ANIL PRANLAL BAJARIA,MUMBAI vs. ACIT., CENTRAL CIRCLE-3(4) , HYDERABAD

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ITA 2113/HYD/2025Status: DisposedITAT Hyderabad14 October 2026AY 2022-238 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the penalty levied under Section 271B of the Income-tax Act, 1961, cannot survive when the underlying assessment proceedings under Section 147 have been quashed by the Tribunal. The Tribunal noted that the assessment order was indeed quashed as being barred by limitation due to an invalid notice under Section 148, rendering the assessment proceedings void ab initio and non-est. The Tribunal reasoned that to initiate any penalty proceedings, there must be valid proceedings before the AO under the Act. Without such proceedings, the AO cannot independently initiate penalty proceedings, even if the penalty is considered independent of the assessment itself. The Tribunal distinguished the case relied upon by the Revenue, Naresh Kumar Vs. ITO, stating that in that case, the AO had validly levied penalty pursuant to valid assessment proceedings. In the present case, the assessment proceedings being invalid and non-est, the penalty under Section 271B for not obtaining an audit report under Section 44AB is not sustainable. Consequently, the Tribunal set aside the order of the CIT(A) and deleted the penalty.

What were the facts?

The assessee, Gurijala Jagadeswara Reddy, an individual, failed to file his return of income for Assessment Year 2013-14. The Assessing Officer (AO) reopened the assessment under Section 147 and completed it under Section 147 r.w.s. 144 r.w.s. 144B, assessing total income at Rs. 1,37,09,382/-. The AO noted contract receipts of Rs. 13,70,93,822/-. As the assessee neither maintained books of accounts nor got them audited as required by Section 44AB, the AO initiated penalty proceedings under Section 274 r.w.s. 271B. Despite a show-cause notice, the assessee did not submit any response. Consequently, the AO levied a penalty of Rs. 1,50,000/- under Section 271B for non-compliance with Section 44AB. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the penalty. The assessee appealed to the Income Tax Appellate Tribunal (ITAT).

What were the issues?

1. Whether the penalty levied under Section 271B of the Income-tax Act, 1961, for failure to maintain books of accounts and obtain an audit report under Section 44AB is sustainable when the underlying assessment proceedings under Section 147 have been quashed by the Tribunal? Assessee's Contention: The learned counsel for the assessee argued that the assessment order passed under Section 147 r.w.s. 144 r.w.s. 144B was quashed by the Tribunal in ITA No. 2429 of 2025 on 05.08.2025, due to an invalid notice issued under Section 148. Since the assessment proceedings were barred by limitation and thus non-est, the AO could not invoke Section 271B to levy penalty. Therefore, the penalty should be deleted. Revenue's Contention: The learned Senior AR for the Revenue contended that the default under Section 271B is independent of the determination of assessed income. The AO can levy penalty under Section 271B for not filing the audit report under Section 44AB, irrespective of whether assessment proceedings are taken up or not. They relied on the ITAT Hyderabad Bench decision in Naresh Kumar Vs. ITO (ITA No. 547/Hyd/2025).

Which sections of the Income-tax Act were involved?

Section 147,Section 144,Section 144B,Section 44AB,Section 274,Section 271B,Section 148,Section 149

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad “A” Bench, Hyderabad

आदेश / ORDER PER MANJUNATHA G., A.M :

This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [in short “NFAC”], Delhi, dated 25.04.2025, pertaining to the assessment year 2013-14.

2.

The brief facts of the case are that, the assessee, an individual, has not filed his return of income for the year under consideration. The assessment has been reopened under Section 147 of the Income-tax Act, 1961 and the assessment has been completed under Section 147 r.w.s. 144 r.w.s. 144B of the Act, on 06.05.2023 and assessed total income at Rs.1,37,09,382/-. During the course of assessment proceedings, the Assessing Officer noticed that, the assessee has received contract receipts amounting to Rs.13,70,93,822/-. However, the assessee had neither maintained books of accounts nor got his accounts audited as required under Section 44AB of the Act. Therefore, the A.O. issued a show-cause notice under Section 274 r.w.s. Section 271B of the Act, and called upon the assessee to explain as to why penalty should not be levied for not filing audit report under

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Section 44AB of the Act. In response to the show-cause notice, the assessee has not filed any submission. Therefore, the A.O., by taking note of the relevant facts, including gross receipts of the assessee for the year under consideration, observed that, although the gross receipts of the assessee exceed the specified limit for maintaining accounts and getting accounts audited under Section 44AB of the Act, the assessee has not filed any audit report and, therefore, observed that, the assessee is liable for penalty under Section 271B of the Act. Therefore, by taking into account the relevant gross receipts, the A.O. levied penalty of Rs.1,50,000/- under Section 271B of the Act.

3.

Aggrieved by the penalty order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee submitted that, the A.O. was erred in levying penalty u/s 271B of the Act, even though the assessment order passed by the A.O. under Section 147 r.w.s. 144 r.w.s. 144B of the Act was subjected to appellate proceedings before the Ld. CIT(A). The Ld. CIT(A) after considering the relevant submissions of the assessee and also taking into account the various facts, including the provision of Section 44AB of the Act, observed that although, the assessee is

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liable to maintain books of accounts and audited books of accounts as per section 44AB of the Act, failed to file the relevant Audit Report which attracts the provisions of Section 271B of the Act. Therefore, the Ld. CIT(A) rejected the explanation of the assessee and upheld the penalty levied by the A.O. u/s 271B of the Act.

