The Rajkot Bench of the Income Tax Appellate Tribunal (ITAT) deleted Rs. 1.50 lakh penalty under Section 271B, holding that mere delay in furnishing a tax audit report cannot justify penalty when the accounts were audited within time limit and the report was produced during assessment proceedings.
Ripal Bhagavanjibhai Modi (the assessee) was an individual engaged in trading agricultural and provision items such as wheat, bajra, rice, edible oil, cotton seeds and cattle feed. His case for Assessment Year 2017-18 was reopened based on information concerning cash deposits of Rs. 2.18 crore in a Saurashtra Gramin Bank account.
In response to the Section 148 notice, the assessee filed his return declaring turnover of about Rs. 5.10 crore. The assessment was completed without any addition to the returned income.
The AO initiated Section 271B proceedings on the ground that the turnover exceeded the limit under Section 44AB and the assessee had failed to get his accounts audited. A maximum penalty of Rs. 1.50 lakh was imposed and the CIT(A) confirmed it.
The assessee’s counsel argued that the books had been audited under Section 44AB by qualified chartered accountant and the audit report had been uploaded during the assessment proceedings. They pointed out that the AO accepted the books, turnover and returned income without making any addition or disallowance.
The single-member bench comprising Arjun Lal Saini (Accountant Member) observed “Importantly, section 271B of the Act, uses the expression “may direct”, and not “shall direct”. Therefore, the levy of penalty is not mechanically and automatic. Section 273B of the Act, further provides that notwithstanding anything contained in section 271B, no penalty shall be imposable where the assessee proves that there was “reasonable cause” for the failure.”
The tribunal found that the audit report had been obtained within the prescribed time and was made available to the AO before completion of the assessment. The tribunal deleted the Rs. 1.50 lakh penalty and allowed the assessee’s appeal.
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Ripal Bhagavanjibhai Modi vs Assistant Commissioner of Income Tax
CITATION : 2026 TAXSCAN (ITAT) 1256Case Number : ITA No. 923/Rjt/2026Date of Judgement : 19 August 2026Coram : Arjun Lal SainiCounsel of Appellant : Mahesh PaunCounsel Of Respondent : Shishir Kumar
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