SRI PALANIVEL TRADERS,ERODE vs. ITO, WARD-2(1), ERODE

आदेश / O R D E R

PER MANU KUMAR GIRI, JM:

The captioned appeal filed by the Assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi, [hereinafter referred to as “the Ld.CIT(A)”], dated 16.03.2026 confirming the penalty levied u/s. 271B of the Income Tax Act, 1961 for Assessment Year 2019-20.

ITA No 3192/Chny/2026 (AY 2019-20) Sri Palanivel Traders Vs ITO W-2(1) :: 2 :: 2. The Assessing Officer (AO) observed that the appellant, M/s. Sri Palanivel Traders, a partnership firm, had not filed its return of income for AY 2019-20. Based on information available with the Department, the AO noted that cash deposits aggregating to Rs.3,71,50,000/- had been made during the relevant previous year in a bank account maintained with CSB Bank Ltd. Consequently, the assessment was reopened u/s.147/148A of the Income Tax Act after following the prescribed statutory procedure. During the reassessment proceedings, the appellant contended that the bank account in question did not belong to the partnership firm but to a separate proprietorship concern, namely M/s. Sree Palanivel Traders, owned by Smt. K. Savithiri. However, the AO was of the view that the appellant failed to substantiate this claim with credible documentary evidence. According to the AO, despite repeated opportunities, the appellant did not produce the cash book, sales ledger, purchase ledger, or other books of account of the proprietorship concern for verification. The balance sheet furnished was also found to be insufficient as it did not disclose the particulars of the disputed bank account. On examination of the bank statement, the AO noticed that the deposits were periodically transferred to Indian Oil Corporation Ltd. (IOCL). From this, the AO inferred that the deposits represented business receipts utilised for the purchase of goods. Accordingly, instead of treating the deposits as unexplained money u/s. 69A, the AO considered the aggregate credits of Rs.4,30,60,895/- as the gross turnover of the appellant's business and, in the absence of books of account, estimated the net profit at 2%, resulting in an addition of Rs.8,61,217/-. Having treated the bank credits as the appellant's business turnover, the AO further held that the turnover exceeded the monetary limit

ITA No 3192/Chny/2026 (AY 2019-20) Sri Palanivel Traders Vs ITO W-2(1) :: 3 :: prescribed u/s. 44AB of the Act. The AO, therefore, concluded that the appellant was under a statutory obligation to get its accounts audited and furnish the prescribed audit report. Since no tax audit had been conducted or audit report furnished, the AO formed the view that the appellant had failed to comply with the requirements of section 44AB. Accordingly, the AO initiated penalty proceedings u/s. 271B read with section 274 of the Act and, holding that no reasonable cause had been established for the failure to obtain the mandatory tax audit, imposed a penalty of Rs.1,50,000/- u/s. 271B after obtaining the approval of the competent authority. 3. On appeal before CIT(A), the ld.CIT(A) in sum and substance has given the following findings: I have carefully considered the penalty order passed by the Assessing Officer, the written submissions filed by the appellant, and the material available on record. The Assessing Officer observed that the appellant had bank deposits aggregating to Rs.4,30,60,895/- during the relevant previous year. Since the appellant failed to produce books of account or supporting evidence, the Assessing Officer treated the said deposits as representing business receipts and estimated the business income by applying a net profit rate of 2% on the gross receipts. Since the turnover so determined exceeded the threshold prescribed u/s.44AB of the Income Tax Act, 1961, thereby attracting the requirement of compulsory tax audit. The appellant has contended that its business had already been closed in April 2018 and, therefore, the provisions of section 44AB were not applicable. It has also been argued that, since no books of account were maintained, the question of getting such accounts audited does not arise. Reliance has been placed on the decision of the Hon'ble Chennai Bench of the Income Tax Appellate Tribunal in support of the contention that penalty u/s. 271B cannot be levied where no books of account exist. The above submissions have been carefully examined. The plea that the business had been closed in April 2018 is not supported by any contemporaneous documentary evidence. On the contrary, substantial deposits amounting to Rs.4,30,60,895/- were found in the bank account during the

