CHANDRAPPA SANJAYA KUMAR,SHIMOGA vs. ITO WARD 5 , SHIMOGA

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the order of the ld. CIT(A)/NFAC dated 24.9.2025 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1081094725(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2018-19.

ITA No.2279/Bang/2025 Chandrappa Sanjaya Kumar, Shivamogga Page 2 of 10

ITA No.2279/Bang/2025 Chandrappa Sanjaya Kumar, Shivamogga Page 3 of 10 absence of any audit done by the assessee, the penalty proceedings u/s 271B of the Act was initiated separately. Thereafter, the AO issued show cause notices one dated 21.3.2024 and another dated 21.8.2024 to which assessee filed his reply. After perusing the reply, the AO observed that the reasons given by the assessee are not tenable to be accepted as the reasons forwarded by the assessee were found not to be a sufficient grounds. The AO concluded the penalty proceedings by levying penalty u/s 271B of the Act as below:

Failure to get accounts audited as required u/s 44AB of the Act Total receipts/turnover 1,96,03,345/- Half percent of receipts (0.5%* 98,016/- 1,96,03,345) Penalty imposed u/s 271B of the 98,016/- IT Act, 1961

Thus, the AO imposed the penalty u/s 271B of the Act amounting to Rs.98,016/- for failure to get accounts audited vide penalty order dated 9.9.2024.

ITA No.2279/Bang/2025 Chandrappa Sanjaya Kumar, Shivamogga Page 4 of 10 6. Again, aggrieved by the order of the ld. CIT(A)/NFAC dated 24.9.2025, the assessee has filed the present appeal before this Tribunal. The assessee has also filed a written submission along with an affidavit in support of his grounds of appeal.

ITA No.2279/Bang/2025 Chandrappa Sanjaya Kumar, Shivamogga Page 5 of 10 to get his accounts audited u/s 44AB of the Act and therefore, there is no absolute default on the part of the assessee to submit the audit report. Further we also agree with the contention of the ld. A.R. of the assessee that the audit report furnished on 9.7.2020 was very much before the AO before conclusion of the assessment proceedings. On the other hand, the contention of the ld. D.R. is that there is a clear violation to furnish the audit report within the due date as required u/s 44AB of the Act and accordingly penalty levied u/s 271B of the Act may be sustained.

9.1 Before proceeding further, we may take note of the provisions of section 44AB, 271B & 273B of the Act for the purpose of this case, which reads as under: 44AB. Audit of accounts of certain persons carrying on business or profession. Every person,— (a)carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year [***]: [Provided that in the case of a person whose— (a)aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount; and (b)aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment, this clause shall have effect as if for the words "one crore rupees", the words "[ten] crore rupees" had been substituted:] [Provided further that for the purposes of this clause, the payment or receipt, as the case may be, by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt, as the case may be, in cash; or] (b)carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or (c)carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or (d)carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or

ITA No.2279/Bang/2025 Chandrappa Sanjaya Kumar, Shivamogga Page 6 of 10 (e)carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, ] get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed: Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year: Provided [further] that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later: Provided [also] that in a case where such person is required by or under any other law to get his accounts audited , it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section. Explanation.—For the purposes of this section,— (i)"accountant" shall have the same meaning as in the Explanation below sub- section (2) of section 288; (ii)"specified date", in relation to the accounts of the assessee of the previous year relevant to an assessment year, means [date one month prior to] the due date for furnishing the return of income under sub-section (1) of section 139.

271B. [ Failure to get accounts audited. [Inserted by Act 21 of 1984, Section 30 (w.e.f. 1.4.1985).] - If any person fails ][* * *] [ Omitted by Act 46 of 1986, Section 21 (w.e.f. 10.9.1986).] to get his accounts audited in respect of any previous year or years relevant to an assessment year or [furnish a report of such audit as required under section 44-AB] [ Substituted by Act 22 of 1995, Section 48, for certain words (w.e.f. 1.7.1995).], the [Assessing Officer] [ Substituted by Act 4 of 1988, Section 2, for " Income-tax Officer" (w.e.f. 1.4.1988).] may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent. of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred thousand rupees, whichever is less. 273B. [ Penalty not to be imposed in certain cases. - Notwithstanding anything contained in the provisions of [clause (b) of sub-section (1) of] [section 271, section 271-A] [Substituted by Act 4 of 1988, Section 114, for " section 270, clause (a) or Clause (b) of sub-Section (1) of section 271, section 271- A, section 271-B, sub-Section (2) of section 272-A, sub-Section (1) of section 272- AA, sub-Section (1) of section 272-B" (w.e.f. 1.4.1989).][, section 271-AA] [ Inserted by Act 14 of 2001, Section 94 (w.e.f. 1.4.2002).][, section 271 B, ] [Inserted

