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The case involves Dakshina Kannada Nirmithi Kendra, a charitable trust, which was assessed as a business entity by the Income Tax Officer, leading to the denial of benefits under sections 11 and 12 of the Income-tax Act, 1961. The trust contested the assessment and subsequent penalties for concealment of income and failure to get accounts audited as required under section 44AB. The Tribunal found that the lower authorities incorrectly applied the principle that confirmation of quantum additions automatically leads to penalties, without independent consideration of the penalty proceedings.
Appeal details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 668565 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-06-2025
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Assessment Year
2012-2013
Judgement Text
" IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA Nos.739 to 747/Bang/2025 Assessment years: 2010-11 to 2013-14 & 2016-17 Dakshina Kannada Nirmithi Kendra, Mangalore, 3, Srinivasnagar S.O. 575 025. PAN: AAAAD 1743J Vs. The Income Tax Officer, Ward 1(1), Mangalore. APPELLANT RESPONDENT Appellant by : Shri Ravish Rao, CA Respondent by : Shri Balusamy N, Jt.CIT(DR)(ITAT), Bengaluru. Date of hearing : 10.06.2025 Date of Pronouncement : 25.06.2025 O R D E R Per Bench 1. All these appeals are filed Dakshina Kannada Nirmithi Kendra (the assessee/appellant). 2. The appeals in ITA Nos.739, 740, 742, 744 & 746/Bang/2025 are filed against the penalty order passed u/s. 271(1)(c) of the Income-tax Act, 1961 for AYs 2010-11, 2011-12, 2012-13, 2013-14 & 2016-17 by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] on ITA Nos.739 to 747/Bang/2025 Page 2 of 11 10.1.2025 by identically worded order. The facts in all these cases are similar and therefore we first take up the facts for AY 2010-11, arrive at a decision on those facts and argument of the parties and thereafter apply the same to other respective years. 3. The assessee is a charitable trust, filed its return of income for AY 2010-11 along with Form 10B showing that it is registered u/s. 12A of the Income-tax Act, 1961 [the Act] declaring its total income at Nil. The above return was processed u/s. 143(1) and subsequently picked up for scrutiny. The assessment order was passed u/s. 143(3) on 28.12.2021 wherein total income was assessed at Rs.9,20,360 considering the same as business income and denying the benefit of provisions of section 11 & 12 of the Act. Further penalty proceedings were also initiated u/s. 271(1)(c) of the Act for concealment of income. 4. During the penalty proceedings the assessee made submission. 5. The ld. AO noted that assessee is a society registered under the Karnataka Societies Registration Act, 1960, which is mainly engaged in undertaking civil contract work and projects of the Karnataka Government implemented through various departments. Based on this, the AO was of the view that assessee is carrying on activity of construction work. Accordingly the same was treated as business and trading income. The assessee contested this matter upto the level of ITAT wherein the order of the ld. AO was confirmed by the ITAT in ITA Nos.947 & 948/Bang/2019 dated 16.6.2022. Thus penalty proceedings were initiated. During the penalty proceedings the ITA Nos.739 to 747/Bang/2025 Page 3 of 11 assessee contested, but same were rejected and penalty is imposed of Rs.74,390 by order dated 7.3.2023 passed u/s. 271(1)(c) of the Act. 6. Assessee aggrieved with the same preferred appeal before the ld. CIT(A). The ld. CIT(A) confirmed the penalty stating that when the assessment order passed by the AO and confirmed by the CIT(A) for the same AY on merits against the assessee, based on the same order, penalty u/s. 271(1)(c) is confirmed. Such appellate order was passed on 10.1.2025 confirming the penalty order. 7. Assessee aggrieved with the same is in appeal before us. It is the ground of the assessee that merely because addition is confirmed by the ld. CIT(A) in quantum proceedings, penalty cannot be levied automatically. The AO has to give his satisfaction about the concealment of income and further the reason given by the ld. CIT(A) confirming the penalty that when the quantum additions are confirmed, penalty is also to be confirmed, is incorrect. He submits that the appellate order confirming the penalty is not sustainable. 