My client's turnover was Rs 1.22 crore, above the s.44AB audit limit. He declared eight per cent under s.44AD and got no audit. The officer has levied s.271B. Is he liable?
No. For the year in issue the first proviso to s.44AB took out of that section a person who declared profits and gains for the previous year in accordance with s.44AD(1) and whose total sales, turnover or gross receipts in business did not exceed two crore rupees in that previous year. Because the assessee had declared 8.02 per cent of a turnover of about Rs 1.22 crore under s.44AD(1), no obligation to get his accounts audited was cast upon him, and the Raipur Bench vacated the penalty of Rs 61,365. Read the proviso in its current form for later years: section 15 of the Finance Act 2023 substituted it with effect from 1 April 2024, and it now disapplies s.44AB to a person who declares under s.44AD(1) or s.44ADA(1), with no monetary condition of its own.
Decided by the ITAT (Shri Ravish Sood, Judicial Member and Shri Arun Khodpia, Accountant Member (Income Tax Appellate Tribunal, Raipur Bench, Raipur)) on 2023-08-18, reported as ITA No. 23/RPR/2023, Assessment Year 2017-18. It bears on section 271B, section 44AB, section 44AD, section 44AD(1), section 143(3) of the Income Tax Act 1961, in Presumptive Taxation & Audit and Penalty matters.
The s.44AB turnover limit in clause (a) and the s.44AD ceiling are two different numbers, and the gap between them is where these penalties are levied. An assessee whose turnover is between Rs 1 crore and Rs 2 crore is over the clause (a) threshold but, if he declares under s.44AD(1), the proviso removes him from s.44AB altogether — and with s.44AB goes s.271B, because s.271B penalises a failure to get accounts audited 'as required under section 44AB'. Two features of the Revenue's argument here are worth noting because they will be run again. The department said the proviso could not apply because the return had been filed in Form ITR-3 rather than Form ITR-4; the Bench did not accept that the form governed the substance, observing that the return had never been held invalid or defective but had been acted upon, scrutinised and assessed under s.143(3). And the department did not dispute that the income had been declared under s.44AD. The limit of the decision is equally important: the shield exists only while the assessee is in fact declaring in accordance with s.44AD(1) and the turnover stays under the ceiling. Once turnover passes the ceiling, or once s.44AD(4) applies, the audit obligation returns — through clause (a) in the first case and through clause (e) in the second.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee carried on the business of retail trading in jewellery at Raipur. For AY 2017-18 he declared profit from that business under s.44AD(1) at 8.02 per cent of gross sales or total turnover of about Rs 1.22 crore. He did not get his accounts audited. His income, including the income declared under s.44AD, was assessed by the Assessing Officer under s.143(3) by order dated 30 December 2019; the return was never held invalid or defective. The Assessing Officer imposed a penalty of Rs 61,365 under s.271B for failure to get the accounts audited, one of the considerations weighing with him being that the return had been filed in Form ITR-3 and not in Form ITR-4, which the department said was the form prescribed for an assessee declaring income under s.44AD, so that the proviso to s.44AB did not apply. The CIT(Appeals) upheld the penalty.
The appeal was allowed and the penalty of Rs 61,365 vacated. Because the gross turnover on which the assessee had disclosed presumptive profit under s.44AD at 8.02 per cent was substantially less than the threshold of two crore rupees in the proviso to s.44AB, no obligation was cast upon him to get his accounts audited, and the penalty under s.271B could not be sustained (paragraphs 13 and 14).
The Bench recorded at paragraph 11 that it was a matter of fact on the record that the assessee had disclosed income from the eligible business of trading in jewellery under the presumptive scheme in s.44AD at 8.02 per cent of a turnover of about Rs 1.22 crore, that his income including that so declared had been assessed under s.143(3), and that it was not the Revenue's case that the return had at any stage been held invalid or defective — on the contrary it had been acted upon, scrutinised and subjected to assessment. At paragraph 12 it held that, as the assessee's representative had rightly submitted, under the proviso to s.44AB an assessee who had declared profit from an eligible business under s.44AD(1) would have been required to get his accounts audited only if his total sales or gross turnover had exceeded two crore rupees during the previous year, and it set the proviso out in full. At paragraph 13, because the turnover on which presumptive profit had been disclosed was substantially less than that threshold, it concurred that no obligation to get the accounts audited had been cast on the assessee, and at paragraph 14 it therefore declined to subscribe to the penalty imposed and confirmed below, set aside the order of the CIT(Appeals) and vacated the penalty.
Because the gross turnover/sales of the assessee on which he had disclosed presumptive profit u/s.44AD of the Act, i.e., @8.02% was substantially less than the threshold limit of two crore rupees as envisaged in the "3rd proviso" to Section 44AB of the Act; therefore, we concur with the claim of the Ld. AR that no obligation was cast upon him to get his accounts audited as per the mandate of the aforesaid statutory provision.
