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Facts
The assessee, engaged in derivative trading, failed to get its books of accounts audited under Section 44AB of the Income Tax Act, 1961, within the prescribed time limit. Consequently, a penalty under Section 271B was imposed. The assessee claimed the audit was completed on time but the e-filing was delayed due to the auditor's negligence.
Held
The Tribunal held that the assessee's claim of auditor's negligence as a reasonable cause for the delayed e-filing of the audit report was not acceptable. The assessee failed to provide this explanation during assessment or penalty proceedings, and the audit report was not even signed by the specified date.
Key Issues
Whether the assessee has a reasonable cause for not furnishing the audit report under Section 44AB of the Income Tax Act, 1961, within the prescribed time limit, and if the penalty under Section 271B is justified.
Sections Cited
271B, 44AB, 273B, 143(3), 144B, 274, 139(1)
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Income Tax Appellate Tribunal, LUCKNOW BENCH “A”, LUCKNOW
PER ANADEE NATH MISSHRA, A.M.: (A). The present appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi dated 27.03.2023 for the assessment year 2018-19. The grounds of appeal of the assessee are as under: -
1. 1. That the Ld. CIT(A) has erred in law and on facts by confirming the penalty u/s 271B of the Income Tax Act, 1961 as imposed by the Ld. Assessing officer, for alleged failure to get its books of account audited u/s 44AB of the Income Tax Act, 1961, stating the same as afterthought without considering the material fact that for the relevant assessment year, the appellant got his books of accounts audited within the extended time as issued by the Central Board for Direct Taxes and only the deficiency of e-filing of Tax Audit Report was done by the CA of the assessee.
2. That the Ld. CIT(A) has erred in law and on facts by confirming the passing of Penalty Order u/s 271B of the Income Tax Act, 1961 by Ld. Assessing Officer, stating nothing prevented the appellant form making this claim during the assessment proceeding or in penalty proceedings ignoring the fact that a fresh claim can be made for the first time before the First Appellate Authority with respect to any claims / deduction. However, in the instant case the said claim was only with respect to e- filing of Audit Report that to when the same was filed by the CA, thus, Page 2 of 8 constituting the reasonable sufficient cause u/s 273B of the Income Tax Act, 1961 and therefore, penalty should have been deleted.
3. That the assessee craves leave to add / alter any of the grounds of appeal on or before the date of hearing.”
(A.1) The appeal is barred by limitation by 38 days. The assessee has filed an application seeking condonation of delay in filing of this appeal. The application for condonation of delay is supported by an affidavit of the assessee. The Ld. Sr. Departmental Representative for Revenue did not express any objection to the delay being condoned. Being satisfied with the reasons sated in application seeking condonation of delay in filing of this appeal; we condone the delay in filing of this appeal and admit the appeal for decision on merits.
(B). In this case, assessment order dated 28.04.2021 was passed by the Assessing Officer passed u/s 143(3) read with section 144B of the Income Tax Act, 1961 (“Act”, for short). Separately, penalty proceedings u/s 271B of the Act were also initiated by the Assessing Officer. Vide order dated 11.01.2022 passed, u/s 271B of the Act, penalty of an amount of Rs.1,50,000/- was imposed by the Assessing Officer holding that the assessee had failed to comply with the provisions of Section 44AB of the Act in terms of getting his books of account audited within the time limit, which attracted penalty u/s 271B of the Act. The relevant portion of the aforesaid order dated 11.01.2022 passed u/s 271B of the Act is reproduced as under:
“2. During the assessment proceedings, as per the Form 10DB, the value of the sales transaction performed during the financial year FY 2017-18 is Rs.43,60,67,303/-. The sale of Future & Options as per Form 10DB is Rs.43,60,67,303/-. The assessee paid Securities Transaction Tax of Rs.2,18,033/on the same. From the ITR of the assessee, it was seen that the assessee has shown sales of Rs.11,28,55,157/-. Also, from the ledger account of the assessee with the Stock Broking Firm, it was seen that the assessee had deposited Rs.3,44,10,000/- into his trading account during Page 3 of 8 the FY 2017-18. The assessee also showed income of the Rs.12,00,000/- under Income from other sources. The assessee replied that the details of the sale of Rs.43,60,67,303/has been Sought for from the stock broker Sharekhan Ltd and will be submitted once it is received, Regarding the sales figures of Rs.11,28,55,157/-, the assessee furnished that it was the sum of all positive and negative trades during the year. No reconciliation was furnished by that assessee for the difference in sales figure between Form 10DB and the ITR. The difference in the sales between Form 10DB and the ITR (Rs.43,60,67,303 - Rs.11,28,55,157, Rs.32,32,12,146/- is added to the Income of the assessee for the suppression of Sales turnover. Since, no reconciliation or satisfactory explanation was provided by the assessee the difference is added to the Income of the assessee. The assessment has been finalized on 28/04/2021 and the assessee has failed to get his account audited as per the provisions of Section 44AB of the Income-tax Act,1961. Therefore, penalty proceedings are being initiated separately under 271B of the Income-tax Act, 1961.