8. The ld. DR vehemently supported the order of the ld. lower authorities. 9. Penalty for AY 2010-11 is levied of Rs.74,30, for AY 2010-11 of Rs.2,22,731, for AY 2011-12 of Rs.2,22,731, for AY 2012-13 of Rs.26,39,026, for AY 2013-14 of Rs.16,42,580 and for AY 2016-17 of Rs.1,21,28,712. 10. Once again we note that all the penalty orders as well as appellate orders confirming the penalty are identical. ITA Nos.739 to 747/Bang/2025 Page 4 of 11 11. We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. The facts show that in the present case the activity of the assessee is of carrying on various civil work issued by the Karnataka Govt. The assessee is registered u/s. 12A and therefore it claimed exemption u/s. 11 & 12 of the Act. As it is found by the ld. lower authorities that assessee is carrying on business, they denied the benefit of section 11 & 12 to the assessee and assessed the income of assessee as business income. Therefore the total income of the assessee was assessed at such business income and accordingly the AO initiated penalty proceedings for concealment of income u/s. 271(1)(c) of the Act. During the course of penalty proceedings, the reply of the assessee was not considered and as the addition has been confirmed in the case of quantum proceedings, on that basis itself, penalty was levied. During the penalty proceedings the ld. AO did not mention how the assessee has concealed the income. No such finding was given by the ld. AO. 12. In the appellate proceedings also, the ld. CIT(A) has held as under:- “ After perusal of the records, it has been found that the order has been passed by CIT(A) for the appellant against the same Assessment order passed by the AD u/s 143(3) of the Act. The present appeal is consequential in nature of the aforementioned order passed by the CIT(A). Therefore, this appeal is being decided on the basis of the order passed by CIT(A). Ld. CIT(A) vide order no. ITA No. 173/MNG/CIT(A)MNG/ 2012-13 for the AY 2010-11 has rejected the quantum appeal of the appellant on merit. Therefore, relying on the order of Ld. CIT(A), ITA Nos.739 to 747/Bang/2025 Page 5 of 11 penalty order u/s 271 (1 )(c) of the Act is confirmed and appellant's appeal against penalty order is dismissed.” 13. From the above, it is amply clear that the ld. lower authorities have wrongly held that when the addition is confirmed, penalty is also automatic and required to be confirmed. We find that there is a specific distinction between the assessment proceedings and penalty proceedings. There is no provision in the Income-tax Act which provides that if the quantum addition is confirmed in the hands of the assessee, the penalty u/s 271(1) ( c) is leviable automatically. If the conduct of the ld. Lower authorities is found to be correct, then we do not find any reason that there should be a separate penalty proceedings required in the Act, other than the assessment proceedings. Penalty is discretionary, which would always be the discretion of the adjudicating authority to satisfy himself that whether the assessee has committed a particular default or not. 14. Honourable Supreme court in Dilip N Shroff V CIT 161 Taxman 281 and T Ashok Pai V CIT 161 taxman 340 has approved that a finding in assessment proceedings cannot be automatically adopted for penalty proceedings. Further since burden of proof varies in assessment proceedings and penalty proceedings, therefore, the authorities must look at penalty proceedings from a different angle. No doubt the findings in assessment proceedings is a good evidence but may not be sufficient to fasten the assessee with penalty. 15. In the present case, we do not find any such finding with reasons that assessee has concealed the particulars of income is recorded in penalty ITA Nos.739 to 747/Bang/2025 Page 6 of 11 orders. In the absence of such finding, we do not find any reason to uphold the order of the ld. AO. 16. Further the ld. CIT(A) who has to apply his own mind that whether the assessee has concealed particulars of income or not and then to decide the appeal of the assessee. The ld. CIT(A) in this case has given the only reason that the order of confirmation of penalty is merely consequential as quantum appeal of the assessee on merits is already dismissed. This appellate order cannot also be sustained. 