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Handle my notice → Ask a CA on WhatsAppNo. For the year in issue the first proviso to s.44AB took out of that section a person who declared profits and gains for the previous year in accordance with s.44AD(1) and whose total sales, turnover or gross receipts in business did not exceed two crore rupees in that previous year. Because the assessee had declared 8.02 per cent of a turnover of about Rs 1.22 crore under s.44AD(1), no obligation to get his accounts audited was cast upon him, and the Raipur Bench vacated the penalty of Rs 61,365. Read the proviso in its current form for later years: section 15 of the Finance Act 2023 substituted it with effect from 1 April 2024, and it now disapplies s.44AB to a person who declares under s.44AD(1) or s.44ADA(1), with no monetary condition of its own. This was decided by the ITAT (Shri Ravish Sood, Judicial Member and Shri Arun Khodpia, Accountant Member (Income Tax Appellate Tribunal, Raipur Bench, Raipur)) and bears on section 271B, section 44AB, section 44AD, section 44AD(1), section 143(3) of the Income Tax Act 1961. It is reported as ITA No. 23/RPR/2023, Assessment Year 2017-18. The s.44AB turnover limit in clause (a) and the s.44AD ceiling are two different numbers, and the gap between them is where these penalties are levied. An assessee whose turnover is between Rs 1 crore and Rs 2 crore is over the clause (a) threshold but, if he declares under s.44AD(1), the proviso removes him from s.44AB altogether — and with s.44AB goes s.271B, because s.271B penalises a failure to get accounts audited 'as required under section 44AB'. Two features of the Revenue's argument here are worth noting because they will be run again. The department said the proviso could not apply because the return had been filed in Form ITR-3 rather than Form ITR-4; the Bench did not accept that the form governed the substance, observing that the return had never been held invalid or defective but had been acted upon, scrutinised and assessed under s.143(3). And the department did not dispute that the income had been declared under s.44AD. The limit of the decision is equally important: the shield exists only while the assessee is in fact declaring in accordance with s.44AD(1) and the turnover stays under the ceiling. Once turnover passes the ceiling, or once s.44AD(4) applies, the audit obligation returns — through clause (a) in the first case and through clause (e) in the second. If it applies to you, the first step is this: Where a s.271B notice follows a s.44AD return, plead the first proviso to s.44AB in the form it took for the year in issue: up to AY 2023-24 it needs two facts on the record — that the profit declared was in accordance with s.44AD(1), and that turnover did not exceed two crore rupees; from AY 2024-25 it needs only that the assessee declared under s.44AD(1) or s.44ADA(1).
The assessee carried on the business of retail trading in jewellery at Raipur. For AY 2017-18 he declared profit from that business under s.44AD(1) at 8.02 per cent of gross sales or total turnover of about Rs 1.22 crore. He did not get his accounts audited. His income, including the income declared under s.44AD, was assessed by the Assessing Officer under s.143(3) by order dated 30 December 2019; the return was never held invalid or defective. The Assessing Officer imposed a penalty of Rs 61,365 under s.271B for failure to get the accounts audited, one of the considerations weighing with him being that the return had been filed in Form ITR-3 and not in Form ITR-4, which the department said was the form prescribed for an assessee declaring income under s.44AD, so that the proviso to s.44AB did not apply. The CIT(Appeals) upheld the penalty. The matter was decided on 2023-08-18 by the ITAT (Shri Ravish Sood, Judicial Member and Shri Arun Khodpia, Accountant Member (Income Tax Appellate Tribunal, Raipur Bench, Raipur)). On those facts the ITAT held as follows. The appeal was allowed and the penalty of Rs 61,365 vacated. Because the gross turnover on which the assessee had disclosed presumptive profit under s.44AD at 8.02 per cent was substantially less than the threshold of two crore rupees in the proviso to s.44AB, no obligation was cast upon him to get his accounts audited, and the penalty under s.271B could not be sustained (paragraphs 13 and 14).
The Bench recorded at paragraph 11 that it was a matter of fact on the record that the assessee had disclosed income from the eligible business of trading in jewellery under the presumptive scheme in s.44AD at 8.02 per cent of a turnover of about Rs 1.22 crore, that his income including that so declared had been assessed under s.143(3), and that it was not the Revenue's case that the return had at any stage been held invalid or defective — on the contrary it had been acted upon, scrutinised and subjected to assessment. At paragraph 12 it held that, as the assessee's representative had rightly submitted, under the proviso to s.44AB an assessee who had declared profit from an eligible business under s.44AD(1) would have been required to get his accounts audited only if his total sales or gross turnover had exceeded two crore rupees during the previous year, and it set the proviso out in full. At paragraph 13, because the turnover on which presumptive profit had been disclosed was substantially less than that threshold, it concurred that no obligation to get the accounts audited had been cast on the assessee, and at paragraph 14 it therefore declined to subscribe to the penalty imposed and confirmed below, set aside the order of the CIT(Appeals) and vacated the penalty. In the words reproduced by the source cited on this page: "Because the gross turnover/sales of the assessee on which he had disclosed presumptive profit u/s.44AD of the Act, i.e., @8.02% was substantially less than the threshold limit of two crore rupees as envisaged in the "3rd proviso" to Section 44AB of the Act; therefore, we concur with the claim of the Ld. AR that no obligation was cast upon him to get his accounts audited as per the mandate of the aforesaid statutory provision."
