KULANDAIVEL SELVAM,NAMAKKAL vs. ITO, WARD-1,, NAMAKKAL

आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), [hereinafter referred to as ‘Ld.CIT(A)’], Chennai-20, all dated 25.07.2025 for the Assessment Years (hereinafter referred to as “AY”) 2019-20, 2021-22 to 2023-24, confirming the penalty levied u/s.271B of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’).

ITA Nos.1344 to 1347/Chny/2026 (AYs 2019-20, 2021-22 to 2023-24) Kulandaivel Selvam :: 2 :: 2. Since both the parties agree that the grounds raised are similar, therefore the appeal for AY.2019-20 is taken as the lead case, result of which will be followed mutatis mutandis for all other appeals. The grounds of the appeal for the AY.2019-20 reads as under: - “ Grounds of Appeal 1. On the facts and circumstances of the case the order of first appellate authority dated 24.07.2025 in dismissing the appeal of the appellant is bad in law and is not legally justified. 2. On the facts and circumstances of the case, the First appellate Authority is not justified in sustain the levy of penalty by the Assessing officer, where the penalty proceedings has been initiated by jurisdictional assessing officer. The initiation of penalty proceedings itself is void ab initio since the above procedure has to be initiated by Faceless assessing officer and not by Jurisdictional Assessing officer. 3. On the facts and circumstances of the case, the First Appellate Authority is not justified in sustaining the penalty levied u/s 271B of the Act, As could be seen from the penalty notice u/s 274 r.w.s 271B of the Act dated 25.09.2024, 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 u/s 271B of the Act to an extent of Rs.1,50,000/-. For the above assessment the audit report was filed on 24.09.2020 and the assessment was completed u/s 143(1) on 06.10.2020 by accepting the income returned by the assessee. At the time of completion of assessment, audit report was very much available with the AO. 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 the 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 First Appellate Authority in sustaining the penalty u/s 271B of the Act is not legally justified. 5. On the facts and circumstances of the case, the First Appellate Authority is not justified in sustaining the penalty levied u/s 271B of the Act where the return of income for the AY 2019-20 was filed on 24.09.2020 and the audit report was filed on 24.09.2020. Even though there is a delay in filing

ITA Nos.1344 to 1347/Chny/2026 (AYs 2019-20, 2021-22 to 2023-24) Kulandaivel Selvam :: 3 :: 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 2004m which decision was relied upon during the course of penalty proceedings by reply dated 09.04.2025 which fact was not appreciated by the AO and First 6. There is a delay in filing the appeal for which delay condonation petition in duly notarized Appellate Authority. affidavit will be filed at the time of appeal hearing. 7. 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.”

ITA Nos.1344 to 1347/Chny/2026 (AYs 2019-20, 2021-22 to 2023-24) Kulandaivel Selvam :: 4 :: 5. Aggrieved the assessee is before us. Assailing the show-cause notice issued by the AO, the Ld.AR of the assessee drew our attention to Page No.17 to 20 of the paper-book wherein the show-cause notices issued by the AO for AY.2019-20 to AY.2023-24 are found placed. The notices are found to be identical; hence, we are reproducing the impugned notice issued u/s.274 r.w.s. 271B of the Act dated 25.09.2024 for AY.2019-20 which reads as under: -

According to the Ld.AR on perusal of the penalty notice would reveal that the said notice does not specify the fault/charge against the assessee, for which the proposed penalty is intended to be levied, so according to him since the fault for which the penalty is proposed to be levied is not clear, and it is vague, therefore the show-cause notice dated 25.09.2024 was

ITA Nos.1344 to 1347/Chny/2026 (AYs 2019-20, 2021-22 to 2023-24) Kulandaivel Selvam :: 5 :: bad in law and consequently levy of penalty itself is bad and need to be cancelled. In support such contention he relied on the order of the Delhi Tribunal (ITAT Delhi) 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 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. " 6. Moreover, the Ld.AR submitted that there was ‘reasonable cause’ for non-levy of the penalty for which he filed the reasons for each assessment years as under: -

AY Reason for the Delay Evidence

2019-20 Assessee was suffering from viral Medical Certificate dated Pneumonia. 31.10.2019

2021-22 Post Covid Regular and Severe Medical Certificate dated Lumbosacral Strain 07.10.2022 Medical Certificate dated 2022-23 Ankle Lateral Mallolar 15.12.2022

ITA Nos.1344 to 1347/Chny/2026 (AYs 2019-20, 2021-22 to 2023-24) Kulandaivel Selvam :: 6 ::

