KALIANNNAN BALASUBRAMANIAM,NAMAKKAL vs. ITO, WARD-2, NAMAKKAL

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ITA 1138/CHNY/2026Status: DisposedITAT Chennai20 August 2026AY 2023-249 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the penalty notices issued by the Assessing Officer were vague as they did not specify the exact fault of the assessee. Furthermore, the tax audit reports were available before the processing of returns. Therefore, the penalty levied was bad in law.

What were the facts?

The assessee's turnover exceeded Rs. 10 crores, requiring a tax audit report under Section 44AB. The audit reports were uploaded belatedly for both assessment years. Consequently, the Assessing Officer levied penalties under Section 271B.

What were the issues?

Whether the penalty under Section 271B is sustainable when the penalty notice is vague and the tax audit report was available before the processing of the return.

Which sections of the Income-tax Act were involved?

Section 44AB,Section 271B,Section 274

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & SHRI S.R. RAGHUNATHA

Hearing: 13.07.2026Pronounced: 20.08.2026

आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeal)/NFAC, (hereinafter referred to as ‘Ld. CIT(A)’), Delhi, dated 03.02.2026 for the Assessment Years (hereinafter referred to as ‘AY’) 2022-23 and 2023-24 confirming the penalty levied u/s.271B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

ITA No.1137 & 1138/Chny/2026 (AY 2022-23 & 2023-24) Kaliannan Balasubramaniam :: 2 :: 2. Sole issue permeating in both the appeals is against the action of the Ld. CIT(A) confirming the penalty levied u/s.271B of the Act.

3.

Brief facts are that the AO noted that the assessee had turnover exceeding Rs.10 crores for both the years and therefore according to him, the assessee was required to get his account audited u/s.44AB of the Act as well as upload the audit report within the due date as specified under Act (for AY 2022-23 due date was 07.10.2022 and for AY 2023-24 it was 30.09.2023). However, the assessee uploaded the audit report belatedly only on 13.12.2022 for AY 2022-23 and on 08.12.2023 for AY 2023-24. Since the assessee failed to upload his audit report on due date, he issued penalty notice dated 12.09.2024 for AY 2022-23 and for AY 2023-24 proposing to levy penalty u/s.271B and was pleased to levy penalty of Rs.1,50,000/- separately for both the years.

4.

Aggrieved by the penalty levied u/s.271B of the Act, the assessee preferred appeals before the Ld. CIT(A) who was pleased to confirm the same by passing the impugned order.

5.

Aggrieved the assessee is before us and has raised the following grounds for AY 2022-23 which is noted to be same for AY 2023-24 :-

Grounds of Appeal 1. On the facts and circumstances of the case the order of first appellate authority dated 03.02.2026 in dismissing the appeal of the appellant is bad in law and is not legally justified.

ITA No.1137 & 1138/Chny/2026 (AY 2022-23 & 2023-24) Kaliannan Balasubramaniam :: 3 :: 2. On the facts and circumstances of the case, the First Appellate Authority is not justified in sustaining the penalty levied by the AO u/s 271B of the Act, where the audit report was filed on 13.12.2022 and the return was processed on 22.05.2023. At the time of processing of return audit report was very much available. It has been judicially settled that when the audit report is available at the time of completion of assessment or processing of return penalty cannot be levied u/s 271B of the Act.In this connection reliance is placed on the decision of Madras High Court reported in 416 ITR 336 in the case of Mr.P.Senthilkumar Vs PCIT wherein it has been held that penalty u/s 271B cannot be levied if tax audit report is available on the date of processing of the return or completion of assessment. In view of the above decision the action of the AO in levying penalty u/s 271B of the Act is not justified. 3. On the facts and circumstances of the case, the First Appellate Authority is not justified in sustaining the penalty levied by the AO u/s 271B of the Act, where as could be seen from the penalty notice u/s 274 r.w.s 271B of the Act dated 12.09.2024, the AO has not stated the fault of the assessee for being proceeded against levy of penalty u/s 271B. In view of this penalty levied u/s 271B is not justified and it's void-ab-inito. In this connection reliance is placed on the decision of Itat Guwahati 'E' Bench in the case of North Eastern Constructions vs. Income-tax Officer, Ward-1(2), Dibrugarh in ITA No.184/GAU/2019 dated 17.06.2020. 4. On the facts and circumstances of the case, the First Appellate Authority is not justified in sustaining the penalty levied by the AO u/s 271B of the Act, where though there is a delay in filing the audit report, there is no loss to the revenue. In view of this levy of penalty u/s 271B is not legally sustainable. For the above proposition reliance is placed on the decision of Bombay High Court in the case of M/s.Orkay Enterprises Vs. DCIT, Spl Range 27, Mumbai reported in ITA No.374 of 2004. 5. In view of the above grounds and other submissions to be made at the time of Appeal hearing, the order U/S 250 passed by Commissioner of Income Tax (Appeals), NFAC may be cancelled and justice rendered. 6. In support of the Ground No.3, the Ld. AR drew our attention to contents of the show cause notice dated 12.09.2024, [which is ditto same for both AY 2022-23 and 2023-24], submitted that they are invalid and hence bad in law. Explaining the legal issue, the Ld. AR submitted that in the impugned notices, the AO has not stated the specific ‘fault’ of the assessee for being proceeded against in order to levy penalty u/s.271B of

