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Facts
The assessee, a Cooperative Credit Society, failed to file its income tax return and tax audit report for AY 2017-18 due to the critical illness and subsequent death of its chairman and inaction by its CA. Consequently, the Assessing Officer (AO) made a best judgement assessment and imposed penalties.
Held
The Tribunal held that the penalty order u/s 271B of the Act does not survive because the quantum assessment order, on which it was based, was set aside by the CIT(A). The matter of penalty is restored to the AO for fresh consideration after evaluating the affidavit explaining the delay and the provisions of Section 273B.
Key Issues
Whether the penalty levied under Section 271B of the Act for non-filing of the tax audit report is sustainable when the underlying quantum assessment order has been set aside.
Sections Cited
250, 271B, 80P, 142(1), 139, 144, 69A, 271AAC, 271F, 273B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI RAJ KUMAR CHAUHAN
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the orderof National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as Saraswati Co Op Credit Society Ltd. the “CIT(A)”],passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated 31.01.2025for the A.Y. 2017-18 wherein the penalty imposed u/s 271B of the Act by the Ld.AO vide order dated 04.03.2022 for AY 2017-18 was confirmed.
The brief facts as culled out from proceedings before the authorities below are that the assessee is a Cooperative Credit Society having the business of accepting deposits and lending money to the members of the society. The society does not hold a license from Reserve Bank of India and hence cannot be classified as a co-operative bank, therefore the society is eligible for deduction u/s 80P(2)(a)(i), 80P(2)(d) and 80P(c) of the Act.As per Sec 81 of Maharashtra Co-operative Societies Act, the books of accounts of the society have been audited by Chartered Accountants who are appointed from the panel of Auditors, empanelled and allotted by Registrar of Co-operative Societies Maharashtra. The society has been regularly filing income tax return, but failed to file the income tax return for AY 2017-18 because the chairman Mr. Vikas Bedprakash Pandey was critically ill and expired in year 2018 and the CA Mr. Vijay Dubey who was assigned to file the income tax return and the tax audit report for the concerned year did not do so and no reasons were assigned by him.
As per the information gathered by income tax department on „Actionable Information Monitoring System (AIMS)‟ module of ITBA, it was noticed that the assessee has made a cash deposit of Rs. 59,21,842/- in its bank account with the Mumbai District Central Cooperative Bank Ltd. during the demonetization period. Since the assessee did not file income tax return for AY 2017-18, the said amount remained unexplained or to be taxed. Accordingly, notice u/s 142(1) dated 14.12.2017 was generated in the ITBA system and served upon the assessee. The return for AY 2017-18 was required to be furnished by the assessee on or before 31.03.2018. The assessee failed to file the return u/s 139 of the Act and also failed to furnish income tax return in response to the notice issued u/s 142(1) of the Act. Hence, the AO proceeded for best judgement assessment u/s 144 of the Act through e-proceeding. During the e-proceeding, notice u/s 142(1) was issued and served upon the assessee from time to time. But compliance was made in September 2019. In response to the notice issued u/s 142(1) of the Act, on 13.09.2019, the assessee gave the details of nature of business activity, the details of bank accounts, etc. Show-cause notices were issued on 18.06.2019 and 23.09.2019 asking why the sum of Rs.59,21,842/- should not be added to the total income u/s. 69A of the Act. In response to the show cause notice, the assessee stated that due to some reason, the Saraswati Co Op Credit Society Ltd. return was not filed and the tax audit report was also not filed for A.Y.2017- 18. A final show-cause was issued on 23.11.2019 and thereafter, the assessee filed return of income for A.Y.2017-18 on 09.12.2019. The said return was held invalid having been filed beyond the stipulated time limit allowed by the Acti.e. 31.03.2018. Therefore, the AO considered the total amount of cash deposit and credits received during the year under consideration at Rs. 25,42,84,398/- and treated the same as business income and taxed the same @ 8% estimated profit, thus arrived the taxable income /assessee income at Rs. 2,03,42,752/-. Demand notice for payment of tax on above unexplained income and penalty proceedings u/s 271AAC, 271F and 271B of the Act for not filing the tax audit report were issued separately. The assessee has filed the appeal against the penalty order u/s 271B of the Act dated 04.03.2022 before the Ld. CIT(A) which was dismissed vide impugned order dated 31.01.2025.
Aggrieved by the impugned order, the assessee preferred the appeal before us and has raised the following grounds:-
The Ld. Commissioner of Income Tax (Appeals) has erred in confirming the penalty levied by the Ld. Assessing Officer u/s 271B.
2. Your appellant reserves the rights to add, amend or alter the aforesaid grounds of appeal as they may think fit by themselves or by their representatives. Page | 4 Saraswati Co Op Credit Society Ltd.
We have heard Ld. AR and Ld. DR and examined the record. At the outset, Ld. AR submitted that assessee has failed to file the tax audit report for a justified reasonable cause because the chairman Mr. Ved Prakash Pandey was critically ill and expired in year 2018 and the CA Mr. Vijay Dubey who was appointed by the society to file the income tax return and the tax audit report for the concerned year on time, but the CA did not do so and has failed to file income tax return alongwith tax audit report. However, Ld. AO did not consider the explanation as reasonable cause for not filing the tax audit report on time and did not grant relief to the assessee u/s 273B of the Act.