2023-24 Severe Lumbosacral Strain Medical Certificate 20.09.2023 On the aforesaid reason (medical ailment) according to the Ld.AR, assessee could not submit the TAR for the following years: -

AY Due date of filing Date on which Date of of Audit Report Audit Report was Intimation filed Order u/s.143(1) 2019-20 31.10.2019 24.09.2020 06.10.2020

2021-22 31.10.2021 31.03.2022 27.05.2022

2022-23 31.10.2022 31.03.2023 06.12.2023

2023-24 31.10.2023 29.12.2023 02.01.2024

“Though the above decision arises under the Orissa Sales Tax Act, 1947, the ratio decidendi of the said decision could very well be applied to the assessee's case/We find that the non-filing of the tax audit report before September 30, 2012 is a technical breach and admittedly, the assessee filed the audit report along with the return of income on March 31, 2013 and that the assessment was framed by the Assessing Officer only on March 29, 2015, on which date, the audit report was very much on the file

ITA Nos.1344 to 1347/Chny/2026 (AYs 2019-20, 2021-22 to 2023-24) Kulandaivel Selvam :: 7 :: of the Assessing Officer. Thus, we are of the view that the explanation offered by the assessee can be accepted as a reasonable cause for his failure to file the audit report within time and the case on hand is not a fit case for imposing penalty on the appellant. For the above reasons, the above tax case appeal filed by the assessee is 13 allowed and the substantial questions of law raised are answered in favour of the assessee. The penalty imposed on the assessee vide order dated Sep-tember 29, 2015 shall stand deleted. No costs. The Ld.AR urged us to delete the impugned penalty levied u/s.271B of the Act on the aforesaid grounds.” 8. Per contra, the Ld.DR opposed the contention of the Ld.AR and contended that the assessee did not file the Tax Audit Report (TAR) within the due date as specified by the Act and hence, penalty was justified. Further, according to the Ld.AR the assessee did not prove sufficient cause for not levying penalty and hence we should not interfere with the penalty levied by the AO as confirmed by the Ld.CIT(A).

“i) Failed to get accounts audited or ii) Failed to furnish a report of such audit as required u/s.44AB of the Act.”

ITA Nos.1344 to 1347/Chny/2026 (AYs 2019-20, 2021-22 to 2023-24) Kulandaivel Selvam :: 8 :: 10. 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 fault for which the assessee is 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 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. In this context we note the Hon’ble Jurisdictional High Court decision in the case of Babuji Jacob vs. ITO (reported in 2021) 430 ITR 254 (MAD) passed on 08.12.2020, their

ITA Nos.1344 to 1347/Chny/2026 (AYs 2019-20, 2021-22 to 2023-24) Kulandaivel Selvam :: 9 :: Lordship held that if notice initiating penalty proceedings is vague, resulting in alleged charge or fault being unclear, then such notice is defective and invalid, which defect in turn vitiate the imposition of penalty. Therefore, applying the ratio in the case of SSA’s Emerald Meadows & M/s. Parkinson (supra), Babuji Jacob (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. 11. Moreover, we note that assessee has furnished the TAR albeit belatedly on 24.09.2020 along with the return of income, which has been accepted by the department and intimation u/s.143(1) has been duly issued on 06.10.2020. Hence, we find that the Tax Audit Report (TAR) was available with the CPC/AO while processing the return of income filed on the same date i.e. 24.09.2020. Hence, the omission to file TAR on the due date (i.e. 31.10.2019) is a technical breach and therefore, when assessee has shown the sufficient cause for not filing the TAR on due date by filing medical certificate as noted supra, we are of the view that assessee has been able to show reasonable cause for his failure to file the audit report within the due date and hence, it is not a fit case for imposing penalty on the assessee for which we rely on the decision of the Hon’ble Jurisdictional High Court decision in the case P.Senthilkumar vs. PCIT (supra). Hence, we direct the penalty levied u/s. 271B to the deleted.

ITA Nos.1344 to 1347/Chny/2026 (AYs 2019-20, 2021-22 to 2023-24) Kulandaivel Selvam :: 10 :: 12. Since, the facts are identical, the penalty levied for AY.2021-22, 2022-23 and 2023-24 also need to be deleted on the aforesaid reasoning given for AY.2019-20 and we order accordingly.

Order pronounced on the 07th day of July, 2026, in Chennai.

Sd/- Sd/- (एस. आर. रघुनाथा) (एबी टी. वक�) (S.R.RAGHUNATHA) (ABY T. VARKEY) लेखा सद�/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER चे�नई/Chennai, �दनांक/Dated: 07th July, 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: 2026.07.10 11:38:20 +05'30'