ECLINICAL INDIA PRIVATE LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(2)(1)), MUMBAI

Briefly, the facts of the case are that the assessment in this case was completed under section 143(3) read with section 144B vide order dated 01.03.2025, wherein the returned loss of Rs. 15,70,46,774/- was accepted without making any adjustment/variation to the returned loss.

Thereafter, during the course of penalty proceedings, after issue of fresh show cause, the Assessing Officer levied the penalty under section 271B, amounting to Rs. 1,47,430/-. As per the Assessing Officer, the assessee failed to substantiate its claim with complete evidence that total receipts and payments does not exceed 5% of total turnover, and therefore, it is a fit case for imposition of penalty under section 271B of the Act.

The assessee thereafter carried the matter in appeal before the ld. CIT(A), who has since sustained the levy of penalty. Against the said order, the assessee is in appeal before us.

During the course of hearing, the ld. AR submitted that, firstly, during the course of penalty proceedings, three show cause notices were issued to the assessee, and in response to the first two show cause notices, due response was submitted by the assessee. Thereafter, in response to the final show cause dated 18.09.2025, the assessee sought time which was granted till 23.09.2025, and in response, the assessee did file its submissions on 23.09.2025. However, without taking into consideration the submissions so filed, the penalty order was passed on 24.09.2025. It was accordingly submitted that the order has been passed without taking into consideration the submissions so filed by the assessee.

Further, our reference was drawn to the provisions of section 44AB of the Act, which provides that the turnover limit for tax audit is Rs. 1 crore. However, as per the proviso to section 44AB, where the aggregate

It was submitted that in the instant case, though the assessee has reported a turnover of Rs. 2,18,93,220/- as against a figure of Rs. 2,94,86,139/- wrongly considered by the Assessing Officer, at the same time, all the receipts are through the proper banking channels, and the assessee does not undertake any receipts in modes other than by way of account payee cheques or other permissible mode as prescribed under the Act. Further, as regards the payments also, the assessee has no cash balance as on the beginning of the financial year and at the end of the financial year, as evidenced from its financial statements for F.Y. 2021- 22, and also reference was drawn to the cash ledger in the books of accounts, wherein there are no transactions during the year under consideration. It was accordingly submitted that where there are no cash transactions undertaken by the assessee, either in terms of cash receipts or cash payments, in such a scenario, as per the proviso to section 44AB, the threshold for undertaking tax audit would be Rs. 10 crores and given that the assessee has reported a turnover of Rs. 2,18,93,220/-, the tax audit requirement does not arise in the case of the assessee and in absence of the foundational requirements not being met, there is no basis for levy of penalty under section 271B of the Act.

It was submitted that the assessee has been reiterating its submissions right from the assessment proceedings, wherein this question was first raised to the assessee in notice dated 12.11.2024, and there also, the assessee has submitted its response stating as to why tax

It was submitted that the Assessing Officer has asked the assesse to submit details of cash book receipts and payment account showing total receipts and payments, and to segregate cash and non-cash payments and it was submitted that since the assessee does not undertake receipt and payment transactions in modes other than by way of account payee cheques and other modes admissible as per the Act, the said requirement is not applicable. Further, the assessee has submitted a screen shot of cash register and relevant extract of the financial statements where there are no entries in cash registers and no opening and closing balances. Further, the assessee has submitted a copy of the bank statement and the bank summary for all the transactions, which shows that the credits in the bank statements matches with its turnover.

In this regard, our reference was drawn to the reconciliation of the bank statement, and it was submitted that as against the credit of Rs. 24,130,214/- in the bank account, the assessee has reported a turnover of Rs. 21,893,220/-, as the difference is on account of applicable GST and TDS deductible by the customers. It was submitted that where the whole of the sale consideration/turnover is through the banking channels, there is no question of any cash receipts being received by the assessee. Further, our reference was drawn to the expenses claimed in the profit & loss account, and the payments done through the bank, and it was submitted that from the same, it is clearly evident that even on the

The ld. DR has been heard, who has relied on the findings of the Assessing Officer as well as that of the ld. CIT(A). It was submitted that though the assessee claims that it has not undertaken any cash transactions during the year under consideration, however, the assessee failed to substantiate the same with complete evidence, and as a result, the Assessing Officer has levied the penalty under section 271B of the Act which has been rightly sustained by the ld CIT(A). He accordingly supported the order and findings of the ld. CIT(A).

We have heard the rival contentions and perused the material available on record. During the course of hearing, with the assistance of ld. AR, we have gone through the financial statements, wherein the assessee has reported revenue from operations amounting to Rs. 2,18,93,220/-, and the corresponding credits in the bank statements, as per the reconciliation statement submitted before us, tallies with the same, except for the difference on account of applicable GST and TDS deducted by customers. We, therefore, find that the whole of the revenue from operations are routed through the banking channels, and there are no cash transactions which are evident as per the records placed before us. Further, the same stand corroborated by the fact that there are no opening and closing cash- in- hand, as evident from cash and bank balances as per Schedule 15 to the audited financial statements. Similarly, in terms of satisfaction of the cash payments, both the financial statements and the bank statements as well as the tax audit report have been gone through, there are no transactions which are undertaken by the assessee in cash, and that too exceeding the prescribed threshold. We, therefore, find merit in the contention advanced by ld. AR on behalf of the assessee that the increased threshold for undertaking tax audit of

In the result, the appeal filed by the assessee is allowed.