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Facts
The assessee's case was selected for scrutiny due to an abnormal increase in cash deposits during demonization. The Assessing Officer made additions to income and levied a penalty of Rs. 1,17,258/- for failing to furnish an audit report. The CIT(A) had previously set aside the assessment order for fresh adjudication.
Held
The Tribunal held that the penalty was levied based on an assessment order that was subsequently set aside. Since the original assessment order was annulled, the penalty based upon it could not be sustained. The assessee's appeal was allowed.
Key Issues
Whether a penalty levied under Section 271B is sustainable when the assessment order on which it was based has been set aside. Whether credit entries in bank accounts were correctly treated as turnover when the original assessment was annulled.
Sections Cited
271B, 144, 143(3), 44AB, 69A, 68
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Income Tax Appellate Tribunal, DELHI BENCH “C”, DELHI
Before: SH. M. BALAGANESH & SH. SUDHIR KUMAR
Date of hearing: 11/09/2025 Date of Pronouncement: 28/10/2025 ORDER
PER SUDHIR KUMAR, JUDICIAL MEMBER:
This appeal by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [hereinafter referred to as “NFAC”] vide order dated 11.04.2025 pertaining to A.Y. 2017-18 arising out the penalty order dated 22.01.2022 u/s.271 B of the Income-tax Act, 1961, (in short ‘the Act’).
The assessee has raised the following grounds in appeal:
1.That on the fact of the case and under the law, Honourable CIT( Appeal) has wrongly confirmed penalty of Rs. 1,17,258/- u/s 271 B without judicially considering reply of the assessee apprising that assessment order passed u/s 144 r.w.s 143(3) is set aside for fresh adjudication. Penalty u/s 271B is initiated on the basis of order passed u/s 144 which is no more effective. Therefore penalty u/s 271B is wrongly confirmed by Honourable CIT(Appeal) and needs to be deleted. 2. 1That on the fact of the case and under the law, Honourable CIT( Appeal) has mentioned that credit entries in bank accounts amounting to Rs. 2,34,51,584/- are not explained and treated as turnover of the assessee, whereas the assessee has already clarified all credit entries in the bank account in reply to quantum appeal against order u/s 144. As a result , Honourable CIT( Appeal) failed to take cognizance of proceedings of appeal filed against order u/s 144. In nut shell we shall like to pray addition of turnover of Rs. 2,34,51,584/- is no more in existence as order u/s 144 is set aside, Honourable CIT( Appeal) is unjustified in confirming penalty u/s 271B.
The brief facts of the case are that the return of income filed by the assessee for A.Y. 2017-18 declaring total income of Rs. 3,19,040/-. The case of the assessee was selected under CASS for scrutiny to verify abnormal increase in cash deposit during the demonization period as compared to pre- demonization period. During the course of proceedings, it was noticed that the assessee turn over for the during the A.Y. 2017-18 were to the tune of Rs, 2,34,51,584/- including cash deposits of Rs. 57,60,000/-. The Assessing Officer made the addition of Rs.61,83,893/- as business income computed by applying a net profit rate of 28% on the total credits of Rs. 2,34,51,584/-base on the profit percentage disclosed by the assessee in the return and also made the addition of Rs. 19,00,000/- under section 69A and 68 of the Act. Aggrieved the order of the Assessing Officer the assessee filed the appeal before the Ld. CIT(A) who vide his order dated27-03-2025 set aside the order and matter sent back to AO for fresh assessment. The assessing officer initiated the penalty proceedings on the basis of the assessment. According to AO the assessee has failed to furnish the audit report in the stipulated time as required u/s 44AB of the Act. The assessing officer levied the penalty of Rs. 1,17,258/- against the assessee.
Aggrieved the order of the Assessing Officer the assessee preferred the appeal before the Ld. NFAC who vide his order dated 11-04-2025 dismissed the appeal against which the assessee is in appeal before us. The Ld. NFAC observed in the order as under:
7.2 I have perused the facts of the case as well as the submission of the appellant and find that the appellant has failed to substantiate the credits entries in bank accounts amounting to RS. 2,34,51,584/. During the course of the proceedings the appellant has been granted more than sufficient opportunities but so far, no explanation has been submitted as to why the credits in the bank account don’t come under the total turnover of the appellant for the year under consideration. The appellant has also failed to submit any clarification as to how such huge sums were received in the bank account if the same aren’t business receipts. In the absence of the same, there is no other way but consider the same as total turnover and it can be inferred that the business turnover of the assessee has certainly exceeded the turnover limit for which audit report is required as mandated under section 44AB of the I.T. Act. In view of the above discussion and also on the fact that the appellant failed to give the details of the turnover of the business & the credit entries appearing in the bank account, the grounds of this appeal are not sustainable. Accordingly, the Penalty levied by the AO is hereby upheld and these grounds of appeal are dismissed.
5. Ld. AR for the assessee submitted that Assessing officer wrongly considered the credit entries in two banks accounts amounting to RS. 2,34,51,584/- as turnover of the assessee. He also submitted that the quantum appeal filed by the assessee was allowed by the Ld. CIT(A) and ld.
Assessing Officer based on the submission made by the assessee accepted the return of Income of the assessee as filed earlier. He further submitted that the assessment order passed dated 30-12-2019 has been set aside than penalty cannot be levied.
The Ld. Sr. DR has relied the order of the lower authorities. We have heard the parties and gone through the material available on record. In the present case we found, that the assessment order dated 30-12-2019, on which basis penalty was levied has been set-aside and the return of income filed by the assessee has been accepted by the AO after considering the documents submitted by the assessee. The assessee has filed the copy of the order of the assessment dated 03-09-2025(P.B. page 32-36) which was passed in the compliance of the order of the Ld. CIT(A) dated 27-03-2025, to show that the addition has been deleted by the AO. Because the assessment order has been set-aside then penalty cannot be levied against the assessee. Therefore, the penalty levied by Assessing Officer against the assessee is deleted.
In the result the appeal of the assessee is allowed. Order pronounced in the open court on 28.10.2025.