Penalty u/s 271B is not attracted where books of account not maintained – ITAT Allahabad

Penalty u/s 271B is not attracted in a case where books of account have not been maintained

In a recent judgment, ITAT Allahabad has held that penalty under section 271B of the Income Tax Act, 1961 is not attracted in a case in which books of account have not been maintained.  

ABCAUS Case Law Citation:
4902 (2025) (12) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming penalty under section 271B of the Income Tax Act, 1961 (the Act).

The appellant assessee was an individual engaged in wholesales trading. The case was reopened by issue of notice under section 148 of the Act to verify various reported financial transactions including large amount of cash deposit in bank.

The assessee estimated income of the assessee as a percentage of the cash deposit treating it turnover and passed the assessment order under section 143(3) read with section 147/144B of the Act.

During the assessment proceedings, the AO noted that the assessee had failed to submit the audit report in Form 3CB/3CD although the turnover of the assessee had exceeded the threshold prescribed for tax audit under section 44AB of the Act. Accordingly, the AO initiated penalty proceedings u/s 271B of the Act.

The assessee submitted that he had not maintained any books of account therefore the question of audit did not arise.

The AO observed that provisions of section 44AB clearly mentioned the requirement of audit. If the books of account are not maintained and audit is not done despite turnover being above the threshold, it is a gross violation of section 44AB.

The AO stated that the assessee had expressed that he was not aware of maintaining books of account and lacked of knowledge of the provisions of audit. However, the AO rejected the submission observing that lack of knowledge can not be accepted as an excuse.

The AO further observed that the onus was on the assessee to bring material facts on record to establish his argument and how it was a bona fide case for consideration, which the assessee failed.

Accordingly, the AO levied the impugned penalty under section 271B of the Act for failure to get his accounts audited in acoordance with the provisions of section 44AB of the Act.

Before the CIT(A), the assessee submitted that assessee had not maintained books of account and it is a settled proposition that once penalty has been levied u/s 271A for non maintenance of the books of account, penalty u/s271B can not be levied.

The CIT(A) observed that the AO had simultaneously initiated penalty u/s 271B and penalty u/s 271A, however penalty under section 271A was not levied. Therefore, he confirmed the penalty.

Before the Tribunal the assessee contended that the AO and the CIT(A) had overlooked various judicial pronouncements of Hon’ble High Courts including the jurisdictional High Court. To support his case, the assessee placed reliance on the judgment of Madhya Pradesh High Court, Karnataka High Court, Ranchi ITAT, ITAT Agra, ITAT Bangalore.

The Tribunal observed that the case of the assessee was covered in his favour by decisions of Agra Bench of ITAT and Bangalore Bench of ITAT.

The Tribunal further observed that when order of jurisdictional High Court was in favour of the assessee, the bench was not persuaded by the Revenue’s contention to take guidance from contrary decisions of non jurisdictional High Court (Karnataka High Court) and non-jurisdictional Bench of ITAT (Ranchi).

The Tribunal noted that the assessee’s case was squarely covered by order of Hon’ble Allahabad High Court, which is the jurisdictional High Court wherein it was held that section 271B of I.T. Act is not attracted in a case in which books of account have not been maintained.    

Accordingly, following the precedents the ITAT deleted penalty levied under section 271B of the Act.

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