Penalty u/s 271B not leviable on local authority as it cannot be considered to be engaged in business

National Law University Vs Additional/Joint/Deputy/Assistant Commissioner of income Tax (ITAT Delhi)

ITAT Delhi held that penalty under section 271B of the Income Tax Act not leviable as assessee is a local authority and it cannot be considered to be one engaged in ‘business’ or to be earning profit.

Facts- The assessee university filed return of income for the assessment year 2018-19 declaring a total income at Rs. Nil. The assessee has claimed exemption u/s 10(23C)(iiiab) of the Act for Rs. 28,69,49,640/- in its return of income for the year under consideration. The case was assigned for faceless assessment. Notice u/s 143(2) of the Act was issued and the case was taken up for scrutiny. During the assessment proceedings Ld. AO was not satisfied with the claim of exemption for the purpose of Section 10(23C)(iiiab) r.w.r. 2BBB.

AO held that the assessee is not eligible for aforesaid exemption. At the same time, Ld. AO observed that the assessee university has not audited its account as per Clause (b) of sub-section (1) of section 12A of the Act despite the fact that its total income as computed under the Act without giving effect to the provisions of Section 12 exceeds the maximum amount which is not chargeable to Income Tax in F.Y. 2017-18. Therefore, directed that penalty proceedings u/s 271B of the Act be initiated.

Conclusion- To justify invoking mandate of Section 44AB it was necessary to see if the assessee university can be said to be engaged in Business as defined under Section Section 2(13) of the Act where the word “business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The penalty order u/s 271B of the Act and the assessment order, both specifically mention that assessee is a local authority. Once, the Revenue accepts assessee to be local authority then certainly it cannot be considered to be one engaged in ‘business’ or to be earning profit, in the ordinary course of it objectives and functions of imparting legal education and legal research in the NCT of Delhi. The Ld. AO has not at all examined the constitution and composition of various authorities of the university, objectives of the University, mode of achieving objective, to give a conclusive finding that it is engaged in ‘business’ or earning profits from the same. Thus on that account alone the penalty order is not sustainable.

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