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Facts
The assessee, an individual engaged in wholesale trading of agricultural goods, failed to file his income tax return for AY 2013-14 and did not get his books of accounts audited under Section 44AB, despite having significant cash deposits. He later filed a return in response to a Section 148 notice, explaining that his father, who managed his accounts, fell ill and passed away, causing a delay in completing the books and audit.
Held
The Tribunal held that there was a reasonable cause for the delay in getting the accounts audited and filing the report, as the assessee's father, who handled the accounts, was ill and subsequently died. Since the audit report was submitted before the assessment was finalized and the returned income was accepted without variation, there was no revenue loss, making the default technical and venial. Therefore, the penalty levied under Section 271B was deleted.
Key Issues
Whether the assessee had a reasonable cause for the delay in getting his books of accounts audited and filing the audit report, and if the penalty under Section 271B was justified given the circumstances and no loss to revenue.
Sections Cited
Section 271B, Section 44AB, Section 148, Section 143(2), Section 139(1)
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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI & DR. DINESH MOHAN SINHA
Appellant by : Shri Vimal Desai, Ld. A.R. Respondent by : Shri Abhimanyu Singh Yadav, Ld. Sr. DR Date of Hearing : 27/11/2025 Date of Pronouncement : 30/01/2026 आदेश / ORDER Per Dr. Dinesh Mohan Sinha, JM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY)-2013-14, is directed against the order passed by the Commissioner of Income Tax [(in short “Ld.CIT(A)”] vide order dated 08.05.2025, which in turn assessment order passed by Income Tax Department/Assessing Officer under section 271B of the Income Tax Act, 1961 (in short “the Act”), vide order dated 28.09.2022.
Grounds of appeal
raised by the assessee are as follows: “1. The Penalty order u/s/ 271B of the Act is bad in law.
2. The Learned Assessing Officer has erred in law as well as on facts in levying the penalty of Rs.1,50,000/- u/s. 271B of the Act. The Ld.CIT(A) has erred in law as well as on facts in confirming the same. ”
Brief facts of the case are that the appellant is an individual and did not filed his return of income for the AY 2013-14. The appellant had deposited cash of Rs.7,77,78,002/- in a Saving Bank Account and deposited cash aggregating to Rs.6,24,38,002/- with a banking company during the AY 2013-14, no return of income was filed by the appellant. Sources of cash deposited into bank(s) remained unexplained. During the course of assessment proceedings, notice u/s. 148 of the Act was issued on 31/03/2021 and served upon the appellant. In compliance thereto, the appellant filed return of income on 31/05/2021 declaring income of Rs. 1,95,370/-. The statutory notice u/s 143(2) of the Act were issued. The submission made by the appellant that the assessee was engaged in wholesale trading business of agricultural goods and also earned some interest income on savings bank deposit, recurring deposit and dividend income. The appellant contended that as the income was below the maximum amount not chargeable to tax, no return of income had been filed. In support of sources of cash deposited into bank, the appellant also furnished copy of (i) purchase as well as sales ledger; (ii) cash book; (iii) all bank statements; (iv) trade license; (v) 3CD alongwith Profit & Loss A/c. During the course penalty proceedings, in response to the show cause notice, the appellant had filed his submission but the contention of the appellant was not accepted by the Ld. AO. The AO of the view that the appellant was required to be audited his books of accounts u/s 44AB of the Act, however as the appellant failed to do so, the Ld. AO levied the penalty of Rs. 150000/- u/s 271B of the Act.
That the assessee filed an appeal against the Assessment order dated 28.09.2022. That the Ld.CIT(A) dismissed the appeal of the assessee, observing as follows: “I have carefully examined the penalty order u/s. 271B of the Income Tax Act, written submissions of the appellant, Income Tax Return and related judicial rulings on the subject matter.
