Case Law Details
Yamuna Expressway Industrial Development Authority Vs CIT(Appeal) (ITAT Delhi)
When assessee is a Local Authority/Charitable Institution not carrying on business even AO levied penalty u/s 271A for no books, audit u/s 44AB cannot be enforced
Yamuna Expressway Industrial Development Authority is a statutory Local Authority constituted u/s 3 of the UP Industrial Area Development Act, 1976, engaged in public infrastructure & area development. It was granted registration u/s 12AA on 08.05.2017 & later notified u/s 10(46) for AYs 2014-15 to 2018-19. For AY 2006-07, assessment was reopened & completed u/s 147/143(3), treating surplus as business income & disallowing certain expenses.
AO initiated penalty both u/s 271A (for non-maintenance of books) & u/s 271B (for failure to get accounts audited u/s 44AB), & levied penalty of ₹24,464 @0.5% of gross receipts u/s 271B.
CIT(A) confirmed the penalty. Before Tribunal, Assessee argued that it is not engaged in any business or profession, but is a statutory development authority carrying out public utility functions. Therefore, Section 44AA (maintenance of books) & Section 44AB (tax audit) do not apply. In fact, AO himself levied penalty u/s 271A holding that no books were maintained. If no books exist, there is nothing to audit, so 271B penalty cannot survive.
Assessee also submitted that interest on FDRs & savings bank cannot be treated as “gross receipts” for 44AB (supported by ICAI Guidance Note para 5.1), & alternatively, since the authority is notified u/s 10(46) for later years & carries out non-commercial statutory functions, the same rationale should apply here as well.
Tribunal noted that Assessee is a Local Authority/charitable institution carrying out infrastructure development for public at large, & not engaged in business. The Supreme Court in ACIT (Exemptions) vs Ahmedabad Urban Development Authority (2023) 4 SCC 561 has already held that such development authorities are eligible u/s 12A & their activities are not commercial, hence covered u/s 10(46).
Most importantly, Tribunal recorded that in assessee’s own case, penalty u/s 271A (for not maintaining books) had already been deleted by ITAT in ITA No. 2488/Del/2024 (order dated 26.09.2025) on the ground that assessee is not required to maintain books u/s 44AA. Therefore, once law recognizes that no books are required, penalty for not auditing books u/s 44AB automatically fails.
Tribunal also relied on ICAI Guidance Note that interest on fixed deposits is not part of “gross receipts” for 44AB. Further, if receipts are exempt u/s 10(46) or assessee is not in business, 44AB does not apply.
Thus, Tribunal held that penalty u/s 271B was wrongly levied, as:
– assessee is not carrying on business,
– not required to maintain books,
– penalty u/s 271A already deleted,
– therefore no obligation to get audit done.
Accordingly, Tribunal deleted the entire penalty u/s 271B of ₹24,464.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by assessee against the order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in Appeal No. CIT(A), Noida-1/10732/2017-18dated 20.03.2024 arising out of the order passed u/s 271B of the Income Tax Act, 1961 dated 20.11.2017 for Assessment Year 2006-07.
2. Brief facts of the case are that assessee is a Local Authority and constituted in terms of section 3 of Uttar Pradesh Industrial Area Development Act, 1976. The assessee is granted registration u/s 12AA of the Act in terms of the order of ld. CIT(E), Lucknow dated 08.05.2017 as a charitable institution carrying out activity of General Public Utility. The assessee was also notified as an authority constituted by State Government u/s 10(46) for the assessment years 2014-15 to 2018-19 in terms of notification issued on 24.12.2020. The assessee is functioning as an arm of State Government through its officers and engaged in the work of village development, infrastructure development for the whole area including municipal infrastructure like sewer, water, electricity, roads, and social infrastructure. The surplus generated is utilized for the development works as provided in the objects of the assessee. The assessment was reopened in terms of the notice issued u/s 148 of the Act on 26.03.2013, in response to which, assessee filed the return of income. The assessment was completed u/s 147(3)/147 on 03.03.2014 wherein income of the assessee was assessed at Rs.14,75,758/- by disallowing expenses of Rs.7,95,021/- on which no TDS was made in addition to surplus of Rs.6,80,737/-held as business income. AO concluded that assessee is artificial judicial person and is liable to tax under Income Tax Act as Local Authority based on the judgment of Hon’ble Allahabad High Court in the case of Noida Development Authority.AO simultaneously initiated penalty proceedings u/s 271B for not getting its accounts audited besides initiating the penalty proceedings for non-maintenance of books account u/s 271A of the Act. Thereafter, the AO proceeded to levy of penalty in terms of the order dated 20.11.2017 and penalty of Rs.24,464/- being 0.50% of the gross receipts is levied u/s 271B of the Act for not getting the accounts audited u/s 44AB of the Act.
