Penalty under section 271B for non-audit not leviable when commission income did not exceed threshold.
Brief Facts
The assessee, an individual, filed their return of income for the Assessment Year (AY) 2022-23, declaring a taxable income of Rs 5,04,770, which included net commission income1. The assessee was engaged in collecting money from the public as payment towards stamp duty and paying it to the Tamil Nadu Government Registration Department, earning commission for this service The commission income was offered to tax as business income, which was accepted by the Assessing Officer (AO) in the scrutiny assessment framed under section 143(3) read with section 144B of the Act
During the assessment, the source for cash deposits made by the assessee in the bank account was examined, and the explanation offered by the assessee, stating the deposits came from monies received on account of registration and stamp duty charges from the public, was accepted. The AO accepted that the assessee was engaged in earning commission business income
However, the AO initiated penalty proceedings under section 271B of the Income Tax Act, 1961, contending that the registration charges of Rs 3,29,58,336 received from the public constituted the assessee’s turnover6. Since this amount exceeded the threshold limit for mandatory tax audit under section 44AB of the Act, and the assessee had not gotten the accounts audited, the AO levied a penalty of Rs 1,50,000 under section 271B. This penalty order was upheld by the Commissioner of Income Tax (Appeals), NFAC, Delhi
The assessee filed an appeal before the ITAT against the order of the Ld. CIT(A) confirming the levy of the penalty under section 271B.
Decision Summary
The Income Tax Appellate Tribunal (ITAT), ‘C’ Bench, Chennai, allowed the assessee’s appeal, holding that the levy of penalty under section 271B was not justified in the facts and circumstances of the case.
The ITAT noted that the revenue had consistently accepted the assessee’s stand that they were engaged in the business only for earning commission income, which was offered and accepted as business income in the quantum assessment proceedings. The AO, in the quantum assessment, had specifically accepted that the assessee was engaged in earning commission business income.
The Tribunal held that having accepted the assessee to be deriving only commission income and having accepted the modus operandi of the same in the quantum proceedings, taking a divergent stand in the penalty proceedings that the registration charges constituted turnover was contrary to the canons of law. The ITAT ruled that the assessee was not required to get their accounts audited under section 44AB of the Act because the commission income had not exceeded the relevant threshold limit for getting accounts audited. Consequently, the penalty of Rs. 1,50,000 levied under section 271B was deleted.
Citation Detail
Case No.: ITA No.: 2093/Chny/2025
- Assessee: Parasuraman
Respondent: Income Tax Officer, Ward-2, Cuddalor
Bench: ‘C’ Bench, Chennai
Members: Shri M. Balaganesh, Accountant Member & Shri S.S. Viswanethra Ravi, Judicial Member
Assessment Year: 2022-23
Download order Tax audit for commission relief sec B penalty
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Date of Pronouncement: 21st October, 2025 222222222222222222