Therefore as per provisions of Section 44AB of the I.T. Act, 1961 the assessee was liable to 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 ang verified by such accountant and setting forth such particulars as may be prescribed, However, in the instant case, the assessee has neither get books of accounts audited nor produced any evidence or document on or before the specified date and also failed to file his return of income in time.
Section 44AB of the I.T. Act, 1961 provides as under: “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........ 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.”
As stated above since the assessee has failed to comply with provisions of section 44AB, a show cause notice u/s.274 r.w.s. 271B of the Act was issued to the assessee on 8/04/2021 and assessee was required to show cause as why an order imposing a penalty should not be made under section 271B of the Income Tax Act, 1961. In response to above notice the assessee did not file any reply. Therefore, to grant assessee another opportunity, show cause notice u/s.271B of the Act was issued on 7/2021. In response to the said notice, the assessee has filed its reply and stated that 1e has filed appeal before the CIT(A) and also requested to keep penalty proceedings in abeyance till decision of CIT(A). The reply of the assessee considered but found to be acceptable in view of the provisions of the Act. Thus, the assessee has failed to furnish any reasonable cause of failing to comply with the provisions of section 44AB of the I.T. Act.
In view of above facts, it is clear that the assessee has failed to comply with the provisions of section 44AB of the I. T. Act, 1961 in terms of getting Page 4 of 8 his books of accounts audited within time limit. Thus, the assessee has committed default in terms of provisions of Section 44AB r.w.s. 271B of the I.T. Act 1961. Therefore, I am satisfied that this is a fit case for the levy of penalty.”
As per provisions of Section 271B of the I.T. Act, penalty for above default shall be a sum equal to one-half percent of the total sales, turnover or gross receipts, as the case may be in the business, or a sum of one hundred fifty thousand rupees, whichever is less.” (B.1) The assessee’s appeal against the aforesaid order dated 27.03.2023 was dismissed by the Ld. CIT(A). The relevant portion of the impugned order of the Ld. CIT(A) is reproduced as under: - “5.1 Brief facts of the case are that during the relevant year the appellant had undertaken business of transactions in derivatives in options. During the financial year 2017-18, the total sales as per Form 10 DB issued by his broker M/s Sharekhan Limited was Rs 43,60,67,303/-. The appellant had been charged Securities Transaction Tax of Rs 2,18,033/-, at the rate of 0.05% of the sales. However, the appellant had not filed the Audit Report under Section 44AB of the Act. The case was selected for scrutiny on this ground. During the assessment proceedings, the Assessing Officer observed that the appellant had shown sales of Rs 11,28,55,157/-. it was stated by the appellant that the turnover declared was sum of all positive and negative trades during the year, following accounting practice. While completing the assessment, the Assessing Officer also initiated penalty proceedings under section 271B of the Act for failure by the appellant to get his accounts audited in accordance with provisions of section 44AB of the Act. Subsequently, the Assessing Officer has imposed the penalty amounting to Rs. 1,50,000/under section 271B of the Act. Aggrieved, the appellant has filed the present appeal. 5.2.1 Ground 1: The appellant has claimed that he was not given sufficient opportunity of being heard before passing of the penalty order. The appellant had requested the Assessing Officer to keep the penalty proceeding in abeyance till disposal of the quantum appeal. However, the AO has chosen to pass the penalty order. 