ITA No 3192/Chny/2026 (AY 2019-20) Sri Palanivel Traders Vs ITO W-2(1) :: 4 :: relevant previous year. The Assessing Officer, after examining the pattern of transactions, observed that the deposits were periodically transferred to Indian Oil Corporation Ltd. and, therefore, concluded that the deposits represented business receipts. The assessment order proceeds on this finding and the turnover has been determined accordingly. Thus, the appellant's contention that no business activity was carried on during the relevant previous year is not borne out by the facts on record. As regards the contention that no books of account were maintained and, therefore, no penalty u/s. 271B is leviable, it is seen that the Assessing Officer has specifically recorded that the appellant failed to produce books of account despite being afforded adequate opportunities during the assessment proceedings. The appellant has also not established that it was under no statutory obligation to maintain books of account. Once the Assessing Officer has determined that the appellant carried on business with turnover far exceeding the prescribed limit u/s. 44AB, the statutory requirement to obtain a tax audit cannot be avoided merely by pleading non-maintenance of books. The decision relied upon by the appellant is distinguishable on facts and does not advance the appellant's case in the present circumstances.

In view of the foregoing discussion, I find that the appellant has failed to establish any reasonable cause within the meaning of section 273B for non-compliance with the provisions of section 44AB. I, therefore, hold that the Assessing Officer was justified in levying penalty u/s. 271B of the Act. Accordingly, the penalty of Rs.1,50,000/- imposed u/s. 271B is confirmed and the appeal is dismissed.

Now assessee is in appeal before the Tribunal. 4. The ld. Authorised Representative (AR) submitted that the authorities below have erred in levying and confirming the penalty u/s. 271B of the Income-tax Act, 1961. It was contended that the very foundation for levy of penalty is misconceived. During the assessment proceedings, the Assessing Officer himself recorded that no books of account were produced by the assessee and proceeded to estimate the income at 2% of the alleged gross receipts. Thus,

ITA No 3192/Chny/2026 (AY 2019-20) Sri Palanivel Traders Vs ITO W-2(1) :: 5 :: the assessment has been framed purely on estimation without reference to any books of account. The ld. AR submitted that section 44AB casts an obligation to get the "accounts" audited. Where admittedly no books of account are maintained or available, the question of getting such non-existent books audited does not arise. At best, failure to maintain books may attract the provisions of section 271A, wherever applicable, but penalty u/s. 271B cannot be levied for failure to audit books which admittedly do not exist. It was further submitted that the Assessing Officer himself has estimated the turnover by treating the bank credits as business receipts. Therefore, the turnover was not derived from any books of account maintained by the assessee. Penalty u/s. 271B cannot rest merely on estimated turnover. The ld.AR also submitted that the assessee had consistently taken the stand that the business of the partnership firm had already been discontinued in April, 2018 and that the bank account belonged to a proprietorship concern of Smt. K. Savithiri. Though this explanation was not accepted in the assessment proceedings, the fact remains that the income itself has ultimately been determined only on estimation. It was argued that when the assessment itself is based on estimated turnover and estimated profits in the absence of books, levy of penalty u/s. 271B is legally unsustainable. Reliance was placed on the settled line of decisions of various Benches of the Tribunal, including the decisions of the Chennai Bench, wherein it has consistently been held that where no books of account are maintained, penalty u/s.271B cannot be imposed since there are no accounts which could be subjected to audit. 5. The ld. Departmental Representative (DR), on the other hand, strongly supported the orders of the authorities below. It was

