KASAT PRAKASH M HUF,LATUR vs. ITO WARD 1 NANDED, NANDED

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI MANISH BORAD, ACCOUNTANT MEMBER AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1992/PUN/2025 िनधा�रण वष� / Assessment Year : 2020-21 Kasat Prakash M. HUF, Vs. ITO, Ward-1, Nanded. MCL 40, 1233, Shriniwas Near Kore Garden Moti Nagar, Latur- 413512. PAN : AAHHK3252P Appellant Respondent Assessee by : Shri Girish Ladda (Virtual) Revenue by : Shri Basavaraj Hiremath Date of hearing : 23.02.2026 Date of pronouncement : 28.04.2026 आदेश / ORDER PER VINAY BHAMORE, JM: This appeal filed by the assessee is directed against the order dated 09.08.2025 passed by Ld. CIT(A)/NFAC for the assessment year 2020-21. 2. The appellant has raised the following grounds of appeal :- “1. The initiation and confirmation of penalty u/s 271B Rs 1,50,000 is invalid, as section 44AB is not applicable to the appellant's case being no business is carried on. The ld. CIT(A) erred in holding that Interest on informal advances to relatives/friends amounted to a "business" when the return of Income and AO's own assessment order

2 ITA No.1992/PUN/2025 u/s 143(3) treated the interest income as "Income from Other Sources" u/s 56 of Income Tax Act. 2. The ld CIT(A) has erred in law and on facts in confirming the levy of penalty Rs 1,50,000 u/s 271B of the Income Tax Act, 1961, despite the fact that the appellant HUF is not engaged in any business. All the interest income earned was declared in the Return of Income as well as assessed by the AO under the head "income from other sources," in assessment order u/s 143(3), with no income offered/assessed under the head "Profits and Gains of Business or Profession." The CIT(A) failed to appreciate that Section 44AB mandating tax audit is not applicable to entities which do not carry on business or profession. 3. The penalty levied u/s 271B deserves to be deleted as in the assessment order dated 19/09/2022 passed u/s 143(3), the AO has made proportionate disallowance u/s 57 for Rs 26,07,214 out of interest paid, thereby assessing the interest income under the head "income from other sources." This fact is evident from the assessment order and is not in dispute. The AO and CIT(A), while confirming penalty u/s 271B, have contradicted their stand by treating the same interest income as business turnover for the purposes of 44AB/271B, which is untenable in law. 4. On the facts of case and in law, the CIT (A) erred in not appreciating that all the advances were purely informal, made to close relations, without money lending licence, business infrastructure, or any intention of carrying on business. The appellant was under bona fide belief that it does not constitute business as per law. In such circumstances, penalty under section 2718 is not exigible, and the CIT(A) erred in disregarding reasonable cause u/s 2738 of Income Tax Act. 5. Without prejudice to Grounds Number 1 to 4, even if it is presumed that the activity constitutes business, the AO and CIT(A) have wrongly treated the year-end loan/advance balance as "gross receipts" (Rs 7,81,67,421) for calculating penalty u/s 271B of Income Tax Act, instead of restricting the same to actual interest income (Rs 1,02,79,704) received during the year. Penalty, if any, ought to be restricted to 0.5% of interest income, i.e. Rs 51,398 and not the maximum of Rs 1,50,000. 6. The CIT(A) has failed to consider that the appellant had reasonable cause for not obtaining audit, since no business was carried on and advances were given as personal/informal arrangements only.

3 ITA No.1992/PUN/2025 All facts were disclosed, and the issue is purely interpretational where two views are possible. 7. The appellant seeks leave to add, alter, amend, or drop any ground(s) of appeal at or before the hearing.” 3. Facts of the case, in brief, are that the assessee is HUF (Hindu Undivided Family) and has furnished its return of income on 07.01.2021 by declaring an income of Rs.6,53,920/- under the head “Income from other sources”. The case was selected for scrutiny through CASS on the reason of large deduction claimed u/s 57 (Non-business ITR) for verification of genuineness of the expenses claimed u/s 57 of the IT Act. Subsequently, notices u/s 143(2), 142(1) and show cause notices respectively were issued to the assessee. The Assessing Officer found that the assessee HUF has taken loan/advance of Rs.10,71,71,904/- from creditors on which interest of Rs.96,33,684/- is paid to the creditors during the year and the assessee is also found to have advanced sum of Rs.7,81,67,421/- to others on which interest of Rs.1,02,79,704/- was received by the assessee. Accordingly, the Assessing Officer was of the view that the assessee is involved in the business of money lending. Vide assessment order dated 19.09.2022, the Assessing Officer

