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Facts
The Assessing Officer reopened assessments for multiple years based on non-compliance with Section 11(2) of the Income Tax Act, leading to denial of exemption and treating the assessee as a business concern. Consequently, penalties under Section 271B were levied for not filing the tax audit report under Section 44AB.
Held
The Tribunal noted that the reopening of the assessment itself had been quashed by a co-ordinate bench. As the foundation for the penalty (the reassessment) was abolished, the penalties levied were also quashed.
Key Issues
Whether penalties under Section 271B are sustainable when the order of reassessment, which formed the basis for the penalty, has been quashed.
Sections Cited
11(2), 147, 44AB, 271B, 12A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI BR BASKARAN & SHRI NARENDER KUMAR CHOUDHRY
All these appeals are directed against the orders dated 18-12- 2024, 20-12-2024, 27-12-2024 and 01-01-2025 {related to the assessment years 2012-13 to 2017-18} passed by the Commissioner of Income-tax (Appeals) {in short Ld. Commissioner} confirming the penalty levied by the Assessing Officer (AO) u/s 271B of the Income Tax Act 1961 {in short ‘Act’} for not filing tax audit report requires to be filed u/s 44AB of the Act.
Shri Nitesh Joshi, the Ld. Counsel for the Assessee has submitted that the AO has reopened the assessment u/s 147 of the Act for the reason that the Assessee did not comply with the provisions of section 11(2) of the Act for accumulation of income and hence there was an escapement of income. The AO completed the assessments of these years denying exemption u/s 11 of the Act. Since the Assessee was denied exemption u/s 11 of the Act, the AO took the view that the Assessee should be treated as a business concern and since the gross receipts of the Assessee exceeded the limit prescribed u/s 44AB of the Act, the Assessee should have got its accounts audited u/s 44AB of the Act and should have filed audit report. Since the Assessee did not file the audit report, the AO initiated penalty proceedings u/s 271B of the Act for all the years under consideration and levied penalty of Rs.1,50,000/- for each of the year and on appeal the Ld. CIT(A) confirmed the same.
Ld. Counsel Mr. Joshi, further submitted that the Assessee had challenged the validity of reopening of the assessments before the Ld. CIT(A) and on failing, before the ITAT who vide its order dated 25.10.2024 passed in quantum appeals i.e. to 1479/M/2024 has quashed the reopening of the assessment. Mr. Joshi further submitted that the Assessee is registered u/s 12A of the Act and the said registration has not been cancelled so far, hence, there is no scope for the AO to treat the Assessee as a business concern. Even otherwise, the Tribunal has since quashed the reopening of the assessment and therefore the foundation on which the impugned penalties have been levied, have fallen to the ground and thus the impugned penalties are liable to be cancelled in all the years.
The Ld. D.R. on the contrary supported the orders passed by the authorities below.
We have heard the rival contentions and perused the records.
We notice that the AO has initiated penalty proceedings u/s 271B of the Act in the course of reassessment proceedings initiated u/s 147 of the Act on the ground that the Assessee has not accumulated funds as per section 11(2) of the Act and hence there is escapement of income. In that process, the AO denied the exemption claimed u/s 11 of the Act and also treated the Assessee as a business concern. Since the turnover of the Assessee exceeded the limit prescribed u/s 44AB of the Act, the AO also taken the view that the Assessee should have filed tax audit report u/s 44AB of the Act.
We notice that the reopening of the assessment and in pursuance to the Assessment order, has since been quashed by the co-ordinate Bench of the Tribunal in the quantum appeals referred to above ; hence the view taken by the AO that the Assessee is a business concern, would not survive anymore. Since the foundation on which the impugned penalty has been levied, is abolished thus penalty levied would also collapse. Thus, the penalty orders passed by the AO are quashed and consequently the orders passed by the Ld. CIT(A) in all the years under consideration are set aside by allowing appeals of the Assessee.
In the result, all the appeals of the Assessee are allowed. Order pronounced in the open court on 18.03.2025.