It was decided by the ITAT on 2023-08-18 and is reported as ITA No. 23/RPR/2023, Assessment Year 2017-18. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 271B, section 44AB, section 44AD, section 44AD(1), section 143(3), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed and the penalty of Rs 61,365 vacated. Because the gross turnover on which the assessee had disclosed presumptive profit under s.44AD at 8.02 per cent was substantially less than the threshold of two crore rupees in the proviso to s.44AB, no obligation was cast upon him to get his accounts audited, and the penalty under s.271B could not be sustained (paragraphs 13 and 14). It arises in Presumptive Taxation & Audit and Penalty matters, on section 271B, section 44AB, section 44AD, section 44AD(1), section 143(3) of the Income Tax Act 1961, and was decided by Shri Ravish Sood, Judicial Member and Shri Arun Khodpia, Accountant Member (Income Tax Appellate Tribunal, Raipur Bench, Raipur). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show the computation — here the assessee had declared 8.02 per cent, comfortably in accordance with s.44AD(1), and that arithmetic is what made the proviso available. Answer the ITR-form objection head-on: the return form is not the statutory test, and if the return was accepted, scrutinised and assessed rather than treated as defective, say so. Check which version of the proviso governs the year before relying on this order: the two crore condition inside the proviso was deleted by section 15 of the Finance Act 2023 with effect from 1 April 2024, so from AY 2024-25 the turnover ceiling bites through the definition of 'eligible business' in the Explanation to s.44AD — two crore rupees, or three crore rupees where cash receipts do not exceed five per cent — and not through the proviso to s.44AB. If the turnover in fact exceeded the ceiling, this shield is unavailable and the argument has to be built elsewhere — on s.273B reasonable cause, or on whether the disputed receipts are turnover at all. Keep the s.44AD(4) point in mind: an assessee locked out by that sub-section is auditable under s.44AB clause (e) irrespective of turnover, but only if his income exceeds the maximum amount not chargeable to tax.
Searched for later treatment; none was found. That is not the same as a source affirming it. The citator returns nothing. A name search returns a single document, this order itself, and no High Court or Supreme Court record. Nothing was found applying or doubting the holding that a penalty under section 271B cannot follow a return declared under section 44AD(1), and no appeal against this order. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order runs to fifteen numbered paragraphs and ends with the disposal, so the reading reached the end. Paragraphs 9 and 10 are the submissions of the assessee's representative and the Departmental Representative respectively, not the Bench speaking; the Bench's own reasoning is at paragraphs 11 to 15, and the quote used here is from paragraph 13, which was re-read on the indiankanoon docfragment endpoint and came back in identical words. A nomenclature point that could mislead: the Bench and counsel both call the provision the '3rd proviso' to s.44AB, and counsel attributed it to the Finance Act 2017 with effect from 1 April 2017. On the departmental section page for s.44AB the same words appear as the FIRST proviso to the section, following clause (e); the difference is one of counting, not of substance, and this entry refers to it simply as the proviso to s.44AB. The attribution to the Finance Act 2017 appears in counsel's submission at paragraph 9 and was not independently verified on this pass. The text of the proviso as reproduced by the Bench at paragraph 12 matches word for word the first proviso as printed on the departmental page incometaxindia.gov.in/w/section-44ab-38 stamped 'Year: 2024 (No. 1)', which is the version in force for AY 2017-18. That same page prints immediately below it the editorial note 'Following first proviso shall be substituted for the existing first proviso to section 44AB by the Finance Act, 2023, w.e.f. 1-4-2024:' and then the substituted proviso, and the page /w/section-44ab-43 stamped 'Year: 2026' prints only the substituted proviso. Section 15 of the Finance Act 2023 confirms the substitution in the same words. The two renderings are both genuine text at different dates; neither is a retrieval artefact. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed and the penalty of Rs 61,365 vacated. Because the gross turnover on which the assessee had disclosed presumptive profit under s.44AD at 8.02 per cent was substantially less than the threshold of two crore rupees in the proviso to s.44AB, no obligation was cast upon him to get his accounts audited, and the penalty under s.271B could not be sustained (paragraphs 13 and 14).
TaxSphere, “Prakash Bhansali v ACIT — no s.271B penalty where the assessee declared under s.44AD(1) and turnover stayed under the ceiling, even though it crossed Rs 1 crore”, https://taxnotice.vittsphere.com/caselaw/case/prakash-bhansali-v-acit-271b-cannot-follow-a-return-declared-under-44ad-1/ (validity last checked 2026-09-08)
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My client wants to file under s.44AD. What turnover can he have, what rate must he declare, and can the firm still deduct partners' salary and interest from the presumptive figure?
The officer treated my cash deposits as turnover, said I crossed the s.44AB limit and levied s.271B. The quantum was settled under Vivad se Vishwas. Does the penalty still stand?
My client's turnover is Rs 6 crore and almost everything moves through the bank. Is he outside tax audit, and what counts as 'cash' for the 5 per cent test?
My client filed under s.44AD for two years and then declared below eight per cent in the third. What happens to him for the next five years, and does he now have to get audited?
