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Facts
The assessee, a Local Authority constituted under the Uttar Pradesh Industrial Area Development Act, 1976, was granted registration under Section 12AA of the Income Tax Act, 1961. The Assessing Officer (AO) levied a penalty under Section 271B for not getting its accounts audited.
Held
The Tribunal held that the assessee, being a local authority not engaged in business or profession, was not required to maintain books of accounts under Section 44AA and consequently not liable for audit under Section 44AB. Therefore, the penalty under Section 271B was deleted.
Key Issues
Whether penalty under Section 271B is leviable for non-audit of accounts when the assessee is not engaged in business or profession and not required to maintain books of accounts under Section 44AA.
Sections Cited
271B, 148, 147, 12AA, 10(46), 44AA, 44AB, 271A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH‘A’: NEW DELHI
Before: SHRI YOGESH KUMAR U.S. & SHRI MANISH AGARWAL
Assessee by Shri Saif Ali, Adv. & Sh. Jasmeet Singh, Adv. Department by Shri Ajay Kumar Arora, Sr. DR Date of Hearing 17/07/2025 Date of Pronouncement 10/10/2025 ORDER
PER YOGESH KUMAR US, JM:
This appeal is filed by assessee against the order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in Appeal No. CIT(A), Noida-1/10732/2017-18dated 20.03.2024 arising out of the order passed u/s 271B of the Income Tax Act, 1961 dated 20.11.2017 for Assessment Year 2006-07.
Brief facts of the case are that assessee is a Local Authority and constituted in terms of section 3 of Uttar Pradesh Industrial Area Development Act, 1976. The assessee is granted registration u/s 12AA of the Act in terms of the order of ld. Yamuna Expressway Industrial Development Authority. vs. CIT(A) CIT(E), Lucknow dated 08.05.2017 as a charitable institution carrying out activity of General Public Utility. The assessee was also notified as an authority constituted by State Government u/s 10(46) for the assessment years 2014-15 to 2018-19 in terms of notification issued on 24.12.2020. The assessee is functioning as an arm of State Government through its officers and engaged in the work of village development, infrastructure development for the whole area including municipal infrastructure like sewer, water, electricity, roads, and social infrastructure. The surplus generated is utilized for the development works as provided in the objects of the assessee. The assessment was reopened in terms of the notice issued u/s 148 of the Act on 26.03.2013, in response to which, assessee filed the return of income. The assessment was completed u/s 147(3)/147 on 03.03.2014 wherein income of the assessee was assessed at Rs.14,75,758/- by disallowing expenses of Rs.7,95,021/- on which no TDS was made in addition to surplus of Rs.6,80,737/- held as business income. AO concluded that assessee is artificial judicial person and is liable to tax under Income Tax Act as Local Authority based on the judgment of Hon’ble Allahabad High Court in the case of Noida Development Authority.AO simultaneously initiated penalty proceedings u/s 271B for not getting its accounts audited besides initiating the penalty proceedings for non- maintenance of books account u/s 271A of the Act. Thereafter, the AO proceeded to levy of penalty in terms of the order dated 20.11.2017 and penalty of Rs.24,464/- being 0.50% of the gross receipts is levied u/s 271B of the Act for not getting the accounts audited u/s 44AB of the Act.
Against the said order an appeal was filed before ld. CIT(A) who dismissed the appeal of the assessee thus present appeal is filed by the assessee before the Tribunal.
Yamuna Expressway Industrial Development Authority. vs. CIT(A) 4. Before us, Ld. AR of the assessee submits that assessee is a local authority and is a non-profit organization and thus not required to maintain books of accounts as prescribed u/s 44AA of the Act which provides maintenance of books of accounts in respect of those assessee who are engaged in business or profession. The Ld. AR further submits that AO has initiated penalty proceedings u/s 271A for non-maintenance of books of accounts and once the assessee was held as liable for penalty u/s 271A, how the penalty for non-audit of books could be levied u/s 271B of the Act as no book of accounts were maintained.
He further submits that AO includes interest on FDR of Rs. 49,92,885/- and SB account interest of Rs. 8,106/-which should not be forming part of the total receipts for the purpose of section 44AB of the act. For this he drew our attention to Para 5.1 of the Guidance notes on Tax Audit issued by the Institute of Chartered Accountants of India wherein it is suggested that Interest on Fixed deposit would not form part of Gross receipts. In the alternate, it is stated that assessee is notified as an authority constituted by State Government u/s 10(46) for the years from AY 2014-15 to 2018-19 in terms of notification issued on 24.12.2020 thus for the other years also its receipts are exempt u/s 10(46) of the Act and therefore, it is not carrying out any business or profession and thus is not required to get its accounts audited u/s 44AB of the Act.
Ld. AR further submits as the assessee is not required to maintain the books of account, question of getting the accounts audited does not arise. It is thus submitted that the penalty levied/s 271B is liable to be quashed.
[ 7.Per contra, ld. Sr. DR vehemently supported the orders of lower authorities and submitted that gross receipts of the assessee are exceeding Rs. 40.00 and thus it is mandatory to get its accounts audited, which has not been done therefore, the AO
Heard both the parties and perused the materials available on record. In the instant case, assessee is granted registration u/s 12A in terms of order dated 01.05.2017 and for the period prior grant of registration u/s 12A, assessee claimed that it is a Local Authority engaged in the development of the area assigned to it as per the Uttar Pradesh Development Act, 1976 and, therefore, its receipts are exempt in terms of section 10(46) of the Act. It is further seen that Hon’ble Supreme Court in the case of ACIT(Exemptions) vs. Ahmedabad Urban Development Authority [2023] 4 SCC 561 has held that the assessee is eligible for registration u/s 12A of the Act and further held that is the activities are not commercial in nature and are eligible for exemption u/s 10(46) of the Act. The assessee was also notified as eligible for exemption u/s 10(46) from AY 2014-15 to AY 2018-19 in terms of notification dt. 24.12.2020.
The Institute of Chartered Accountants of India in the Guidance notes on Tax Audit in Para 5.1 advised that Interest on Fixed deposit would not form part of Gross receipts. Moreover, when assessee was not engaged in any business or profession, provisions of section 44AB of the Act are not applicable. It is also relevant to state that in case of assessee itself for the same assessment year penalty u/s 271A was levied for non-maintenance of books of accounts by the AO. When it is held that assessee has not maintained books of accounts as prescribed u/s 44AA of the Act, question of getting the same audited does not arise. Further the said penalty levied u/s 44AA was deleted by the coordinate bench in vide order dt. 26.09.2025 by holding that the assessee is not required to maintain books of accounts as per section 44AA being not engaged in In view of the above discussion, we hereby delete the penalty levied u/s 271B of the Act at Rs.24,464/-. Accordingly, all the grounds of appeal of the assessee are allowed.