounts had been audited under the applicable State co-operative legislation. The cited precedent formed part of the assessee’s argument supporting bona fide belief and reasonable cause; the Tribunal’s operative finding rested on its satisfaction with the explanation under Section 273B.
FULL TEXT OF THE ORIGINAL ORDER OF ITAT AGRA
This appeal is directed against the impugned order dated 15.07.2026 passed in appeal No. NFAC/2019-20/10507386 by the ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the “CIT(A)] u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for the A.Y. 2020-21, wherein ld. CIT(A) has dismissed assessee’s appeal.
2. Brief facts of the case: The assessee is registered as a Co-operative Society and engaged in the trading and marketing of agriculture produce and PDS Fertilizers, seeds etc. for the farmers. The AO noted that the assessee did not furnish the return of income for A.Y. 2020-21 and an order u/s. 148A(d) and notice u/s. 148 of the Act was issued on 18.03.2024. The assessment was completed u/s. 147 r.w.s. 144B of the Act at a total income of Rs.40,566/-. The said addition was made as per the provisions of section 80A(5) and 80AC of the Act by denying the deduction u/s. 80P of the Act on the ground that the assessee did not file its return of income u/s. 139(1) of the Act within the prescribed due date and filed its return on 05.06.2024 in response to notice u/s. 148 of the Act dated 18.03.2024.
2.1 The AO also noted that in the instant case, the assessee was liable to furnish tax audit report in statutory form as required u/s. 44AB of the Act within the due date of furnishing of income tax return u/s. 139(1) of the Act, which was filed on 04.06.2024, i.e., beyond the due date of furnishing audit report for the A.Y. 2020-21. Accordingly, the AO initiated penalty proceedings u/s. 271B of the Act.
2.2 During the penalty proceedings, the assessee submitted that the assessee is a registered co-operative society as per the provision of Madhya Pradesh Co-operative Societies Act, 1960 and hence, regular audit was conducted by the internal auditor from controlling authority of the Co-operative Society under Madhya Pradesh Co-operative Societies Act, 1960. Further, it was submitted that the assessee has never undergone any other audit for the financial books other than the provision of the Co-operative Societies act 1960. Further, it was submitted that the Hon’ble Allahabad High Court in the case of CIT v. District Co-operative Bank [2013] 36 taxmann.com 318/217 Taxman 145 (Mag.) (All) held that where assessee, a Co-operative Society, in a view of provision of U.P. Co-operative Societies Act, 1963 got its accounts audited by its internal auditors, levy of penalty under section 271B for not getting its accounts audited by any chartered accountant was not justified.
2.3 The AO, however, did not accept the above explanation of the assessee and noted that the AO made addition of Rs.40,566/- and the turnover of the assessee was Rs.2,78,57,647/- for the year under consideration, which was much more than Rs. one crore for the period under consideration. Accordingly, the AO held that the assessee was liable for penalty u/s. 271B of the Act and levied a penalty of Rs.1,39,288/-.
2.4 Aggrieved with the said order, the assessee filed an appeal before the learned CIT(A), who dismissed the appeal of the assessee. The Ld. CIT (A) held that mere fact that audit of Appellant was conducted under provisions of Co-operative Societies Act, would not be sufficient reason for non-compliance under section 44AB, unless report of audit is furnished in prescribed form accompanied with a further report by an accountant in prescribed form.
3. Aggrieved with the said order, the assessee is in appeal before us on grounds Nos. 1 to 16. All the grounds of appeal relate to imposition of penalty u/s. 271B of the Act. Grounds No. 2 of the appeal, on the basis of which this appeal can be decided, is reproduced as under:
“GROUND NO, 2: Reasonable cause under section 273B not appreciated. That the Ld. CIT(A) erred in confirming the penalty without appreciating that the Appellant’s failure, if any, to obtain a tax audit report under section 44AB within the due date under section 139(1) was on account of a bona fide belief that the audit conducted by the audit authority of the Department of Co-operative Societies under the Madhya Pradesh Co-operative Societies Act, 1960 was sufficient compliance, and such bona fide belief constitutes “reasonable cause” within the meaning of section 273B of the Act, requiring the penalty to be deleted in its entirety.”
4. At the time of hearing, the Ld. AR filed a written submission and reiterated the facts stated before the AO and the Ld. CIT (A). The Ld. AR submitted that the appellant is a 65 years old small tehsil- level co-operative society, marketing agricultural produced and distributing PDS fertilisers and kerosene to farmers. It was submitted by the Ld. AR that the bona fide belief of the assessee that its accounts were in fact being audited under the governing State legislation as per the co-operative societies by the Registrar of Co-operative Society, coupled with its full claim of exemption u/s 80P of the Act sufficed the purpose of audit requirement under any other law and hence separate audit u/s 44AB as per the third proviso was not required, squarely fell within “reasonable cause” u/s 273B of the Act and therefore, the penalty levied by the AO and confirmed by the Ld. CIT(A) may be deleted.
5. On the other hand, the ld. Sr. DR supported the orders of the authorities below.
6. We have heard both the parties and perused the material on record. We note that the appellant is a 65 years old small tehsil- level co-operative society, marketing agricultural produce and distributing PDS fertilisers and kerosene to farmers. The AO imposed penalty u/s 271B of the Act on the ground that the turnover of the assessee was Rs.2,78,57,647/- for the year under consideration, which was much more than Rs. one crore for the period under consideration. However, under the provisions of section 273B of the Act, inter alia, no penalty u/s. 271B of the Act will be imposable on the assessee if the assessee proves that there was a reasonable cause for the said failure. In this regard, we are satisfied by the explanation of the assessee that the appellant’s failure to obtain a tax audit report under section 44AB within the due date under section 139(1) was on account of its bona fide belief that the audit conducted by the audit authority of the Department of Co-operative Societies under the Madhya Pradesh Co-operative Societies Act, 1960 was sufficient compliance of the provisions of section 44AB of the Act. The above explanation constitutes “reasonable cause” within the meaning of section 273B of the Act. Accordingly, on careful consideration, we are satisfied that there was a reasonable cause for the failure on the part of the assessee to get its accounts audited as per the provision of section 44AB of the Act. Accordingly, we delete the penalty of Rs. 1,39,288/- in this case.
7. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 04/11/2026.