ITA No.1137 & 1138/Chny/2026 (AY 2022-23 & 2023-24) Kaliannan Balasubramaniam :: 4 :: the Act. For convenience, the contents of the notice which is similarly worded for both the years is noted as under : -

7.

In support of aforesaid proposition of law, the Ld. AR of the assessee cited the decision of the Coordinate Bench of the Delhi Tribunal in the case of M/s. Parkinson Electrical Corprn vs. ITO reported in (1996) 84 Taxman 82 (Delhi) (Mag.), wherein the Tribunal held as under :- Head Note Even otherwise also the penalty could not be sustained as the notice issued under section 271B was vague. The Assessing Officer, by issuing the penalty notice under section 271B, had not brought home to the assessee his fault, precisely. In other words, he had not precisely informed the assessee under which situation of section 271 B the assessee came. Even in the penalty

ITA No.1137 & 1138/Chny/2026 (AY 2022-23 & 2023-24) Kaliannan Balasubramaniam :: 5 :: order, the Assessing Officer had not stated under which situation the assessee had been caught. He had simply stated that the assessee had no objection for the proposed penal action. Before a penalty is imposed, the assessee must be apprised of the precise charge brought against him. In the absence of a precise charge, the levy of the impugned penalty was not justified. " And also decision of the Coordinate Bench of Gauhati Bench in ITA No.184/Gau/2019 dated 17.06.2020 wherein on identical facts, the same view was taken.

8.

The Ld. AR also cited the decision of the Hon’ble Madras High Court in the case of Mr. P. Senthilkumar Vs PCIT 416 ITR 336 wherein Hon’ble High Court on an identical issue held that for venial technical breach without any mala fide intention penalty ought not to be levied provided the Tax Audit Report (TAR) was available before the AO while assessment proceedings were completed. And prays that penalty be deleted for both years.

9.

Per contra, the Ld. DR supported the action of the Ld. CIT(A) and submitted that the assessee was bound by law to file the Tax Audit Report within the due date prescribed by the Act and since there was violation on the part of the assessee in not filing the TAR without any reasonable cause, the Ld. CIT(A) rightly confirmed the penalty levied u/s.271B of the Act and does not want us to interfere with the order passed by the Ld. CIT(A).

ITA No.1137 & 1138/Chny/2026 (AY 2022-23 & 2023-24) Kaliannan Balasubramaniam :: 6 :: 10. Heard both the parties and perused the records. We note that assessee had filed the return of income for AY 2022-23 on 13.12.2022 and similarly filed return on 08.12.2023 for AY 2023-24, these returns were processed by the CPC u/s.143(1) of the Act and intimation orders were passed on 22.05.2023 for AY 2022-23 and on 08.12.2023 for AY 2023-24.

11.