4.

Aggrieved with the order of Ld. CIT(A), the assessee is now in appeal before the Tribunal.

5.

The learned counsel for the assessee, Shri P. Murali Mohan Rao, C.A., submitted that, the assessment order passed by the A.O. under Section 147 r.w.s. 144 r.w.s. 144B of the Act, has been quashed by the Tribunal in ITA No. 2429 of 2025, order dated 05.08.2025, on the ground of invalid notice issued under Section 148 of the Act, dated 30.07.2022. Since the assessment proceedings being barred by limitation is non-est and, therefore, in the absence of any proceedings, the A.O. cannot invoke the provisions of Section 271B and levied penalty for non-maintaining books of accounts or audit of books of accounts. Therefore, he submitted that the penalty levied by the A.O. should be deleted.

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6.

The learned Senior A.R. for the Revenue, Shri Mohan Babu, on the other hand, supporting the order of the authorities below, submitted that, the default under Section 271B is independent of determination of assessed income and whether or not the assessment proceedings are taken up, the A.O. can levy penalty under Section 271B for not filing audit report under Section 44AB of the Act. He further submitted that, even if assessment proceedings are not taken up, still the A.O. can proceed with penalty under Section 271B if he notices that the assessee has failed to furnish the relevant audit report under Section 44AB of the Act. In this regard, he relied upon the decision of the ITAT, Hyderabad Bench in the case of Naresh Kumar Vs. ITO in ITA No. 547/Hyd/2025, order dated 20.08.2025.

7.

We have heard both the parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessee did not file his return of income for the assessment year under consideration and the assessment has been completed under Section 147 r.w.s. 144 r.w.s. 144B of the Income Tax Act, 1961. It was also an admitted fact that, the assessment order

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passed by the A.O. has been quashed by the Tribunal being barred by limitation, in view of the invalid notice issued under Section 148 of the Act dated 30.07.2022, and held that, the said notice issued by the A.O. is beyond the limitation provided under Section 149 of the Act, and, consequently, the assessment order passed by the A.O. is void ab initio and liable to be quashed. Once the assessment proceedings itself is non-est, being barred by limitation, then, in our considered view, the penalty levied by the A.O. under Section 271B of the Act, for not submitting the audit report under Section 44AB of the Act, cannot survive, because, in order to initiate any penalty proceedings, there should be proceedings before the A.O. under the Act, and unless there are proceedings, the A.O. cannot take up penalty proceedings independently, even if the said proceedings is independent of the assessment proceedings. Insofar as the case law relied upon by the learned Senior A.R. for the Revenue in the case of Naresh Kumar Vs. ITO (supra), we find that, the facts of the above case are entirely different, because in the above case, the assessee claimed that once the books of accounts were rejected and income was estimated, penalty under Section 271B could not survive. In our considered view, there is no dispute about the findings

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recorded by the Tribunal in the case of Naresh Kumar Vs. ITO (supra), because the A.O. has validly levied penalty under Section 271B for not submitting the audit report under Section 44AB of the Act, in pursuant to valid assessment proceedings completed under the law. In the present case, the assessment proceedings itself is invalid and non-est and, therefore, in the absence of any proceedings under the Act, the penalty levied by the A.O. under Section 271B, for not getting the accounts audited under Section 44AB of the Act, cannot be upheld. Therefore, we are of the considered view that, the penalty levied by the A.O. under Section 271B is not sustainable under the law. Thus, we set aside the order of the Ld. CIT(A) and delete the penalty levied by the A.O. under Section 271B of the Act.

8.

In the result, the appeal filed by the assessee is allowed.

Order pronounced in the Open Court on 14th October, 2026.

Sd/- Sd/- श्री विजय पाल राव (मंजूनाथ जी) (VIJAY PAL RAO) (MANJUNATHA G.) उपाध्यक्ष /VICE PRESIDENT लेखा सदस्य/ACCOUNTANT MEMBER

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Hyderabad, dated 14.10.2026. TYNM/sps आदेशकी प्रतिलिपि अग्रेषित/ Copy of the order forwarded to:- 1. निर्धारिती/The Assessee : GURIJALA JAGADESWARA REDDY, C/O., P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, SOMAJIGUDA, HYDERABAD-500082, TELANGANA 2. राजस्व/ The Revenue : ITO, WARD-17(1), OFFICE OF THE ITO, WARD-17(1), HYDERABAD-, TELANGANA 3. The Principal Commissioner of Income Tax, Hyderabad. 4. विभागीयप्रतिनिधि, आयकर अपीलीय अधिकरण, हैदराबाद / DR, ITAT, Hyderabad 5. गार्डफ़ाईल / Guard file

आदेशानुसार / BY ORDER TIRUPATI YAMINI Digitally signed by TIRUPATI YAMINI NAGA MALLESWARI NAGA Date: 2026.10.15 17:30:39 MALLESWARI +05'30' Senior Private Secretary, ITAT, Hyderabad.

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