THE PAROLI DUDH UTPADAK SAHAKARI MANDALI,PANCHMAHAL vs. THE ITO, WARD-1, GODHRA

PDF · subscribers
ITA 2326/AHD/2025Status: DisposedITAT Ahmedabad22 April 2026AY 2019-205 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee had a reasonable cause for not obtaining the audit report due to its rural background, lack of professional guidance, and bona fide belief that the co-operative society audit was sufficient. Therefore, the penalty was not sustainable.

What were the facts?

The assessee, a dairy co-operative society, failed to obtain a tax audit report despite its turnover exceeding the prescribed limit. The Assessing Officer initiated penalty proceedings under section 271B for this non-compliance.

What were the issues?

Whether the assessee had a reasonable cause for failure to obtain a tax audit report as required under Section 44AB, and if the penalty under Section 271B was leviable.

Which sections of the Income-tax Act were involved?

Section 44AB,Section 271B,Section 273B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD

Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL

For Appellant: Shri Mehul K Patel, Adv
For Respondent: Shri Abhinjit, Sr. DR
Hearing: 20.04.2026

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.2326/Ahd/2025 (Assessment Year: 2019-20) The Paroli Dudh Utpadak Vs. Income Tax Officer, Sahakari Mandali, Ward-1, Opp. Bus Stop Paroli, Godhra Ghodhamba Panchmahal-389365 [PAN No.AAFAT3549R] (Appellant) .. (Respondent) Appellant by : Shri Mehul K Patel, Adv. Respondent by: Shri Abhinjit, Sr. DR Date of Hearing 20.04.2026 22.04.2026 Date of Pronouncement O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 16.09.2025 passed for A.Y. 2019-20.

2.

The assessee has raised the following grounds of appeal:

“1.0 The learned Commissioner of Income Tax (Appeals), NFAC has erred in law and on facts in confirming the levy of penalty of Rs.1,04,120/- under section 271B of the I T Act without properly appreciating the facts, circumstances, and reasonable cause submitted by the appellant. 1.1 The learned Commissioner of Income Tax (Appeals), NFAC failed to appreciate that the appellant was prevented by reasonable cause within the meaning of section 273b of the Act, as the failure to obtain the audit report was neither willful nor deliberate but occurred due to genuine reasons such as lack of professional guidance, illness/closure, or technical difficulties in e-filing. 2.0 The appellant craves leave to add to, alter, delete or modify any of the above grounds of appeal either before or at the time of hearing of this appeal.”

ITA No. 2326/Ahd/2025 The Paroli Dudh Utpadak Sahakari Mandali vs. ITO Asst.Year –2019-20 - 2– 3. The brief facts of the case are that the assessee is a primary dairy co-operative society engaged in collecting milk from its members at the village level and supplying the same to the district milk federation. The assessee did not file its original return of income for the assessment year under consideration. Subsequently, the case was reopened under section 147 of the Act on account of information regarding cash deposits in the bank account. In response to notice under section 148, the assessee filed its return of income, which was accepted by the Assessing Officer (AO) and the total income was assessed at nil. However, during the course of assessment proceedings, the Assessing Officer noticed that the assessee had gross receipts of ₹2,02,84,026/-, exceeding the threshold prescribed under section 44AB of the Act, and had failed to get its accounts audited within the prescribed time.

4.

Accordingly, the AO initiated penalty proceedings under section 271B of the Act for failure to comply with the provisions of section 44AB of the Act. In response, the assessee submitted that it is a small rural co- operative society operating in a backward area with no professional assistance, and that its members were not aware of the requirements of tax audit. The assessee further submitted that there was no mala fide intention and that in subsequent years, the assessee had appointed tax consultants and complied with statutory requirements. The assessee also pointed out that its accounts were subject to audit under the Co-operative Societies Act and it was under a bona fide belief that such audit was sufficient. The AO, however, rejected the explanation by holding that ignorance of law is not an excuse and that the statutory requirement of audit under section 44AB of the Act was mandatory once the turnover exceeded the prescribed

ITA No. 2326/Ahd/2025 The Paroli Dudh Utpadak Sahakari Mandali vs. ITO Asst.Year –2019-20 - 3– limit. Accordingly, the AO levied penalty of ₹1,01,420/- under section 271B of the Act.

