Facts of the Case

The assessee filed an appeal against the order of the Commissioner of Income Tax (Appeals), NFAC, confirming penalty of ₹55,660 imposed under Section 271B for failure to obtain tax audit under Section 44AB. The Assessing Officer, while completing assessment under Section 143(3), observed that the assessee’s gross receipts were ₹1,11,51,920, exceeding the audit threshold of ₹1 crore, whereas only ₹27,29,000 was shown in the books. Accordingly, penalty proceedings were initiated for non-submission of audit report.

Issues Involved

Whether penalty under Section 271B is leviable when the alleged turnover exceeding ₹1 crore includes amounts not constituting business receipts, specifically sale consideration of a capital asset.

Petitioner’s (Assessee’s) Arguments

The assessee contended that an amount of ₹13,82,000 included in the receipts represented instalments received from the sale of his truck to a third party and therefore could not be treated as business turnover. If this amount were excluded, the actual trading receipts would fall below ₹1 crore, eliminating the requirement for tax audit under Section 44AB and consequently the penalty under Section 271B. Supporting documents, including vehicle registration records, were submitted to substantiate the sale transaction.

 Respondent’s (Revenue’s) Arguments

The Revenue relied on the assessment findings that the assessee’s total receipts exceeded ₹1 crore and that failure to furnish the audit report justified imposition of penalty under Section 271B. The CIT(A) had also confirmed the penalty through an ex-parte order due to non-compliance by the assessee.

 Court Order / Findings

The Tribunal observed that the assessee claimed part of the receipts related to sale of a truck and therefore might not constitute business turnover. Since the documents filed were not clearly legible and required verification, the Tribunal set aside the order of the CIT(A) and restored the matter to the Assessing Officer for fresh examination. The Assessing Officer was directed to verify whether the assessee’s turnover actually exceeded ₹1 crore after excluding the alleged sale proceeds. If the turnover did not exceed the threshold, penalty under Section 271B would not be leviable. The appeal was allowed for statistical purposes.

 Important Clarification

The decision underscores that penalty for failure to obtain tax audit depends on actual business turnover. Receipts from sale of capital assets or non-business transactions should not be included while determining audit applicability under Section 44AB. Proper verification of the nature of receipts is essential before imposing penalty under Section 271B.

Link to download the order

https://itat.gov.in/public/files/upload/1698736013-23%20of%202023%20Mohammad%20Aslam(Assessee%20Appeal)%20uder%20section%20271(B)%20of%20the%20Act%20SMC%20(Corrected).pdf

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