The Appellant had deposited cash of Rs.7,77,78,002/- in a Saving Bank account and deposited cash aggregating to Rs.6,24,38,002/- with a banking company during the AY 2013-14. The appellant filed return of income on 31/05/2021 declaring income of Rs. 1,95,370/- in response to notice u/s 148 of the Act. Appellant submitted that it was engaged in wholesale trading business of agricultural goods and also earned some interest income. Appellant submitted copy of (i) purchase & sales ledger, (ii) cash book; (iii) all bank statements: (iv) trade license; (v) 3CD alongwith Profit & Loss A/c. AO was of the view that the appellant was required to audit his books of accounts u/s 44AB of the Act, and as the appellant had failed to do so, AO levied the penalty of Rs. 150000/- u/s 271B of the Act. The appellant submitted that he was proprietor of M/s Samta Traders, and he was not conversant with the accounts and taxation aspects and therefore, the appellant's father was handling these matters on behalf of the appellant. He submitted that in the year under consideration, his father fell sick and eventually died on 26.11.2017. In view of sickness of his father, the appellant could not get the books of accounts ready in time and hence, the audit report could not be submitted in time. Appellant submitted that there was reasonable cause for failure and that the default was only technical in nature since the A.O. had accepted the ITR in the reassessment proceedings. In VC appellant submitted that if books of accounts are not maintained then penalty for non audit cannot be levied. He relied on a jurisdictional Rajkot ITAT order. Beside this argument he reiterated earlier submission that as there is no revenue loss so non compliance is technical breach, assessee was layman and father maintained books who was unwell and died in 2017 and he pointed out that AO mentioned in order assessee died whereas assessee father died so non application of mind by AO Appellant argument that since there is no revenue loss as ITR was accepted in reassessment proceedings is not acceptable as the penalty u/s 271B is for the procedure of non audit of books of accounts. Further the decision referred in VC is not applicable to the case of the appellant as appellant had submitted copy of (i) purchase & sales ledger, (ii) cash book; (iii) all bank statements; (iv) trade license; (v) 3CD along with Profit & Loss A/c. It means it is not a case where appellant had not Regarding the fact that AO has made a mistake in observing that appellant has died maintained the books. Hence this reasoning of appellant is also not acceptable instead of his father it is true that AO had made the mistake. The question is that des this mistake makes the entire order perverse as non application of mind by AO. I am of the view that though the mistake by AO is grave it does not make the order perverse as can be seen from various other observations made by the AO. AO had analyzed that it is not a case where appellant had not maintained the books. AO had noted that appellant had submitted copy of (i) purchase & sales ledger; (ii) cash book; (iii) all bank statements; (iv) trade license; (v) 3CD along with Profit & Loss A/c. AO had also noted that the turnover of the appellant is exceeding the maximum limits for auditing their books of accounts u/s 44AB of the Act. Hence in view of above discussion the penalty imposed by AO is sustained. Accordingly, this ground of appeal is dismissed.”
During the course of hearing, the Ld. AR submitted that the father of the assessee was looking after the taxation matter who died on 26.11.2017. That the assessee has no knowledge and the assessee could not comply with the notices immediately issued by the Department. That the Ld. AR prayed that one more opportunity may kindly be given to the assessee to explain the case before lower authorities.
On the contrary, the Ld. Sr. DR for the revenue relied on the order of the Ld.CIT(A).