5.

Aggrieved, the assessee preferred an appeal before the CIT(Appeals) along with an application for condonation of delay of 180 days. The CIT(Appeals), considering the peculiar facts and in the interest of justice, condoned the delay and admitted the appeal. On merits, the assessee reiterated its submissions highlighting its rural background, absence of professional support, bona fide belief regarding audit under the Co-operative Societies Act, and absence of any tax evasion or revenue loss, especially when the income was ultimately assessed at nil and eligible for deduction under section 80P.

6.

The CIT(Appeals), however, was not convinced with the explanation furnished by the assessee. It was observed that the assessee’s turnover exceeded ₹2 crore and therefore strict compliance with audit provisions was required. The CIT(A) held that except for pleading ignorance of law, the assessee had not demonstrated any reasonable cause for failure to get accounts audited. The argument regarding rural background and nature of activities was considered but rejected on the ground that audit provisions act as an important check against possible leakage of revenue. Accordingly, the CIT(A) confirmed the penalty levied under section 271B and dismissed the appeal.

7.

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

8.

We have heard the rival contentions and perused the material on record. Relief may be allowed to the assessee on multiple counts. Firstly,

ITA No. 2326/Ahd/2025 The Paroli Dudh Utpadak Sahakari Mandali vs. ITO Asst.Year –2019-20 - 4– it is an undisputed fact that the year under consideration is the initial year of operations of the assessee society wherein the assessee was not equipped with proper professional guidance or infrastructure to comply with the requirements of tax audit under section 44AB. Secondly, it is also a matter of record that in the subsequent years the assessee has duly complied with the provisions of the Act by getting its accounts audited and filing returns of income, which demonstrates its bona fide intention to comply with the law once proper guidance was available.

9.

Further, the case of the assessee falls squarely within the ambit of section 273B of the Act, which provides that no penalty shall be imposable if the assessee proves that there was a reasonable cause for the failure. In the present case, the explanation furnished by the assessee regarding its rural background, absence of professional assistance, and bona fide belief that audit under the Co-operative Societies Act was sufficient, constitutes a reasonable cause within the meaning of section 273B. The Authorities below have failed to appreciate that penalty provisions are not automatic and must be applied keeping in view the surrounding circumstances and the conduct of the assessee.

10.

We also find merit in the written submissions of the assessee as noted by the CIT(Appeals), particularly the explanation that the society was functioning in a backward area with limited administrative resources and under a genuine misconception regarding audit requirements. Such explanation has not been found to be false or mala fide. The fact that the assessment itself has been completed at nil income and no adverse inference has been drawn regarding suppression of income further supports the case of the assessee.

ITA No. 2326/Ahd/2025 The Paroli Dudh Utpadak Sahakari Mandali vs. ITO Asst.Year –2019-20 - 5–

11.

In light of the above observations and considering the totality of facts and circumstances of the case, we are of the considered view that the assessee has demonstrated a reasonable cause for failure to get its accounts audited within the prescribed time. Accordingly, the penalty levied under section 271B of the Act is not sustainable and is directed to be deleted.

In the result, the appeal of the assessee is allowed. 12. This Order pronounced in Open Court on 22/04/2026

Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 22/04/2026 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 20.04.2026 (Dictated over dragon software) 2. Date on which the typed draft is placed before the Dictating Member 21.04.2026 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S .04.2026 5. Date on which the fair order is placed before the Dictating Member for pronouncement 22.04.2026 6. Date on which the fair order comes back to the Sr.P.S./P.S 22.04.2026 7. Date on which the file goes to the Bench Clerk 22.04.2026 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order……………………………………

More judgments on Section 44AB

All 2,486 judgments and leading authorities on Section 44AB →

Recent GST High Court judgments

Search GST case law →