Ripal Bhagavanjibhai Modi Vs Additional / Joint / Deputy /ACIT (ITAT Rajkot)
Summary: The Income Tax Appellate Tribunal, Rajkot Bench, has allowed the appeal of Ripal Bhagavanjibhai Modi for Assessment Year 2017-18 and deleted a penalty of Rs.1,50,000/- imposed under section 271B of the Income-tax Act, 1961. The dispute arose from the assessee’s alleged failure to comply with the tax audit requirement under section 44AB, although the assessee contended that the books had in fact been audited and the audit report had been submitted during the assessment proceedings.
The appeal was directed against the order of the National Faceless Appeal Centre/Commissioner of Income-tax (Appeals), dated 23.04.2026, which had confirmed the penalty order dated 21.08.2025 passed by the Assessing Officer under section 271B. The assessee’s solitary grievance before the Tribunal was that the penalty had been levied without proper appreciation of the facts, evidence and submissions.
The assessee, an individual, had not originally filed a return under section 139. Based on specific information, the assessment was reopened under section 148. According to the AIR information, cash deposits of Rs.2,18,36,710/- had been made in the assessee’s current bank account during the relevant year. In response to the notice under section 148, the assessee filed a return on 16.11.2024, declaring turnover of Rs.5,10,00,806/- and net profit of Rs.4,29,781/-. The assessment was completed under section 147 read with section 144B on 25.02.2025, accepting income at Rs.3,83,480/-.
Penalty proceedings were initiated because the turnover, stated by the Assessing Officer to be Rs.5,10,00,806/- for Financial Year 2016-17, exceeded the monetary limit referred to under section 44AB. The assessee maintained that the books had already been audited by a qualified chartered accountant and that the audit report had been uploaded on the Income Tax portal during the assessment proceedings. The assessee relied upon the audit report and supporting evidence placed in the paper book.
The Assessing Officer nevertheless treated the matter as a default, observing that there was no reasonable cause or justification for the failure, and levied the maximum penalty of Rs.1,50,000/- under section 271B. The CIT(A) confirmed the penalty.
Before the Tribunal, the assessee submitted that he was engaged in trading agricultural and provisional items in a small village, that substantial sales were made to retailers, farmers, consumers and traders, and that many such transactions involved cash. He also stated that he had been regularly filing returns for more than ten years and that his books had been audited under section 44AB since commencement of the business. According to the assessee, the transactions were recorded in the books, the books and turnover were accepted by the Assessing Officer, no addition or disallowance was made, and the returned income was accepted in the reassessment proceedings. The assessee therefore sought deletion of the penalty.
The Tribunal examined the audit report and noted that it was placed in the paper book and had been submitted before the lower authorities. It observed that the audit report and other documents and evidence were submitted during the assessment proceedings. The Tribunal explained that section 44AB requires the specified assessee to get accounts audited and obtain the prescribed audit report before the specified date, while section 271B provides for penalty for failure to get the accounts audited or furnish the audit report as required. It further noted that section 271B uses the expression “may direct”, rather than “shall direct”, and therefore penalty is not mechanically or automatically leviable. The Tribunal also referred to section 273B, under which no penalty is imposable where the assessee proves reasonable cause for the failure.
The Tribunal considered the timing of the audit as material. It found that the assessee had obtained the audit report within the prescribed time and that the audited accounts were ultimately produced before the Assessing Officer during the assessment proceedings. Since the accounts had actually been audited as required under section 44AB, the Tribunal held that the penalty under section 271B could not be sustained merely because the audit report had not been furnished along with the return of income. It further held that where the audit report was made available before completion of assessment and was taken into consideration, penalty was not justified, and mere delay in furnishing the report did not establish failure to comply with section 44AB when the audit itself had been completed within the prescribed period.
On that factual and legal basis, the Tribunal deleted the penalty of Rs.1,50,000/- under section 271B and allowed the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
Captioned appeal filed by the assessee, pertaining to assessment year (AY) 2017-18, is directed against the order passed under section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) by the National Faceless Appeal Centre (NAC) Delhi/Commissioner of Income-tax (Appeals) [in short ‘NFAC/Ld.CIT(A)’], dated 23.04.2026, which in turn arises out of penalty order passed by the Assessing Officer u/s 271B of the Income Tax Act , dated 21.08.2025.
2. Although, this appeal filed by the assessee, for the Assessment Year 2017-18, contains multiple ground of appeals, however, at the time of hearing, I have carefully perused all the grounds raised by the assessee and I note that solitary grievance of the assessee is that ld.CIT(A) grievously erred on facts as also in law in levying penalty Rs.1,50,000/- u/s 271B of the Act, and the penalty has been imposed without proper appreciation of the facts, evidence and submission furnished by assessee and is therefore unjustified.
