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Facts
The assessee, Shri Naresh Kumar, failed to file his income tax return under section 139(1) for AY 2013-14. Based on AIR information of cash deposits, his case was reopened. The Assessing Officer (AO) rejected the books of account and computed income based on a deemed profit rate. Subsequently, penalty proceedings under section 271B were initiated for failure to get accounts audited within the stipulated time.
Held
The Tribunal held that the obligation to obtain and furnish a tax audit report under section 44AB is mandatory and arises from the business turnover, independent of income determination. The rejection of books of accounts does not nullify this obligation. The assessee's claim of illness was not supported by evidence, and therefore, not a reasonable cause to waive the penalty.
Key Issues
Whether penalty under section 271B is leviable for failure to obtain and furnish a tax audit report within the due date, even if books of account are rejected, and if illness without evidence constitutes a reasonable cause for condonation.
Sections Cited
139(1), 147, 148, 145, 143(3), 80C, 271B, 274, 44AB, 273B, 139(4), 44AA, 92E, 44AE, 44BB, 44BBB, 44ADA, 44AD, 44B, 44BBA, 288
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Income Tax Appellate Tribunal, Hyderabad ‘SM’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M. : This appeal is filed by Shri Naresh Kumar (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), dated 17.01.2025 for the A.Y. 2013-14. 2. At the outset, it is seen that, there is a delay of 10 days in filing of this appeal for which the assessee has filed a condonation petition along with affidavit explaining the reasons for such delay. After considering the contents of the condonation petition and after hearing the Learned Department Representative (“Ld. DR”), the delay of 10 days in filing of this appeal is condoned and the appeal is admitted for adjudication. 3. The assessee has raised the following grounds of appeal :
The brief facts of the case are that, the assessee is an individual who had not filed any return of income under section 139(1) of the Income Tax Act, 1961 (“the Act”). Based on AIR information, the Learned Assessing Officer (“Ld. AO”) noticed that the assessee had deposited cash to the tune of Rs.1,00,10,000/- in his bank account during the assessment year 2013–14. Accordingly, the case of the assessee was reopened under section 147 of the Act and notice under section 148 of the Act was issued to the assessee on 21.06.2016. After considering the submissions of the assessee, the Ld. AO rejected the books of account under section 145 of the Act and computed the net profit at the rate of 3% on the total turnover of Rs.2,53,63,877/- , arriving at net profit of Rs.7,60,916/-. After allowing deduction under section 80C of the Act of Rs.35,355/-, the total income was determined at Rs.7,25,561/- by order dated 27.12.2017 under section 143(3) read with section 147 of the Act.
Subsequently, the Ld. AO also initiated penalty proceedings under section 271B of the Act for failure on the part of the assessee to get accounts audited within the stipulated time. After issuing notice under section 274 read with section 271B of the Act and considering the assessee’s reply, the Ld. AO levied a penalty of Rs.1,26,819/- on the assessee under section 271B of the Act, vide his order dated 26.06.2018.
Aggrieved with the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A), who dismissed the appeal and confirmed the penalty. The observations of the Ld. CIT(A) are found at para nos. 4.3.1 and 4.3.2 of his order which is to the following effect :
Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before the Tribunal. The Ld. AR submitted that the penalty under section 271B of the Act is unsustainable for two reasons i.e. (i) Once the books of account are rejected under section 145 of the Act and income is estimated, the very basis for audit ceases, and therefore penalty under section 271B of the Act cannot be levied and (ii) Without prejudice, the assessee could not obtain the audit report within the specified due date due to illness of the assessee, however, the tax audit report in Form Nos. 3CB and 3CD was subsequently filed during the assessment proceedings before the Ld. AO. In support of these contentions, reliance was placed on (i) Naveen Kumar Kaparthy Vs. ITO (ITA Nos. 1659 & 1660/Hyd/2017, order dated 23.10.2019 – ITAT Hyderabad) and (ii) Jigneshbhai Rasikbhai Savalia Vs. ITO [2023] 149 taxmann.com 276 (ITAT Surat). Finally, the Ld. AR prayed before the bench to delete the penalty levied by the Ld. AO.
The Ld. DR supported the orders of the lower authorities. He distinguished the cases relied upon by the assessee as follows: i) In Naveen Kumar Kaparthy Vs. ITO (supra), the AO had accepted that the assessee had not maintained any books of account at all. In the present case, the assessee had maintained books of account, and therefore the statutory obligation to get the same audited under section 44AB of the Act continued to apply; the fact that the books were later rejected under section 145 of the Act does not remove this obligation.
ii) In Jigneshbhai Rasikbhai Savalia Vs. ITO (supra), the assessee had obtained the audit report before the specified due date and filed it along with the return of income within the period permitted under section 139(4) for belated returns. In the present case, the assessee neither obtained the audit report before the due date nor filed it voluntarily within the belated return period.
