Rejection of Books u/s 145 Does Not Retrospectively Waive Mandatory Obligation to Furnish Audit Report u/s 44AB: ITAT [Read Order]

The bench said that the requirement to obtain and furnish the audit report within the due date prescribed under section 44AB of the Act is mandatory, and the default is not cured by obtaining or furnishing the audit report belatedly, even if before completion of assessment.

The appellant, Naresh Kumar of Hyderabad, had not filed a return of income under Section 139(1) of the Income Tax Act, 1961. Based on Annual Information Return (AIR) data, the Assessing Officer (AO) noticed cash deposits of ₹1,00,10,000 in his bank account during the assessment year 2013–14.

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Consequently, proceedings under Section 147 were initiated, and after rejecting the books of account under Section 145, the AO estimated profit at 3% of turnover. Subsequently, penalty proceedings under Section 271B were initiated for failure to obtain a tax audit within the prescribed time. The penalty of ₹1,26,819 levied by the AO and was upheld by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [CIT(A)].

The assessee represented by Chartered Accountant P. Murali Mohan Rao, contended that once the books of account were rejected under Section 145 and income estimated, the requirement of audit ceased, making the penalty under Section 271B unsustainable.

He submitted that illness prevented timely audit, though the audit report in Form 3CB and 3CD was eventually filed during assessment. Reliance was placed on Naveen Kumar Kaparthy v. ITO and Jigneshbhai Rasikbhai Savalia v. ITO.

The Revenue represented by Shri Karthik Manickam, Senior Departmental Representative, argued that the statutory obligation under Section 44AB persisted irrespective of later rejection of books under Section 145.

He distinguished the cited precedents, noting that in those cases either no books were maintained or audit was completed within the belated return filing period.

In contrast, Naresh Kumar failed to obtain or furnish the audit report within the statutory period, and his plea of illness was unsupported by medical records. He further referred to CBDT Notification dated 11.06.2013, which mandated e-filing of audit reports, and pointed out the absence of any proof of such filing by the assessee.

The Bench comprising Vice President, Vijay Pal Rao and Accountant Member, Madhusudan Sawdia observed that the audit report dated 26.12.2017 was obtained well beyond the due date, even for belated returns under Section 139(4).

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The Tribunal held that rejection of books under Section 145 did not nullify the independent statutory obligation under Section 44AB to obtain and furnish an audit report. The plea of illness was also rejected for want of corroborative evidence.

The Tribunal reiterated that statutory obligations under Section 44AB are independent of assessment outcomes, and delayed audit reports without reasonable cause invite penalty under Section 271B.

Accordingly, the appeal challenging the levy of penalty was dismissed and upheld the penalty imposed by the CIT(A).

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