3. Succinctly, the factual panorama of the case is that assessee before me is an Individual. The assessee has not filed his return of income u/s.139 of the Income Tax Act 1961 and based on specific information the case was re-opened u/s.148 of the I.T. Act 1961. As per AIR information, the assessee has deposited cash of Rs.2,18,36,710/- in current account No. 78016018343 in his bank account maintained with Saurashtra Gramin Bank during the year under consideration. In response to Notice u/s. 148, the assessee filed return of income on 16.11.2024, declaring turnover of Rs.5,10,00,806/- and declaring net profit of Rs.4,29,781/-. The assessment was completed u/s. 147 r.w.s.144B of the I.T. Act, 1961 on 25.02.2025 accepting the income returned by the assessee at Rs.3,83,480/-. The Penalty proceedings u/s.271B of the I.T. Act were initiated as the assessee failed to get its accounts audited, even though the total turnover exceeds the limits prescribed u/s.44AB of the Act. It is stated by the Assessing Officer that as per trading account submitted by the assessee, the gross receipt from business of the assessee during F.Y. 2016-17 was Rs. 5,10,00,806/-. Therefore, as per provisions contained in section 44AB of the Income Tax Act, 1961, the assessee was liable to get its books of accounts audited as the total turnover of the assessee during F.Y. 2016-17 was more than the specified monetary limit prescribed in aforesaid section. Therefore, Penalty proceedings u/s.271B of the I.T. Act were initiated. The Penalty notice for penalty under section 274 r.w.s. 271B of the Income-tax Act, 1961 was issued on 25.02.2025.
4. In response to the penalty notice, the assessee submitted before the assessing officer that books of accounts were audited and audited books of accounts were uploaded during the assessment proceedings on Income tax portal, however, assessing officer ignored the same. The assessee, took Bench, through paper book page No.33, where the audit report is placed. The assessee also explained that he got books of accounts audited by a qualified chartered accountant and made the sufficient compliance. The relevant evidence showing the submission of the audit report during the assessment proceedings and during the penalty proceedings, are in the paper book of the assessee.
5. However, the assessing officer ignored the audit report submitted by the assessee and observed that in the absence of any reasonable cause or justification, the failure was treated as a default attracting penalty under section 271B of the Act. Accordingly, the Assessing Officer held that the assessee had committed a default covered under the penal provisions and was liable for penalty. As per section 271B, the maximum permissible penalty is Rs.1,50,000/-, and the same was levied, under section 271B for A.Y. 2017-18.
6. Aggrieved by the penalty order of the assessing officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the penalty imposed by the assessing officer, therefore, the assessee is in further appeal before this Tribunal.
7. I have heard, both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Learned Counsel for the assessee submitted that assessee is located in a small village and engaged in the business of trading in agricultural and provisional items such as wheat, bajara, rice, edible oil, cotton seeds, cattle feed etc. The assessee is selling the goods to retailers, farmers, consumers and traders. Most of sells done with the small retailers, farmers, consumers who are generally make payment in cash. Most of purchases were made with the wholesalers or manufacturers. The assessee has been regularly filling return of income since the commencement of business, that is, for more than last 10 years. The books of accounts have been duly audited u/s. 44AB of the Act since commencement of business. In fact, each and every financial transaction are being noted in the books of accounts of the assessee. The Books of accounts are audited u/s. 44AB of the Act. The transactions mentioned into the notice are reflecting in the books of accounts of assessee. Net income of the year was Rs. 3,83,480/-. The assessee paid advance tax Rs. 12,000/- on 19/12/2016. During the original assessment proceedings ,the assessee provided required details, documents and explanation. The AO verified the transactions, accepted the books of accounts, accepted the turnover, and not made any addition or disallowance, that is, AO accepted returned income Rs. 3,83,480/-, and no adverse inference drawn and passed the order u/s. 147 r.w.s 144 B on 25/02/2025.The Books of accounts are audited u/s. 44AB of the Act. The books of accounts are accepted by AO, and return of income also accepted by AO and the AO not made any addition or disallowance during the assessment proceeding. Considering these facts, penalty imposed by the assessing officer under section 271B of the Act, may be deleted. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which I have already noted in my earlier para and is not being repeated for the sake of brevity.
8. I have considered the submissions of both the parties and noted that audit report of the assessee under section 44AB of the Act, is placed in the paper book page No.12, which were submitted before the lower authorities. The audit report, including other documents and evidences were submitted by the assessee during the assessment proceedings, hence, penalty under section 271B of the Act should not be levied on the assessee. I note that Section 44AB of the Act requires the specified assessee to get its accounts audited and obtain an audit report in the prescribed form before the specified date. The Section 271B provides for penalty where the assessee fails to get its accounts audited or furnish the audit report as required under section 44AB of the Act. Importantly, section 271B of the Act, uses the expression “may direct”, and not “shall direct”. Therefore, the levy of penalty is not mechanically and automatic. Section 273B of the Act, further provides that notwithstanding anything contained in section 271B, no penalty shall be imposable where the assessee proves that there was “reasonable cause” for the failure.
9. I note that main aspect to be seen is that the audit report had been obtained within the prescribed time, and whether the statutory audit had actually been completed within time is material to the applicability of section 271B of the Act. Here in the assessee’s case, the audit report was obtained within the prescribed time limit. Where the audited accounts were ultimately produced before the Assessing Officer during assessment proceedings, and the accounts had in fact been audited as required under section 44AB of the Act, the penalty under section 271B could not be sustained merely on the ground that the audit report had not been furnished along with the return of income. Where the audit report was made available to the Assessing Officer before completion of assessment and was taken into consideration in the assessment proceedings, penalty under section 271B was not justified. Mere delay in furnishing the audit report, when the audit had already been completed within the prescribed period, did not establish that the assessee had failed to comply with section 44AB of the Act. Considering this factual position, I delete the penalty under section 271B of the Act of Rs.1,50,000/-.
10. In the result, appeal filed by the assessee, is allowed.
Order is pronounced in the open Court on 19/08/2026.