5.2.2 The penalty under section 271B of the Act for not getting the accounts audited under section 44 AB is not directly linked with the quantum appeal. The Assessing officer has taken the turnover based on form 10DB issued by the share broker, according to which the turnover(sales) of the appellant was Rs 43,60,67,303/-. On the other hand, as per the appellant the turnover in case of speculative transaction such as derivative trading in options would be the net amount receivable or payable on different sets of transactions (purchases and sales). The magnitude of such transactions, without netting of profit and loss, was claimed to be Rs. 11,28,55,157/-. The net loss had been stated to be Rs. 1,05,30,925/-. In any case, the total value of transactions/turn over exceeded Rs 1,00,00,000/-, the threshold prescribed under section 44AB of the Act. Hence, the Assessing Officer was correct in holding that the appellant was required to file Audit Report under Section 44AB of the Act.
Page 5 of 8 5.3.1 Ground 2: The appellant has claimed that the AO had not issued a draft order before imposing the penalty, as stipulated by the Notification SO 118 (E), dated 12.01.2021 of the Finance Ministry. 5.3.2 It is seen That the appellant had not filed any reply in response to the penalty notice issued by the Assessing Officer. On the subsequent issue of notice by the A O, the appellant had requested to keep the proceeding in abeyance. Hence, the question of issuance of a draft penalty order did not arise. The AO has clearly mentioned in the order that the appellant failed to furnish any reasonable cause for failure to comply with the provision of section 44 AB of the Act. Hence, this ground is rejected. 5.4.1. Ground 3 and Ground 4: The appellant has claimed that he had got his accounts audited within the extended time allowed by CBDT. He has further claimed that delay in e-filing of the Audit Report was due to mistake of the Auditor which is a reasonable cause and covered under Section 273B of the Act. 5.4.2 The appellant has claimed that the books of accounts were duly audited on 31.10.2018. This date has been mentioned on the financial statements of the appellant. However, the Chartered Accountant did not e- file the Audit Report. The penalty was imposed on 11.01.2022. The Audit Report was e-filed on 27.01.2022, Prior to filing of the appeal. 5.4.3 It is observed that no such claim had been made by the appellant before the AO during assessment proceeding or the penalty proceeding. However, during the appellate proceeding, the appellant has furnished copy of the e-filed Audit Report showing that the Audit had been conducted on 31.10.2018. 5.4.4 The appellant has stated that due to negligence of the Auditor, the Audit Report had not been e-filed within the specified date. It was claimed that subsequently, he had pursued and got the Audit Report e-filed. He has relied upon Various judicial decisions to support his claim seeking benefit of section 273B of the Act, that there was reasonable cause for not being able to get the accounts audited. 5.4.5 I have carefully considered the contention of the appellant. He has claimed that the Books of Accounts had been duly audited on 31.10.2018 in accordance with the provisions of Section 44AB of the Act and this date is mentioned in the financials. So far as the claim that it could not be e- filed due to negligence of the Auditor can not be Proved. Although it has been claimed that the accounts of the relevant year have of been audited within the extended time, nothing prevented the appellant from making this claim during the assessment proceeding or in the penalty proceeding. This claim has been made only during the appellate proceeding. Hence. This claim appears to be an afterthought, particularly as the Audit Report has been e-filed only after imposition of the penalty and prior to the filing of the appeal. The Income Tax Act stipulates that the accounts should be audited and also the Audit Report is e-filed within specified due date. The audit report is expected to be available to the Assessing Officer during the assessment proceeding. However, in this case neither the Audit Report was filed prior to completion of the assessment, the appellant even did not mention before the AO that his books had been Audited and the Auditor had not e-filed the Audit Report. This defeated the very purpose of the Audit and prevented the Assessing Officer from referring to the Audit Report before finalizing