We have heard both the parties carefully and gone through the submission put forth on record. We note that the appellant is an individual engaged in the business of wholesale trading of Agricultural Products and e-filed his return of income on 31.05.2021 declaring total income at Rs. 1,99,577/-. The appellant operated as a sole proprietor under the name M/s Samta Traders. However, accounting and taxation matters were managed by his father due to the appellant's lack of familiarity with accounts and taxation. During the relevant period, the appellant's father fell ill and after a prolonged illness, he subsequently passed away on 26.11.2017. We further note that the assessment order in the case of the appellant was finalized without any variation. The ld. A.O. accepted the returned income during the reassessment proceedings, thereby indicating that the accounts and audit report were not in dispute. Thus, there was no loss to the revenue on account of the belated filing of the audit report. Due to his father's illness and incapacity, there was an inherent and unavoidable delay in the preparation of books of accounts as the appellant had to engage a new accountant who took time to complete the books of accounts. The appellant could file the Tax Audit Report audit report only on 31.05.2021 after getting the books of accounts completed Page 4 of 7 from the new accountant. The return of income could also be filed on 31.05.2021 since the books were completed only at this point in time. Although the audit report was not filed within the prescribed time limit, it is pertinent to mention that the audit report was made available before ld. A.O. prior to the completion of assessment proceedings on 23.03.2022. The penalty was imposed solely on the ground of non-compliance with Section 44AB without due regard to reasonable cause and in disregard of the fact that the audit report was available before the conclusion of the assessment proceedings.
The Ld. AR respectfully submitted that the assessed income was the same as the returned income and thus, there was no loss to the revenue at all. Hence, the default, if any, was purely technical and venial in nature. The legislative intent behind Section 271B is not to punish the assessee for technical or inadvertent lapses but to ensure compliance with audit requirements for proper tax administration. In this regard, we rely on the landmark judgment of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. V. State of Orissa [1972] 83 ITR 26 (SC) - [Page No. 24 to 28] wherein the Apex Cort held as under in the context of penalty:
"Penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defines of law or was guilty of conduct contumacious dishonest or acted in conscious disregard of his obligation. Penalty will also not be imposed merely because it is lawful to do so. The penalty for failure to perform a statutory obligation is a matter of discretion and the authority will be justified in refusing to impose penalty when there is a technical or venial breach of the Act."
Further, in the identical situation of delay in audit due to a change in the accounting personnel, the Hon'ble Ahmedabad ITAT in the case of S. H. Sopariwala (128 Taxman 23 copy enclosed) - [Page No. 32 to 34] deleted the penalty u/s 271B holding the same to be a reasonable cause.
In the appellant's case, books of accounts could not be written up till the due date and the could be completed much later and the audit could be finalized on 31.05.2021. This situation in the appellant's case is also covered by the Jurisdictional Rajkot ITAT decision in the case of Jaydev Bavalal Thummar (159 taxmann.com 1594 copy enclosed) [Page No. 35 to 39] wherein it was held that if the books of accounts were not complete as on the due date, penalty u/s 271B cannot be levied. The relevant part of the ITAT order is reproduced hereunder:
"Regarding the contention of the Ld. DR that the assessee has written up the books of accounts is misplaced. Indeed, the assessee has written up books of account but on a later date. As such, the Ld. DR has not brought any concrete evidence justifying that the books of accounts of the assessee were written up before the due date of filing written of income and therefore the assessee has contravened the provisions of section 44AB of the Act. In view of the above, and after considering the facts in entirety, we hold that the assessee did not maintain the books of accounts within the due date specified u/s 139(1) of the Act, so as to comply the provisions of section 44AB of the Act. Accordingly, the assessee cannot be visited to the penalty for the offence committed by the assessee for not getting accounts audited. Hence, we set aside the findings of Ld. CIT(A) and direct the AO to delete the penalty levied by him. Thus, the ground of appeal of the assessee is hereby allowed."
12. Therefore it was humbly prayed that the penalty of Rs. Rs.1,50,000/- levied by the ld. A.O. u/s 271B is unsustainable on the counts of (i) a reasonable cause, (ii) no loss to the revenue and the default being only technical and venial in nature. After considering the above facts and circumstances of the case, we note that the assessee got books of account audited and produced it before the AO, the income computed on the basis of book of account and in the AY 2013-14 the AO has accepted the return of .income, further that delay in getting books audited by CA was due to that the books of account were not completed because of the death of the father of the assessee who was maintaining the books of account, therefore, Page 6 of 7 we set aside the order of the Ld.CIT(A) and direct the AO to delete the penalty levied.
In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 30/01/2026.