The Ld. DR further submitted that the assessee’s stated reason of illness for delay in obtaining the audit report was unsupported by any evidence, such as medical records or hospital documents. He also referred to CBDT Notification dated 11.06.2013 mandating electronic filing of the audit report before the due date and pointed out that no acknowledgement of e- filing of the audit report had been produced by the assessee. Accordingly, the Ld. DR submitted that, there is no infirmity in the order of the lower authorities and hence, the appeal of the assessee is liable to be dismissed.
We have considered the rival submissions, examined the paper book and relevant records, and carefully perused the judicial precedents cited by both sides. On the factual aspect, we find that the assessee has placed on record only a single page of the audited financial statement placed at page no.26 of the paper book, which is to the following effect :
On perusal of above, we find that, surprisingly, the above audited financial statements does not bear any date. Hence, the date on which the financial statements are audited are not known. We have also gone through the “Audit Information” in ITR-4 placed at page no. 2 of the paper book, which is to the following effect :
On perusal of above, we find that, the “Audit Information” in ITR-4 contains no details of the date of the audit report, date of furnishing of the audit report, or particulars of the auditor. However, the assessee has stated “N” , which means that the assessee is not liable for audit under section 44AB of the Act. It also confirms that the assessee had not get his books of accounts audited till the date of filing of his return of income. We have also gone through the copy of tax audit report in Form No. 3CB (page no.27 of the paper book) and 3CD (page nos. 27 to 35 of the paper book), which are dated 26.12.2017.On perusal of this document, it is once again confirms that the assessee did not get his books of accounts audited neither before the due date specified under section 44AB of the Act nor before the date of filing of his return of income. Although the CBDT Notification dated 11.06.2013 mandates e-filing of the audit report before the due date, no acknowledgement or any other evidence of such e-filing has been produced before us. While it is therefore unclear whether any e-filing took place, what is clear from the record is that the audit report was obtained and filed well beyond the due date for even a belated return under section 139(4).
It is crucial to go through the provisions of section 44AB and section 271B of the Act to examine the statutory mandate in this regard, which are reproduced as under : “ Audit of accounts of certain persons carrying on business or profession. 44AB. Every person,— (a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year :
Provided that in the case of a person whose—
(a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount; and (b) aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment, (b) this clause shall have effect as if for the words "one crore rupees", the words "ten crore rupees" had been substituted:
Provided further that for the purposes of this clause, the payment or receipt, as the case may be, by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt, as the case may be, in cash; or carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or (c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or (d) carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or (e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed : [Provided that this section shall not apply to a person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA:] Provided further that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later : Provided also that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section. Explanation.—For the purposes of this section,—
(i) "accountant" shall have the same meaning as in the Explanation below sub- section (2) of section 288;
(ii) "specified date", in relation to the accounts of the assessee of the previous year relevant to an assessment year, means date one month prior to the due date for furnishing the return of income under sub-section (1) of section 139.”
Failure to get accounts audited. 271B. If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred fifty thousand rupees, whichever is less.
On perusal of above, we found that section 44AB of the Act provides that every person carrying on business shall, if the total sales, turnover or gross receipts exceed the prescribed limit, get his accounts audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form. Further, section 271B of the Act provides that where any person fails to get such accounts audited or to furnish the report as required under section 44AB of the Act, the Assessing Officer may direct that such person shall pay by way of penalty a sum equal to one-half per cent of the total sales, turnover or gross receipts, subject to the prescribed maximum. Hence, it is evident that as per the mandate of the Act, the assessee was required to obtain the tax audit report as well as file the same with the department before the specified due date under section 139(1). However, in this case, the assessee has neither obtained the audit report nor filed the same before the revenue within the specified due date. In addition, it is also not established from the evidence placed by the assessee whether the audit report was uploaded on the portal of the department at all. Even if the date of Form no.3CB i.e. 26.12.2017 is treated as the date of uploading of the audit report on the portal of the department, then also it is beyond all the prescribed limits.
As regards the explanation of illness, we agree with the submission of the Ld. DR that no supporting evidence has been furnished by the assessee. No medical certificates, prescriptions, or hospital records are available on record to substantiate the claim. A bald assertion of illness, without corroboration, cannot be accepted as a “reasonable cause” under section 273B of the Act.
On the legal plea that once the books are rejected under section 145 of the Act and income is estimated, penalty under section 271B of the Act cannot be levied, we find no merit. Section 271B of the Act contains no such exception, nor has the assessee cited any binding precedent to that effect. The statutory obligation to obtain and furnish an audit report under section 44AB of the Act arises from the turnover of the business and exists independently of the manner in which the Ld. AO ultimately determines income. Rejection of books during assessment proceedings does not retrospectively nullify the obligation to comply with section 44AB of the Act within the prescribed time.
Further, we are in agreement with the submissions of the Ld. DR distinguishing both the case laws relied upon by the assessee: i) In Naveen Kumar Kaparthy Vs. ITO (supra), there was complete absence of books of account, which is not the case here. ii) In Jigneshbhai Rasikbhai Savalia Vs. ITO (supra), the audit report was obtained and filed within the time permitted under section 139(4), which again is not the factual position here.