ITA No 3192/Chny/2026 (AY 2019-20) Sri Palanivel Traders Vs ITO W-2(1) :: 6 :: submitted that the Assessing Officer has categorically found that the bank deposits aggregating to Rs.4,30,60,895/- represented business receipts of the assessee. Once the turnover exceeded the monetary limit prescribed u/s.44AB, the assessee was under a statutory obligation to maintain books and get the same audited. The ld. DR submitted that the assessee cannot be permitted to take advantage of its own default by contending that since no books were maintained, penalty u/s. 271B cannot be levied. Such an interpretation would defeat the object of section 44AB. It was further submitted that the explanation that the bank account belonged to another concern remained completely unsubstantiated. The Assessing Officer had repeatedly called upon the assessee to produce the books of account of the alleged proprietorship concern, but the assessee failed to do so. Consequently, the Assessing Officer rightly concluded that the deposits represented the business turnover of the assessee. The ld. DR therefore submitted that the Commissioner (Appeals) has correctly upheld the penalty and no interference is called for. 6. We have heard the rival submissions and carefully perused the material available on record. The short controversy before us is whether penalty u/s.271B is exigible where the Assessing Officer himself proceeds on the footing that no books of account were produced or maintained and estimates the business income on the basis of bank deposits. The penalty u/s. 271B is attracted where a person fails to get his accounts audited in accordance with section 44AB. The expression employed by the legislature is "accounts" or "books of account". Therefore, existence of books of account is a necessary pre-condition for invoking section 271B. In the present case, the assessment order itself records that the assessee did not

ITA No 3192/Chny/2026 (AY 2019-20) Sri Palanivel Traders Vs ITO W-2(1) :: 7 :: produce books of account and, in the absence thereof, the Assessing Officer estimated the turnover from the bank account and estimated the profit at 2% thereof. Thus, the very foundation of the assessment is that there were no books available before the Assessing Officer on the basis of which the income could be computed. The consistent judicial view is that where admittedly no books of account are maintained, penalty u/s. 271B is not leviable. Failure to maintain books of account and failure to get books audited are distinct statutory defaults attracting different consequences. Section 271B penalises failure to obtain audit of existing books of account. It does not extend to a situation where no books are maintained at all. In such cases, if the statute so permits, the consequence may arise under the provisions dealing with failure to maintain books of account, but not u/s. 271B. In the present case, both the Assessing Officer and the Commissioner (Appeals) have proceeded on the premise that the assessee did not produce books of account. Simultaneously, they have invoked section 271B for failure to get those very accounts audited. Such reasoning is legally self-contradictory. Merely because the Assessing Officer estimated the bank deposits as business turnover exceeding the threshold prescribed u/s. 44AB would not automatically justify levy of penalty u/s. 271B in the absence of books of account. The audit contemplated u/s. 44AB is of books of account and not of estimated turnover or bank statements. The Commissioner (Appeals), while confirming the penalty, has observed that the assessee cannot avoid the statutory audit requirement merely by pleading non-maintenance of books. In our considered view, this reasoning overlooks the distinction maintained by the Act between the obligation to maintain books and the obligation to get the books

ITA No 3192/Chny/2026 (AY 2019-20) Sri Palanivel Traders Vs ITO W-2(1) :: 8 :: audited. The default contemplated u/s. 271B presupposes the existence of books capable of being audited. Where the Revenue itself proceeds on the footing that no books exist and estimates income dehors the books, levy of penalty u/s. 271B cannot be sustained. Accordingly, respectfully following the consistent judicial view taken by various Benches of the Tribunal, including the jurisdictional Chennai Bench, we hold that the penalty levied u/s. 271B is not sustainable in law. The Assessing Officer is directed to delete the penalty of Rs.1,50,000/-. 7. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on the 07th day of August 2026 in Chennai.

Sd/- Sd/- (गगन गोयल) (मनु कुमार िग�र) (Gagan Goyal) (MANU KUMAR GIRI) लेखा सद)य/ACCOUNTANT MEMBER �या�यक सद)य/JUDICIAL MEMBER चे�नई/Chennai, *दनांक/Dated: 07th August, 2026. SNDP, Sr. PS 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 SANDEE Digitally signed by SANDEEP P KUMAR Date: KUMAR 2026.08.11 17:46:31 +05'30'