Ratan Kumar Kejriwal Vs ITO (ITAT Cuttack)
Summary: The Income Tax Appellate Tribunal, Cuttack Bench, deleted a penalty imposed under Section 271B of the Income-tax Act, 1961, holding that an assessee who was not carrying on any business activity could not be expected to get his accounts audited. The assessee, Ratan Kumar Kejriwal, challenged the order dated 20 February 2026 of CIT(A), NFAC, Delhi, confirming the penalty for Assessment Year 2013-14. The assessee submitted that he was an individual deriving income from other sources and short-term capital gains, and that investments and speculative transactions in shares had resulted in losses without constituting a business activity. Accordingly, he contended that no obligation to obtain an audit arose. The Revenue supported the penalty orders.
The Tribunal examined the reasons for selection of the assessee’s case under CASS, as reproduced in the Assessing Officer’s order under Section 154. The recorded selection reason specifically described the assessee as a non-corporate assessee having no business while referring to a large deduction claimed under Section 57. The reproduced rectification order also referred to short-term capital gains, interest income and share-trading losses. The Tribunal considered the Revenue’s own recognition that the assessee was not engaged in business activity to be decisive. It held that the Department could not subsequently turn around and characterise the share transactions as a business merely to sustain the audit-related penalty. Since the assessee had no business activity, the Tribunal deleted the penalty under Section 271B and allowed the appeal. The order was pronounced on 5 October 2026.
FULL TEXT OF THE ORIGINAL ORDER OF ITAT CUTTACK
This is an appeal filed by the assessee against the order of the ld CIT(A), NFAC, Delhi dated 20.2.2026, confirming the penalty levied u/s.271B of the Act in Appeal No.NFAC/2012-13/10321729 for the assessment year 2013-14.
2. Shri Prasanta Kumar Mohanty & P.K.Jesthi ARs appeared for the assessee and Shri Vijay Singh, ld Sr DR appeared for the revenue.
3. It was submitted by ld AR that the assessee is an individual, who is deriving income from “other sources” and “short term capital gain”. It was the submission that the assessee had made certain investments in shares and had practically speculated in the same and incurred loss. It was the submission that the assessee was not having any business income and the speculation which has been done by the assessee has generated short term capital loss was not the business activity of the assessee. It was the submission that consequently, the assessee was not required to have its accounts audited u/s 44AD of the Act.
4. In reply, ld Sr DR vehemently supported the order of the AO and ld CIT(A).
5. We have considered the rival submissions. A perusal of the order passed u/s.154 of the Act shows that the Assessing Officer has also extracted the reasons for CASS selection was ‘Large deduction claimed u/s.57 and non-corporate assessee having no businesses. Same reads as under:
INCOME TAX DEPARTMENT
| 01. | Name of the Assessee | Sri Ratan Kumar Kejriwal C/o M/s Shankar Textiles Jaunliapatty Cuttack-753009. |
| 02. | Asst.year | 2013-14 |
| 03. | Status | Individual |
| 04. | PAN | ABMPK6454D |
| 05. | Date of order | 15.10.2019 |
RECTIFICATION UNDER SECTION 154 OF THE I.T. ACT, 1961.
The assessee filed his return of income for the assessment year 2013-14 U/s 139 of the I.T. Act, 1961 on 19.03.2014 declaring total income at Nil. The return was selected for scrutiny through CASS. Assessment U/s.143 (3) of the Act was completed on 11.03.2016 determining the total income at Nil.
Later on it was noticed that, during the year under consideration, the assessee was engaged in the activities of share trading and disclosed income from Short Term Capital Gain (STCG) at Rs.5,55,738/-. Besides STCG, the assessee has disclosed income from other sources by the way of interest at Rs.5,64,583/- and has claimed deduction U/s 57 to the extent of Rs.21,60,066/- in the ITR-filed by the assessee. The reason for CASS selection was “Large deduction claimed U/s 57 and non corporate assessee having no business.” However, during the course of scrutiny assessment the assessee furnished a computation of total income claiming loss in Share Trading during the year at Rs.21,60,066/- which was claimed U/s 57 in the ITR filed by the assessee. The assessee admitted to be involved in trading in share & securities during the year and has claimed a loss in Share Trading at Rs.21,60,066/-.
On going through the details of computation of total income, it is seen that the assessee has set-off the share trading loss against income from other source at Rs.5,64,583/- and STCG of Rs.5,55,738/-. Set off of loss from speculative business against the income of Rs.5,55,738/-from STCG and Rs.5,64,583/- from other sources is not allowable as per section 70/71 of the Income-tax Act, 1961. As such, there is a mistake apparent from the record within the meaning of Section 154 of the Income-tax Act, 1961.
6. As the revenue itself recognizes that the assessee does not have any business activity, obviously, the assessee cannot be expected to have its accounts audited. It no more lies in the hands of the revenue to turn around and then treat the activity of the assessee in the share transaction as the business activity of the assessee. This being so, as the assessee is not having any business activity, the penalty levied u/s.271B stands deleted.
7. In the result, appeal of the assessee stands allowed.
Order dictated and pronounced in the open court on 05/10/2026.