Thereafter the AO is noted to have issued show cause notice dated 12.09.2024 for both the years for imposing penalty u/s.271B of the Act i.e. for the non-furnishing of the TAR as required u/s.44AB of the Act within the due date specified under the Act and thereafter has levied a penalty of Rs.1,50,000/- for each year. On appeal, the Ld. CIT(A) has dismissed the appeal of the assessee finding no reasonable cause for non- filing of the TAR within due date. Before us, the assessee has raised inter alia legal issue challenging the levy of penalty on the ground that penalty notice does not specify the fault/charge against the assessee, for which the proposed penalty is intended to be levied. So, according to assessee, since the fault for which the penalty is proposed to be levied is not clear, and it is vague, the show cause notices dated 12.09.2024 were bad in law and consequently levy of penalty itself is bad and need to be cancelled. We find that the legal issue in question is no longer integra, since we note that Coordinate Bench of this Tribunal Delhi as well as Gauhati have taken a view that if the show cause notice before levy of penalty is found to be

ITA No.1137 & 1138/Chny/2026 (AY 2022-23 & 2023-24) Kaliannan Balasubramaniam :: 7 :: vague it is invalid. The AO while issuing the penalty notice u/s.274 of the Act, has to apply his mind before issuing notice and bound to spell out the specific fault/lapse on part of assessee for which he proposes to levy penalty. In other words, if the AO in the penalty notice doesn’t spell out the specific fault for which the assessee is being proceeded against for levy of penalty, then it is bad in law, which in-turn would vitiate the levy of penalty being void in the eyes of law. Coming back to the case in hand, on perusal of the notice dated 12.09.2024 issued u/s.274 r.w.s. 271B of the Act proposing to levy of penalty u/s. 271B, it is noted that AO had issued notice for the following faults:

i) failed to get accounts audited or ii) failed to furnish a report of such audit as required u/s. 44AB of the Act. 12. Thus, we note that the AO has given a show cause notice, which is per-se vague. Thus, we note that the AO by issuing penalty notice u/s. 271B has not spelt out what was the specific fault for which the assessee was being proceeded against for levy of penalty. Since the AO has not struck down the irrelevant portion/fault which is not applicable in the facts and circumstances of the case, the notice reproduced (supra) is vague and therefore, bad in law as held by the Co-ordinate Bench of the Tribunal in the case of Parkinson Electrical Corprn (supra). We are of the opinion that notice proposing penalty should clearly spell out the fault/charge for

ITA No.1137 & 1138/Chny/2026 (AY 2022-23 & 2023-24) Kaliannan Balasubramaniam :: 8 :: which the assessee is put on notice, so that he can defend the charge properly. The issue of bad/vague penalty notice was adjudicated by the Hon'ble Karnataka High Court [though in a different context i.e notice issued u/s. 274 read with section 271(1)( c) of the Act] in the case of CIT vs. SSA's Emerald Meadows in ITA No.380 of 2015 dated 23.11.2015 wherein the Hon'ble High Court following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory (2013) 359 ITR 565 has held that if the penalty notice is vague, then the penalty order is also bad in the eyes of law. This decision of Karnataka High Court was challenged by the Revenue before the Hon'ble Apex Court, and the Hon'ble Supreme Court has dismissed the SLP. Therefore, applying the ratio-decedenti in SSA's Emerald Meadows & M/s. Parkinson (supra), we are of the view that the notice issued by AO before levying penalty u/s. 271B of the Act is bad in law and hence assessee succeeds on the legal issue raised for both appeals. Hence, penalty levied for both years cannot survive and is directed to be deleted.

13.

Moreover, we note that the assessee has furnished the TAR report on 13.12.2022 while filing the return of income on 13.12.2022 for AY 2022-23 and on 08.12.2023 for AY 2023-24 [ i.e. while filing the return of income on the same date] which were processed by the CPC u/s.143(1) of the Act on 22.05.2023 for AY 2022-23 and on 08.12.2023 for AY 2023- 24, meaning that TAR report was before the AO, while passing of the

ITA No.1137 & 1138/Chny/2026 (AY 2022-23 & 2023-24) Kaliannan Balasubramaniam :: 9 :: intimation u/s.143(1) of the Act. Sincethe TAR was uploaded along with return of income, and was very much available before the CPC, while the return was processed, penalty u/s 271B wasn’t warranted [ refer decision of the Hon’ble Madras High Court in the case of Mr. P. Senthilkumar Vs PCIT 416 ITR 336]

14.

In the result, appeals are allowed.

Order pronounced on the 20th day of August 2026, in Chennai. Sd/- Sd/- (एबी टी. वक�) (एस. आर. रघुनाथा) (ABY T. VARKEY) (S.R.RAGHUNATHA) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�/ACCOUNTANT MEMBER चे�नई/Chennai, �दनांक/Dated: 20th August, 2026. YS आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

Digitally signed YASHVI by YASHVIR SINGH R SINGH Date: 2026.09.03 12:58:26 -07'00'

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