3. Against the said order an appeal was filed before ld. CIT(A) who dismissed the appeal of the assessee thus present appeal is filed by the assessee before the Tribunal.
4. Before us, Ld. AR of the assessee submits that assessee is a local authority and is a non-profit organization and thus not required to maintain books of accounts as prescribed u/s 44AA of the Act which provides maintenance of books of accounts in respect of those assessee who are engaged in business or profession. The Ld. AR further submits that AO has initiated penalty proceedings u/s 271A for non-maintenance of books of accounts and once the assessee was held as liable for penalty u/s 271A, how the penalty for non-audit of books could be levied u/s 271B of the Act as no book of accounts were maintained.
5. He further submits that AO includes interest on FDR of Rs. 49,92,885/- and SB account interest of Rs. 8,106/-which should not be forming part of the total receipts for the purpose of section 44AB of the act. For this he drew our attention to Para 5.1 of the Guidance notes on Tax Audit issued by the Institute of Chartered Accountants of India wherein it is suggested that Interest on Fixed deposit would not form part of Gross receipts. In the alternate, it is stated that assessee is notified as an authority constituted by State Government u/s 10(46) for the years from AY 2014-15 to 2018-19 in terms of notification issued on 24.12.2020 thus for the other years also its receipts are exempt u/s 10(46) of the Act and therefore, it is not carrying out any business or profession and thus is not required to get its accounts audited u/s 44AB of the Act.
6. AR further submits as the assessee is not required to maintain the books of account, question of getting the accounts audited does not arise. It is thus submitted that the penalty levied/s 271B is liable to be quashed.
7. Per contra, ld. Sr. DR vehemently supported the orders of lower authorities and submitted that gross receipts of the assessee are exceeding Rs. 40.00 and thus it is mandatory to get its accounts audited, which has not been done therefore, the AO has rightly imposed penalty u/s 271B of the Act. He prayed for confirmation of the same.
8. Heard both the parties and perused the materials available on record. In the instant case, assessee is granted registration u/s 12A in terms of order dated 01.05.2017 and for the period prior grant of registration u/s 12A, assessee claimed that it is a Local Authority engaged in the development of the area assigned to it as per the Uttar Pradesh Development Act, 1976 and, therefore, its receipts are exempt in terms of section 10(46) of the Act. It is further seen that Hon’ble Supreme Court in the case of ACIT(Exemptions) vs. Ahmedabad Urban Development Authority [2023] 4 SCC 561 has held that the assessee is eligible for registration u/s 12A of the Act and further held that is the activities are not commercial in nature and are eligible for exemption u/s 10(46) of the Act. The assessee was also notified as eligible for exemption u/s 10(46) from AY 2014-15 to AY 2018-19 in terms of notification dt. 24.12.2020.
9. The Institute of Chartered Accountants of India in the Guidance notes on Tax Audit in Para 5.1 advised that Interest on Fixed deposit would not form part of Gross receipts. Moreover, when assessee was not engaged in any business or profession, provisions of section 44AB of the Act are not applicable. It is also relevant to state that in case of assessee itself for the same assessment year penalty u/s 271A was levied for non-maintenance of books of accounts by the AO. When it is held that assessee has not maintained books of accounts as prescribed u/s 44AA of the Act, question of getting the same audited does not arise. Further the said penalty levied u/s 44AA was deleted by the coordinate bench in ITA No. 2488/Del/2024 vide order dt. 26.09.2025 by holding that the assessee is not required to maintain books of accounts as per section 44AA being not engaged in the business or profession thus no penalty could be levied for non audit u/s 44AB of the Act.
In view of the above discussion, we hereby delete the penalty levied u/s 271B of the Act at Rs.24,464/-. Accordingly, all the grounds of appeal of the assessee are allowed.
10. In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 10 .10.2025
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