4 ITA No.1992/PUN/2025 disallowed proportionate interest expenses of Rs.26,07,214/- claimed u/s 57 of the IT Act and determined income of the assessee at Rs.32,61,134/- as against the income of Rs.6,53,920/- returned by the assessee. The Assessing Officer also initiated penalty proceedings u/s 271B of the IT Act for not getting its books of accounts audited u/s 44AB of the IT Act. 4. Subsequently, vide order dated 20.01.2023 the Assessing Officer levied penalty u/s 271B of Rs.1,50,000/- for not getting its books of accounts audited u/s 44AB of the IT Act being lower of Rs.3,90,837/- (0.5% of total turnover of Rs.7,81,67,421/-) and Rs.1,50,000/-. 5. Being aggrieved with the above penalty order, the assessee preferred an appeal before Ld. CIT(A)/NFAC. After considering the reply and submissions of the assessee, Ld. CIT(A)/NFAC dismissed the appeal filed by the assessee. 6. It is the above order against which the assessee is in appeal before this Tribunal. 7. We have heard Ld. Counsels from both the sides and perused the material available on record including the paper book furnished

5 ITA No.1992/PUN/2025 by the assessee. In this regard, we find that the assessee disclosed income under the head “Income from other sources”, however in 143(3) assessment proceedings, the Assessing Officer treated the above income as business income being money lending business. In this regard, we gave our thoughtful consideration to the facts of the case & find that the assessee has taken loan of Rs.10,71,71,904/- on interest from others & then provided the loan of Rs.7,81,67,421/- on interest to others, which tantamount to business activity & does not appears to be income from other sources as claimed by the assessee. We also find that the assessee has not challenged the finding given by the Assessing Officer in quantum assessment order that the assessee is engaged in money lending business which has become final now. Accordingly, ground no.1 to 4 & ground no.6 raised by the assessee are dismissed. 8. In alternative ground no.5 it was the contention of Ld. Counsel of the assessee that even if it is presumed that the activity constitutes business, the Assessing Officer and Ld. CIT(A)/NFAC have wrongly treated the year-end loan/advance balance as "gross receipts" (Rs.7,81,67,421/-) for calculating penalty u/s 271B of IT

6 ITA No.1992/PUN/2025 Act, instead of restricting the same to actual interest income (Rs.1,02,79,704/-) received during the year. Accordingly, it was alternatively contended that penalty, if any, ought to be restricted to 0.5% of interest income of Rs.1,02,79,704/- i.e. Rs.51,398/- and not the maximum at Rs.1,50,000/-. 9. We find force in the above alternative ground no.5 raised by the assessee that the gross interest receipt of Rs.1,02,79,704/- can only be treated as business receipt & not the whole of the loan amount of Rs.7,81,67,421/- which is outstanding at the end of the year as loan from others. Accordingly, we are of the considered opinion that the penalty u/s 271B of the IT Act, if any, can only be calculated on the basis of turnover of Rs.1,02,79,704/- only & not on the basis of loan amount of Rs.7,81,67,421/- outstanding at the end of the year. 10. Considering the totality of the facts of the case & in view of our above discussion, we deem it appropriate to set-aside the order passed by Ld. CIT(A)/NFAC & direct the Assessing Officer to restrict the penalty u/s 271B of the IT Act to Rs.51,398/- being

7 ITA No.1992/PUN/2025 lower of 0.5% of the turnover of Rs.1,02,79,704/- & Rs.1,50,000/-. Thus, the ground no.5 raised by the assessee is allowed. 11. In the result, the appeal filed by the assessee is partly allowed. Order pronounced on this 28th day of April, 2026. Sd/- Sd/- (MANISH BORAD) (VINAY BHAMORE) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 28th April, 2026. Sujeet/DOC Sujeet Kumar Digitally signed by Sujeet Kumar Sharma Sharma Date: 2026.04.30 12:20:23 आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : +05'30' अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Pr.CIT concerned. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “A” ब�च, 4. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 5. आदेशानुसार / BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.