6. During the arguments, Ld. AR referred the affidavit filed by the assessee on 05.08.2025 before the Tribunal of Mr. Vikash Bedprakash Pandey, Chairman of the Society wherein the entire details and reasons for not filing the return on time has been mentioned. It is stated that the said affidavit be considered and the penalty order passed by the AO and confirmed by the Ld. CIT(A) be set aside. During the arguments, we have asked the Ld. AR as to what has happened to the quantum order whether the same was challenged or not? Ld. AR has submitted a written submission alongwith quantum order and appellate order. In the appeal Saraswati Co Op Credit Society Ltd. against quantum order, the quantum order of the Ld. AO passed u/s 144 of the Act has been set aside by the Ld. CIT(A) and matter restore to Ld. AO for fresh adjudication and the fresh assessment proceedings before the Ld. AO are going on. It is further stated that affidavit filed before the Tribunal explains the reasonable cause which prevented the assessee from filing the tax audit report on time and assessee is entitled to the benefit of section 273B of the Act because the tax audit report was filed during the pendency of the assessment proceedings before the assessment was completed.
Ld. DR on the other hand relied upon the judgment of lower authorities and submitted that the appeal filed by the assessee is liable to be dismissed.
We have considered the rival submission and perused the assessment order as well as appellate order wherein the issue of determination of taxable income which has been estimated @ 8% gross profit on the total receipts /deposits received by the assessee during the relevant year was considered and has been restored to the file of AO. The relevant portion of Ld. CIT(A) order in para no. 8.9.2 to 9.0 is extracted below for ready reference:-
Saraswati Co Op Credit Society Ltd. “8.9.2. I have carefully examined contentions of appellant in the back ground of facts of case. It is noticed that though Ground is raised is against completion of assessment u/s 144 without considering return of income filed on 9-12-2019, in written submissions filed appellant society objected to rejection of books of accounts without citing any reasons in the assessment order. It is noticed that as claimed by appellant, the AO nowhere mentioned any reason for rejection of books of account. The only reason appears to be that appellant failed to file tax audit report till 9-12-2019. Therefore, prior to that whatever profit and loss account, balance sheet filed by appellant are all non audited. It appears that AO did not want to reply on book results of unaudited books of accounts to compute income of appellant society for the year under consideration. However, it remains the fact that appellant society has got its books of accounts audited finally, filed tax audit report on 9-12-2019.Assessment in this case was finalised u/s 144 in view of no valid return on 27-12-2019.
8.9.3 Belated filing of tax audit report may have consequences of levy of penalty etc in the hands of appellant depending upon facts and circumstances of case. But merely since tax audit report is filed belatedly, the same can't be ignored without giving any reasons for the same. It is also incorrect to reject audited books of accounts without pointing specific defects in them. It appears that due to paucity of time, AO could not call for and verify books of accounts of appellant before rejecting books of accounts and estimating the income @ 8% of cash deposits/credits in bank account. It is noticed that AO has not disputed the fact that appellant is credit society who lends loans to members of society. Therefore, entire cash/other credits in bank accounts do not constitute income of appellant society. The AO should have examined nature of each cash deposit or credit before coming to conclusion entire deposits constitute receipts in the hands of appellant. The AO also should have examined whether all transactions in bank account duly reflect in books of account of appellant or not. Hence, the issue of taxable income in hands of appellant for the year is set aside to file of AO who is directed to verify audited books of accounts, relevant Saraswati Co Op Credit Society Ltd. bank accounts and all other relevant documents for the year to arrive at taxable income in the hands of appellant from different sources. Conclusion has already been given above that appellant is not entitled for deduction u/s 80P. The AO needs to compute taxable income for the year in the hands of appellant without allowing deduction u/s 80P.
8.9.4. Following the principle of natural justice, it is only proper that adequate opportunity is given to the appellant to Produce audited books of accounts, financial statements, other documents/information to compute taxable income in the hands of appellant. Therefore, the case of appellant is, therefore, set aside to the Assessing Officer who has to decide the issue afresh according to law after verification of all these material aspects and to re-adjudicate the issue afresh. The AO is free to call for all the relevant information to arrive at taxable income of appellant. Needless to say, reasonable opportunity of being heard shall be provided to the appellant. The appellant is directed to vigilantly assist in the set aside proceedings, failing which the AO would be at liberty to decide the issue in accordance with law.
8.9.5. In the result, the grounds of appeal no 3 of the appellant is allowed.
9. As a result, appeal of appellant is Partly allowed for statistical purposes.”
8. It is thus evident from the above extracts of the order of Ld. CIT(A) in quantum appeal that the question of determination of the total taxable income is pending under consideration before the AO and in the appellate orderby the Ld. CIT(A) against the quantum assessment order on the basis of which penalty order u/s 271B dated 04.03.2022 was passed, has been set aside. Admittedly the penalty order dated 04.03.2022 which was confirmed by the Ld. CIT(A) vide order dated 31.01.2025 was passed on the basis ofthe Page | 8 Saraswati Co Op Credit Society Ltd. total income /assessed income arrived by the original assessment u/s 144 of the Act vide assessment order dated 27.12.2019. The said order qua determination of total income /assessed income has been set aside and the ascertaining of the total income is pending before the jurisdictional AO, therefore the penalty order passed u/s 271B of the Act does not survive.
9. Further the affidavit filed before us for explaining the reasons of justified cause for delay in filing the tax audit report and seeking benefit u/s 273B of the Act, will be considered by the jurisdictional AO who is seized with the matter. Therefore, the matter is restored to the file of AO to decide the question of penalty u/s 271B of the Act afresh, if any need arises. The assessee shall be given effective opportunity of hearing who shall filed the necessary documents including the affidavit placed before us. Resultantly, the grounds raised by the assessee are allowed in above terms.
In the result, appeal filed by the assessee is allowed for statistical purposes.