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Facts
The assessee reported a property value lower than the stamp duty valuation, leading the Assessing Officer (AO) to conclude that the assessee, engaged in trading, was required to get its accounts audited under Section 44AB. For non-compliance, the AO imposed a penalty under Section 271B, which was subsequently sustained by the CIT(A). The assessee contended that the investment was not part of business activity and receipts were capital in nature.
Held
The Tribunal held that the Assessing Officer failed to establish that the property transaction was part of the assessee's business activity, thus Section 44AB could not be mechanically applied. Citing Section 273B, the Tribunal found the assessee's bona fide belief that the receipts were capital in nature constituted reasonable cause, rendering the penalty under Section 271B unjustified.
Key Issues
Whether the penalty imposed under Section 271B for non-compliance with Section 44AB was justified, considering the nature of the property transaction and the assessee's bona fide belief as reasonable cause under Section 273B.
Sections Cited
250, 44AB, 274, 271B, 273B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH KOLKATA
(�नधा�रण वष� / Assessment Year: 2015-16) Lakshmi Sadho Commercial Pvt. Vs ITO, Ward-10(2), Kolkata Ltd. 134, Ashutosh Mukherjee Road, Kol-25. PAN No. : AABCL6120C (अपीलाथ� /Appellant) .. (��यथ� / Respondent) �नधा�रती क� ओर से /Assessee by : Shri Rajkumar Agarwal, AR राज�व क� ओर से /Revenue by : Shri Manoj Kr. Patil, JCIT, Sr. DR सुनवाई क� तार�ख / Date of Hearing : 10/09/2025 घोषणा क� तार�ख/Date of Pronouncement : 08/12/2025 आदेश / O R D E R
PER SONJOY SARMA, JM :
This appeal by the assessee arises against the order dated 22.01.2025 of the National Faceless Appeal Centre (hereinafter referred to as the ‘CIT(A)’) passed under section 250 of the Income- tax Act, 1961 (the ‘Act’).
Brief fact of the case are that during the course of assessment proceedings, it was noticed that the assessee had shown a property valued at ₹1,35,95,500, whereas the fair market value was determined at ₹1,47,77,500 for the purpose of stamp duty. In the return of income, the assessee had declared the nature of business as trading under code 204. Based on this declaration, the Assessing Officer held that the assessee was required to get its accounts audited as per section 44AB of the Act. The Assessing Officer issued notice under section 274 r.w.s.
Lakshmi Sadho Commercial Pvt. Ltd. 271B. In response, the assessee submitted that the investment in property did not pertain to business activity and therefore the provisions of section 44AB were not applicable. The assessee stated that the receipts were not business receipts and hence no audit was required. However, the Assessing Officer rejected the explanation and imposed a penalty of ₹67,977, being 0.5% of the sale value as per the assessee’s books, for non-compliance with section 44AB of the Act.
Aggrieved by the order of penalty order assessee went in appeal before ld. CIT (A) where the appeal of the assessee was dismissed by sustaining the penalty order.
Dissatisfied with the order of the Ld. CIT(A), assessee is before this Tribunal, the assessee contended that the penalty imposed is bad in law because the receipts against the property were not during the course of business and therefore section 44AB of the Act could not be invoked. Even assuming the receipts were business receipts, the assessee was under a bona fide belief that such receipts were capital in nature. Besides that where constitutes reasonable cause within the meaning of section 273B of the Act, no penalty could be levied.
On the other hand, the learned DR supported the orders of the lower authorities.
We have heard the rival submissions and perused the material on record. The penalty under section 271B of the Act has been levied solely for alleged violation of section 44AB of the Act. At the outset, we note that the Assessing Officer has not rejected the books of account, nor has he brought any adverse material to show that the assessee was engaged in business activity with Lakshmi Sadho Commercial Pvt. Ltd. respect to the impugned property transaction. In such circumstances, section 44AB of the Act cannot be mechanically applied. Further, section 273B of the Act provides that no penalty shall be imposed if the assessee proves that there was a reasonable cause for the default. In the present case, whether the receipts constitute business income or capital receipts is itself debatable. The assessee’s bona fide belief that the receipts were not business receipts constitutes a reasonable cause within the meaning of section 273B of the Act. Therefore, in our considered view, the penalty levied under section 271B of the Act is not justified. Accordingly, we set aside the penalty imposed under section 271B of the Act and grant relief to the assessee.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 08/12/2025.