ITAT Deletes Section 271B Penalty for Non-Filing of Tax Audit Report Due to Bona Fide Belief

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a penalty of Rs. 1.50 lakh imposed on Stargate Enterprises Private Limited under Section 271B of the Income Tax Act for not obtaining a tax audit report under Section 44AB.

The assessee, Stargate Enterprises Private Limited, had declared an aggregate income of approximately Rs 12 crore for the Assessment Year 2018-19, by treating interest earned on bank fixed deposits of about Rs 11.84 crore as “Income from Other Sources“. During scrutiny assessment, the Assessing Officer (AO) reclassified this interest as “Business Income“ and held that the assessee was required to get its accounts audited under Section 44AB of the Income Tax Act. Since no tax audit report had been filed by the assessee, the AO imposed a penalty amounting to Rs. 1.50 lakh.

The company argued that in earlier as well as later assessment years, it had consistently shown the same interest income under the head “Income from Other Sources”, and the Income Tax Department had accepted this treatment. Based on this consistent practice, it genuinely believed that tax audit provisions were not applicable.

When the tribunal examined the facts of the case, it noted that the relief granted to the assessee was reasonable because the Department itself had accepted the same tax treatment in other years. It also observed that there was no such evidence to prove that the company had intentionally failed to comply with the law.

The tribunal relied on the provisions of Section 273B of the Income Tax Act, which provides relief where a taxpayer has a reasonable cause for failure, the Tribunal held that the assessee had acted under a bona fide belief. Accordingly, the impugned penalty was deleted and the appeal was allowed.