Section 271B

Section 271B — the law in short

What the courts have decided on section 271B, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Chavakkad Service Co-operative Bank v ITO High CourtHelps taxpayerNo later treatment found
  Our audit report was late because the statutory auditor was late. Can the officer still levy the s.271B penalty?
  No, where the delay is genuinely the auditor's and the report reaches the officer before the assessment is completed. The Kerala High Court set aside penalties of Rs 1.5 lakh, holding that s.273B is peremptory: no penalty can be imposed under s.271B if the assessee proves reasonable cause, and a co-operative society has no control over the timetable of the statutory auditor appointed under the State co-operative law.
• Surajmal Parsuram Todi v CIT High CourtHelps taxpayer
  I never maintained books of account at all. Can the department penalise me under section 271B for not getting them audited?
  No. The Gauhati High Court held that where an assessee has not maintained books of account at all, penalty under section 271B for failure to get them audited cannot be imposed. Maintenance of accounts is required by section 44AA, and failure there is punished by section 271A. Once that default is complete there is nothing to audit, so no failure under section 44AB can arise and section 271B has nothing to bite on. The Tribunal had overlooked this. The question was answered in the negative and in favour of the assessee, leaving the department to act under section 271A.
• TSC Fashions Pvt Ltd v ITO ITATHelps departmentNo later treatment found
  My client missed the tax audit because the old auditor stopped cooperating. Is that a reasonable cause that kills the s.271B penalty?
  Not on assertion alone. The Tribunal confirmed the penalty because the assessee produced no correspondence, email, letter, complaint or affidavit against the earlier auditor, and showed no proactive steps of its own; a bald plea of auditor non-cooperation is a mere allegation and does not discharge the burden under s.273B.
• Bright Singh Chelladurai v ITO ITATHelps taxpayerHigh Courts differ
  The officer penalised my client Rs 25,000 under s.271A for not keeping books and then another Rs 1,50,000 under s.271B for not getting them audited. Can he do both for the same year?
  No. Having levied the s.271A penalty for not maintaining books under s.44AA, the officer ought not to have levied a s.271B penalty as well — if no books were kept there was nothing to audit, so s.44AB was not violated. The Tribunal deleted the s.271B penalty and left the s.271A penalty standing.
• Haresh Ghanshyamdas Makhija v ITO ITATHelps taxpayer
  They already penalised me under 271A for keeping no books. Can they levy 271B on top?
  No. Once penalty has been levied under s.271A for non-maintenance of books, a further penalty under s.271B for failure to audit those books cannot stand — the department cannot assert a failure to audit books it has itself found not to exist. The same consolidated order deletes a separate concealment penalty under s.271(1)(c) on the footing that the officer accepted the return and assessed the identical income, so there was nothing concealed.
• 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 ITATHelps taxpayerNo later treatment found
  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.
• Lokesh Kumar Sharma v ITO ITATHelps taxpayerNo later treatment found
  I never maintained books at all. Can they penalise me under 271B for not getting them audited?
  No. Section 44AB requires a person to get 'his accounts' audited, which presupposes that accounts exist. Where the default is at the earlier stage of not maintaining books under s.44AA, the audit obligation never arises, and the penalty for that default is s.271A — not s.271B.
• Yuvraj Singh v ITO ITATHelps taxpayerNo later treatment found
  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?
  No. Where the assessee's declared turnover was below the s.44AB threshold and the officer crossed the threshold only by adding cash deposits to it, and the quantum dispute ended under the Vivad se Vishwas Scheme 2020 without any final judicial finding on the correctness of the turnover, the benefit of the doubt goes to the assessee and the s.271B penalty is reversed.
• Somnath Ghosh v ITO ITATHelps taxpayerNo later treatment found
  I kept no books at all. Can they penalise me under 271B for not getting the accounts audited?
  No. Where no books of account exist there is nothing capable of being audited, so s.271B is not attracted, and the penalty was cancelled. The further proposition - that the default, if any, is non-maintenance of books, which is dealt with by s.271A - was the assessee's argument, and the Tribunal did not state a separate holding on it.
• Banwari Sitaram Pasari HUF v ACIT ITATHelps taxpayerSuperseded by amendment
  The officer has added up my whole commodity contract value as turnover and penalised me under s.271B. Is contract value turnover?
  No. Where the assessee buys and sells commodities on a commodity exchange without delivery being taken or given, the total value of the transactions booked with the exchange cannot be treated as turnover for deciding whether accounts had to be audited under s.44AB. The transactions were speculative, no delivery took place, and the s.271B penalty was deleted.
• Statutory position — s.44AB, provisos to clause (a): the Rs 10 crore threshold and the 5 per cent cash test CBDT Circulars & InstructionsCuts both waysNo later treatment found
  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?
  The Rs 1 crore threshold in s.44AB(a) is replaced by Rs 10 crore only where BOTH tests are met — cash receipts do not exceed 5 per cent of all amounts received, and cash payments do not exceed 5 per cent of all payments made. For that purpose the statute itself deems a payment or receipt by a cheque or bank draft which is not account payee to be a payment or receipt in cash.
• Statutory position — s.44AD(4) and s.44AD(5): the five-year lock-out, and why the books-and-audit duty bites only if total income exceeds the exemption limit CBDT Circulars & InstructionsCuts both ways
  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?
  By s.44AD(4), an eligible assessee who has declared profit in accordance with s.44AD and who, in any of the five assessment years relevant to the succeeding previous years, declares profit NOT in accordance with s.44AD(1), is shut out of s.44AD for the five assessment years subsequent to the assessment year in which he broke ranks. By s.44AD(5), that assessee must keep books under s.44AA(2) and get them audited and reported under s.44AB only if his total income exceeds the maximum amount which is not chargeable to income-tax — a condition that both the department and the assessee routinely read out of the sub-section.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.