Penalty proceedings u/s 271B for late filing of audit report: ITAT sets aside Pr.CIT's order for lack of jurisdiction [Read Order]

The Bangalore Bench of Income Tax Appellate Tribunal ( ITAT ) sets aside Principal Commissioner of Income Tax[Pr.CIT]'s order on penalty proceedings under section 271B of Income Tax Act,1961 for late filing of audit report due to lack of jurisdiction.

Kumaraswamy Gangadharaiah Kallur, appellant-assessee, filed a return on 28.02.2015, showing an income of Rs. 1,08,58,460/-. The Assessing Officer(AO) accepted this return in an assessment order on 16.12.2016. Later, it was found that the appellant-assessee did not disclose the source of credit card expenses or provide details of investments related to multi-commodity transactions, which required 10% of peak transactions to be invested with the broker.

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The case was reopened, and reassessment was done on 30.03.2022, adding Rs. 2,16,18,182/-. The Pr.CIT then noticed that the assessee had filed the audit report late, beyond the extended due date of 30.11.2014. This made the filing late, and the appellant-assessee became liable for a penalty under section 271B of the Act.

Since the AO did not initiate penalty proceedings, the Pr.CIT found the reassessment order to be erroneous and against the Revenue’s interest. The order was set aside, and the AO was directed to redo the assessment according to the law and Central Board of Direct Taxes(CBDT) instructions.

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The assessee appealed before the tribunal.

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The tribunal noted that the assessee filed the return on 28.02.2015, along with Form 3CB dated 27.01.2015, which was beyond the extended due date. The case was reopened under section 148, and reassessment was completed under section 147 due to unrecorded credit card transactions and unexplained 10% deposits with brokers. An addition of Rs. 2,16,18,182/- was made under section 69C, with total transactions of Rs. 16,27,02,200/-.

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Read More: Penalty u/s 271B for Not Filing Audit Report: ITAT upholds Order

The dispute was about the AO not initiating penalty proceedings under section 271B during reassessment. The ITAT observed that although the return was filed late, no penalty was imposed in the original assessment. It also noted that the addition under section 69C was fictional and did not form part of the turnover, making section 44AB inapplicable.

Read More:Completion of Audit and Furnishing of Tax Audit Report before Conclusion of Assessment Proceedings: ITAT Deletes Penalty u/s 271B

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The two member bench comprising Soundararajan K(Judicial Member) and Laxmi Prasad Sahu(Accountant Member) held that the Pr. CIT’s order directing penalty proceedings under section 263 was beyond jurisdiction, as it went beyond the reasons recorded for reassessment. It set aside the Pr. CIT's order.

In short,the appeal filed by the assessee was allowed.

To Read the full text of the Order CLICK HERE

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