ITA No.2279/Bang/2025 Chandrappa Sanjaya Kumar, Shivamogga Page 7 of 10 by Act 46 of 1986, Section 26 (w.e.f. 10.9.1986).][section 271-BA] [Inserted by Act 14 of 2001, Section 94 (w.e.f. 1.4.2002).][, section 271-BB,] [ Inserted by Act 12 of 1990, Section 50 (w.r.e.f. 1.4.1990).] [section 271-C, section 271-CA] [ Substituted by Act 21 of 2006, Section 55, for " section 271-C" (w.e.f. 1.4.2007).][, section 271- D, section 271-E, ] [Inserted by Act 46 of 1986, Section 26 (w.e.f. 10.9.1986).][section 271-F, ] [Substituted by Act 26 of 1997, Section 55, for " section 271-F" (w.r.e.f. 1.4.1997).][section 271-FA,] [ Substituted by Act 18 of 2005, Section 61, for " Section 271-FA" (w.e.f. 1.4.2006).] [section 271FAB, section 271FB, section 271G, section 271GA] [Substituted 'section 271-FB, section 271-G' by Finance Act, 2015 (No. 20 of 2015), dated 14.5.2015.][, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272-A, sub-section (1) of section 272- AA or ] [Inserted by Act 46 of 1986, Section 26 (w.e.f. 10.9.1986).][section 272-B or] [ Inserted by Act 20 of 2002, Section 106 (w.e.f. 1.6.2002).] [sub-section (1) or sub-section (1-A) of ] [Substituted by Act 21 of 2006, Section 55, for " sub-section (1) of section 272-BB" (w.e.f. 1.6.2006).][section 272-BB] [ Substituted by Act 20 of 2002, Section 106, for " section 272-BB or" (w.e.f. 1.6.2002).][or sub-section (1) of section 272-BBB or] [Substituted by Act 21 of 2006, Section 55, for " sub-section (1) of section 272-BB" (w.e.f. 1.6.2006).] [clause (b) or clause (c) of sub-section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.]”.

9.2 An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances.

9.3 Section 273B starts with the non obstante clause and provides that notwithstanding anything contained in several provisions enumerated therein including section 271B, no penalty shall be imposable on the person or the assessee, as the case may be, for failure referred to in the said provisions, if he proves that there was reasonable cause for the said failure. A clause beginning with ‘notwithstanding anything’ is sometimes appended to a section in the beginning with a view to give the enacting part of the section in case

ITA No.2279/Bang/2025 Chandrappa Sanjaya Kumar, Shivamogga Page 8 of 10 of conflict, an overriding effect over the provision or Act mentioned in the non obstante clause. A non obstante clause may be used as a legislative device to modify the ambit of the provision or law mentioned in the non obstante clause, or to override it in specified circumstances. The true effect of the non obstante clause is that in spite of the provision or the Act mentioned in the non obstante clause, the enactment following it will have its full operation or that the provisions embraced in the non obstante clause will not be an impediment for the operation of the enactment. Therefore, in order to bring in application of section 271B in the backdrop of section 273B, absence of reasonable cause, existence of which has to be established by the assessee, is the sine qua non.

9.4. Levy of penalty under section 271B is not automatic. Before levying penalty, the concerned officer is required to find out that even if there was any failure referred to in the concerned provision, the same was without a reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause which was the reason for the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider whether the explanation offered by the assessee or the person, as the case may be, as regards the reason for failure, was on account of reasonable cause. ‘Reasonable cause’ as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as a probable cause. In the present case as contended by the ld. A.R. of the assessee, the assessee could not upload the audit report within the prescribed period due to the fact that the previous auditor was very careless, negligent & irresponsible and he even did not responded to the notices issued during the Appellate proceedings & the assessee having no option but to change the Auditor and for this reason the audit report was filed belatedly. Further, it is stated that for the

ITA No.2279/Bang/2025 Chandrappa Sanjaya Kumar, Shivamogga Page 9 of 10 negligence of the auditor of the assessee, the assessee should not suffer. Thus, it clearly establishes the reasonable cause for filing the Audit report belatedly.

9.5 Taking into cumulative effect of the explanation offered by the assessee, and from a reading of the relevant provisions of section 271B r.w.s. 44AB of the Act, we are of the considered opinion that assessee demonstrated that there was a reasonable cause for the said failure as per provisions contained in section 273B of the Act. It is an undisputed fact that the assessee had uploaded the audit report before conclusion of the assessment proceedings and therefore, as rightly contended by the ld. A.R. of the assessee, there is no such absolute default on the part of the assessee to furnish the audit report.

9.6 We find that the assessee had only committed a technical breach without any loss to the exchequer of the Government as the assessee had already discharged extra tax liability arose on scrutiny assessment for the period in question. Further, there is no deliberate attempt or wilful violation and absolute default on the part of the assessee to attract penalty u/s 271B of the Act. Further, the AO after considering the audit report had concluded the assessment proceedings. This Tribunal has also taken a consistent view that when the tax audit report was made available to AO before the completion of the assessment proceedings, then for technical venial breach without any malafide intention on the penalty cannot be levied u/s 271B of the Act.

9.7 Further, there is nothing contrary that has been brought on record by the ld. D.R. at the time of hearing. We are of the opinion that assessee has only committed a technical breach without any loss to the exchequer of the Government. On this score, we find that the

ITA No.2279/Bang/2025 Chandrappa Sanjaya Kumar, Shivamogga Page 10 of 10 order passed by the ld. CIT(A)/NFAC to be non-maintainable and accordingly we annul the same and cancel the penalty levied u/s 271B of the Act and direct the AO to delete the penalty.

Order pronounced in the open court on 21st July, 2026

Sd/- Sd/- (Prashant Maharishi) (Keshav Dubey) Vice President Judicial Member

Bangalore, Dated 21st July, 2026. VG/SPS

Copy to:

Asst. Registrar, ITAT, Bangalore.