Penalty Under Section 271B Deleted as State-Funded University Exempt Under Section 10(23C)(iiiab) Needs No Tax Audit

By | October 10, 2026
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Penalty Under Section 271B Deleted as State-Funded University Exempt Under Section 10(23C)(iiiab) Needs No Tax Audit

Issue

Whether penalty under Section 271B can be levied on a State-funded university for failure to get its accounts audited under Section 44AB when its entire income is exempt under Section 10(23C)(iiiab).

Facts

  • Entity Status: The assessee is a State-funded university existing solely for educational purposes and is wholly funded by the State Government.
  • Assessment & Notice: Reassessment/ex-parte assessment proceedings were completed under Sections 147/144 for Assessment Years 2018-19 and 2019-20.
  • Penalty Initiated: The Assessing Officer noted that the gross receipts of the university exceeded Rs. 1 crore and initiated penalty proceedings under Section 271B read with Section 274 for failing to obtain a tax audit report under Section 44AB.
  • Assessee’s Defense: The assessee explained that it is a State-aided educational institution whose income is completely tax-exempt.
  • AO Action: The AO rejected the explanation and levied penalties under Section 271B for both assessment years.

Decision

  • Exemption Applicability: The income of the assessee-university is fully exempt under Section 10(23C)(iiiab) as a substantially state-financed educational institution.
  • No Audit Requirement Under Section 44AB: An entity whose income is entirely exempt under Section 10(23C)(iiiab) is not required to get its accounts audited under the tax audit provisions of Section 44AB.
  • Penalty Unjustified: Since there was no statutory obligation to obtain a tax audit report under Section 44AB, no penalty under Section 271B could be levied.
  • Relief Granted: The penalty orders levied under Section 271B were deleted in favour of the assessee.

Key Takeaways

  • Section 44AB Scope for Exempt Educational Bodies: Fully State-funded educational institutions whose income is exempt under Section 10(23C)(iiiab) do not fall under the statutory purview of Section 44AB tax audits.
  • No Penalty Without Underlying Obligation: A penalty under Section 271B cannot survive in the absence of a legal requirement to audit books of account under Section 44AB.
IN THE ITAT KOLKATA BENCH ‘D’
University of Calcutta
v.
Deputy Commissioner of Income-tax (Exemptions)*
PRADIP KUMAR CHOUBEY, Judicial Member
and Rajesh Kumar, Accountant Member
IT Appeal Nos. 692 & 693 (KOL) OF 2026
[Assessment years 2018-19 and 2019-20]
SEPTEMBER  16, 2026
Nikhil Tiwari and Anmole Mehtha, ARs for the Appellant. Dipu Koley, DR for the Respondent.
ORDER
Rajesh Kumar, Accountant Member. – These are the appeals preferred by the assessee against the orders of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] even dated04.12.2025 for the AY 2018-19 & A.Y. 2019-20. The penalties were levied u/s 271B of the Income-tax Act, 1961 (the Act) vide order dated 27.09.2023 & 08.08.2024 by the ld. AO.
ITA No. 692/KOL/2026
2. The only issue raised by the assessee is against the order of ld. CIT (A) confirming the penalty of Rs. 1,50,000/- as levied by the ld. AO for not getting the books of accounts audited.
3. The facts in brief are that the assessee a University of Calcutta is wholly funded through the state government. The assessment u/s 147/ 144 of the Act was framed vide order dated 20.03.2023. The ld. AO during the course of assessment proceedings called for various documents and information from the assessee, which were furnished by the assessee before the ld. Assessing Officer. The ld. AO noted that the assessee has failed to get the books of accounts audited u/s 44AB of the Act despite the fact that the gross receipt of the assessee was more than Rs. 1.00 crores and accordingly initiated the penalty proceedings u/s 274 read with section 271B of the Act vide notice dated 20th March, 2023. The assessee replied the said notice by submittng that the income of the assessee i.e. University of Calcutta which is state aided University under the government of West Bengal and is existing solely for educational purposes and not for the purpose of profit. The university is wholly funded by the State Government and is exempted from payment of tax and therefore is not required to get this account audited. However, the submission of the assessee did not find favour with the ld. AO and the Id. AO levied the penalty of Rs. 1,50,000/- u/s 271B of the Act.
4. In the appellate proceedings, the appeal of the assessee was dismissed.
5. After hearing the rival contentions and perusing the materials available on record, we note that the assessee is a “university of Calcutta” which is substantially funded by the State Government and is engaged solely for the educational purposes. We note that the university is not required to gets the books of accounts audited u/s 44AB of the Act as the income of the assessee is exempt u/s 10(23C)(iiiab) and no penalty can be levied u/s 271B of the Act. The case of the assessee is squarely covered by a series of decisions, wherein it has been held that where the income of the assessee is exempt u/s 10(23C)(iiiab) of the Act and no penalty can be levied u/s 271A of the Act. The case of the assessee is squarely covered by the following decisions:-
i. Asstt. CIT v. India Magnum Fund [2002] 81 ITD 295 (Mumbai)
ii. Sant Baba Rangi Ram v. ITO [IT Appeal No. 185 (Asr) of 2012, dated 6-8-2012],
iii. United Education Society v. JCIT [IT Appeal No. 902 (DEL) of 2016, dated 25-1-2018],
iv. Guru Nanak Dev Khalsa Girls v. Dy. CIT [IT Appeal No. 687 (ASR) of 2019, dated 3-12-2021]
v. CIT v. S.K. Gupta and Co. [2010] 322 ITR 86 (Allahabad)
vi. National Law University v. Addl./Jt./Dy./Asstt CIT [IT Appeal No. 2288 (DEL) of 2022, dated 24.05.2023],
vii. Commissioner of Police Coimbatore City Tamilnadu Police Canteen v. ITO  (Chennai – Trib.)
viii. Pradipbhai Dayabhai Aghara v. ITO  (Rajkot – Trib.)
ix. Bharitya Shiksha Prachar Samiti v. Dy. CIT (E) [IT Appeal No. 193 (JP) of 2023, dated 5.6.2023].
x. Abu Mansur Ali v. Dy. CIT [IT Appeal No. 93 (KOL.) of 2014, dated 10.08.2016]
6. Considering the facts of the case in the light of the above decisions, we set aside the order of ld. CIT (A) and direct the ld. AO to delete the penalty. The appeal is allowed.
ITA No. 693/KOL/2026
7. The issue raised in this appeal is similar to one as decided by us in ITA No. 692/KOL/2026. Accordingly, our decision would, mutatis mutandis, apply to this appeal of assessee in ITA No.693/KOL/2026 as well. Hence, the appeal of assessee is allowed.
8. In the result, the both the appeals of the assessee are allowed.
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