the assessment order. Due to this the Assessing Page 6 of 8 Officer initiated the penalty proceeding u/s 271B of the Act. The appellant did not give this explanation during the penalty proceeding as well. In these circumstances, there is no mistake in the action of the Assessing Officer in passing the penalty order under section 271B of the Act. The plea regarding this failure by the appellant falling under reasonable cause under section 273B of the Act had not been taken by the appellant during the assessment proceeding or penalty proceeding. Hence, the claim during the appellate proceeding that the delay in filing of the Audit Report beyond the specified date was due to 4 reasonable cause covered under Section 273B of the Act is not acceptable, particularly in view of the facts narrated. Because of this, the ratio of the judicial decisions relied upon by the appellant are also not acceptable. Hence, the penalty imposed by the assessing Officer under section 271B of the Act is confirmed. This ground is rejected.” (B.1.1) The present appeal has been filed by the assessee in Income Tax Appellate Tribunal (ITAT) against the aforesaid impugned appellate order dated 27.03.2023 of the Ld. CIT(A).
(B.1.2) In the course of appellate proceedings in ITAT, the assessee filed a paper book containing the following particulars: - 12 The Hon’ble High Court of Allahabad Commissioner of Income-tax, Lucknow v Jagat Rice Mills (2006) 150 Taxman 5 (Allahbaad)/(2005) 95 TTJ 398 (All) 13 Copy of Power of Attorney of Moqeetur Rehman Khan (B.2) At the time of hearing on 05.08.2025, the assessee was represented by none. Earlier hearings fixed on 18.10.203, 05.01.2024, 05.03.204, 12.12.2024, 18.03.2025 and 03.04.2025 Page 7 of 8 were adjourned at the request from the assessee’s side. Further, there was no representation from the assessee’s side, at the time of hearing fixed on 19.12.2024 and 03.02.2025. In the absence of any representation from the assessee’s side, the Ld. Sr. Departmental Representative (“DR”, for short) for Revenue was heard. The Ld. Departmental Representative relied on the orders passed by the Assessing Officer as well as the Ld. CIT(A). On perusal of the impugned order of the Ld. CIT(A), it is found that the assessee claimed during the appellate proceedings in the office of the Ld. CIT(A) that the assessee had claimed that books of accounts had duly been audited as on 31.10.2018 in accordance with the provisions of Section 44AB of the Act, but that it could not be e-filed due to negligence of the auditor. However, the assessee did not take this plea during the assessment proceedings or during the penalty proceedings u/s 271B of the Act. The Ld. CIT(A) treated this as an afterthought. The Ld. CIT(A) has dealt with the contention of the assessee in an elaborate manner in the impugned order dated 27.03.2023, the relevant portion of which has already been reproduced in the foregoing paragraph no. (B.1) of this order. Moreover, on perusal of the paper book from the assessee’s side [referred to foregoing paragraph no. (B.1.2) of this order], it is found at page no. 113 of the paper book that the audit report was digitally signed by the Chartered Accountant (Mr. Suyash Somnath Kapur) on 27.01.2022; which is beyond the time limit prescribed under section 44AB requires that the audit report should be duly signed and verified by the accountant by the specified date [date one month prior to the due date for furnishing the return of income u/s 139(1) of the Act]. The assessee is clearly in default of the requirements of Section 44AB of the Act, which attracts penalty Page 8 of 8 u/s 271B of the Act. The only Explanation for delay adduced by assessee is that audit was done within the due date but could not be e-filed due to the negligence of the auditor. In the specific facts and circumstances of the present case before us, this is not a reasonable cause within the meaning of Section 273B of the Act, as audit report was not even signed by the specified date prescribed u/s 44AB of the Act as discussed above. In view of the foregoing, the penalty levied u/s 271B of the Act is confirmed.
(E). In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on 12/08/2025.