ALLIANCE CORPORATION,MUMBAI vs. ITO WARD-17(1)(1), MUMBAI

This appeal by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, passed under section 250 of the Income-tax Act, 1961, dated 12.09.2025 for the Assessment Year 2019-20, arising out of the penalty order passed under section 271B of the Act dated 11.09.2024. The Assessing Officer levied penalty of ₹1,31,979/- for the alleged failure to get the accounts audited under section 44AB of the Act.

The effective grievance of the assessee is that the learned CIT(A) erred in confirming the penalty levied under section 271B of the Act without appreciating that the assessee was not liable to obtain tax audit under section 44AB, since the aggregate of cash receipts and cash payments did not exceed five per cent of the total receipts and payments and the turnover was below ₹5 crore. It was also contended that there existed reasonable cause within the meaning of section 273B, as one of the partners was of advanced age and suffering from ill-health, which prevented timely compliance.

Briefly stated, the assessee is a partnership firm engaged in the business of export sales. During the relevant previous year, it reported export turnover of ₹2,63,95,990/- and interest income of ₹70,294/-. The assessment was completed under section 147 read with section 144 of the Act. Since the assessee had not obtained the audit report under section 44AB, the Assessing Officer initiated penalty proceedings under section 271B and levied a penalty of ₹1,31,979/- being 0.5% of the turnover. The learned CIT(A) confirmed the penalty holding that the turnover exceeded ₹1 crore and that the assessee had not produced any evidence to substantiate its contention that cash transactions were within the prescribed limit or that there existed any bona fide reason for the default.

The learned Authorised Representative submitted that the authorities below proceeded on the erroneous premise that the audit threshold applicable to the assessee was ₹1 crore. He submitted that for the relevant assessment year, where the aggregate of all amounts received including amounts received in cash does not exceed five per cent of the total receipts and the aggregate of all payments made including payments in cash does not exceed five per cent of the total payments, the threshold prescribed under section 44AB stood enhanced 2 to ₹5 crore. It was submitted that the assessee fulfilled these statutory conditions and, therefore, there was no obligation to obtain a tax audit. It was further argued that this specific contention was raised before the learned CIT(A), but no finding was recorded after examining the factual position. Alternatively, it was submitted that there existed reasonable cause under section 273B, as one of the partners, who was looking after the affairs of the firm, was of advanced age and suffering from ill-health, which prevented timely compliance with the statutory requirement. It was, therefore, prayed that the penalty be deleted.

The learned Departmental Representative supported the orders of the lower authorities. He submitted that the assessee had failed to furnish any evidence before the Assessing Officer as well as before the learned CIT(A) to establish that cash receipts and cash payments were within the prescribed five per cent limit. He further submitted that no documentary evidence regarding the alleged ill-health of the partner had been furnished before the lower authorities. Accordingly, it was contended that the learned CIT(A) was justified in sustaining the penalty.

We have heard the rival submissions and perused the material available on record. The penalty has been levied solely on the footing that the assessee failed to comply with section 44AB. The learned CIT(A), while confirming the penalty, observed that the assessee had not produced any evidence regarding fulfilment of the conditions prescribed for the enhanced threshold of ₹5 crore.

In the result, the appeal of the assessee is allowed for statistical purposes.