17. Thus the orders of the ld. lower authorities are reversed and penalty levied u/s. 271(1)(c) of the Act for all these years are directed to be deleted and all the 5 appeals of the assessee are allowed. ITA Nos.741, 743, 745 & 747/Bang/2025 [Penalty u/s 271B of the Act] 18. ITA Nos.741/Bang/2025 for AY 2011-12 is also filed by the assessee against the appellate order passed by the ld. CIT(A) dated 10.12.2025 wherein the appeal filed by the assessee against the penalty order passed u/s. 271B of the Act dated 16.3.2023 by the Assessment Unit levying the penalty of Rs.1,50,000 was confirmed. 19. Similarly identical appeals for AYs 2012-13, 2013-14 & 2016-17 are also filed by the assessee on identical facts and circumstances. 20. We first note down the facts and circumstances for AY 2011-12, consider the arguments of both the parties and thereafter give our decision, which will also be applied to the other 3 appeals. ITA Nos.739 to 747/Bang/2025 Page 7 of 11 21. The facts of the case for AY 2011-12 show that assessee has filed return of income on 17.1.2011 which was processed u/s. 143(1) and then taken up for scrutiny u/s. 143(2) resulting into assessment order passed on 16.12.2013 wherein total income of assessee is assessed at Rs.12,07,284 treating the income of the assessee as business income. This was because the assessee was mainly engaged in undertaking civil contract work of various schemes of the Karnataka Govt. This assessment order was confirmed by the ld. CIT(A) and the ITAT vide appellate order dated 16.6.2022. As the assessee was held to be carrying on business activity and turnover of the assessee from business was determined as per assessment order at Rs.7.5 crores, the ld. AO issued show cause notice on 16.12.2013. The assessee submitted its reply. The ld. AO stated that the reply of the assessee is not ‘considerable’, and the penalty is imposed at Rs.1,50,000 u/s. 271B of the Act by order dated 16.3.2023. The ld. AO while levying penalty held that assessee’s quantum addition has been confirmed by the ITAT, penalty u/s. 271B is levied. 22. The assessee aggrieved with the penalty order preferred appeal before the ld. CIT(A) stating that assessee was a trust and income was offered claiming exemption u/s. 11 & 12 of the Act, audit is not required to be carried out u/s. 44AB of the Act and therefore same was not obtained. As it is a reasonable cause, the penalty u/s. 271B is not leviable. The ld. CIT(A) held that the present appeal is consequential as the quantum order has been confirmed by the ld. CIT(A) and therefore there is no ITA Nos.739 to 747/Bang/2025 Page 8 of 11 merit in the appeal of the assessee. Accordingly penalty u/s. 271B of the Act was confirmed. 23. The ld. AR vehemently submitted that merely because assessment order in quantum proceedings is confirmed, it does not automatically result into penalty proceedings u/s. 271B. He submits that there was a dispute about whether the assessee is carrying on business activity or charitable activity. The assessee has offered its income claiming benefit u/s. 11 & 12 of the Act, whereas the AO and the appellate authorities have treated the assessee as carrying on business and therefore assessee should have got the accounts audited under the provisions of section 44AB of the Act. As assessee failed to obtain tax audit report, penalty u/s. 271B was levied by the O and confirmed by the ld. CIT(A). He further referred to the provisions of section 273 and submitted that reasonable cause shown by the assessee was not at all considered. Accordingly, the penalty orders and consequential appellate orders are not sustainable. 24. The ld. DR vehemently supported the orders of the ld. lower authorities. It was submitted that the assessee is carrying on business and therefore claim u/s 11 & 12 is already rejected. As the turnover of the assessee exceeded the specified limit, the assessee has failed to get its accounts audited u/s. 44AB of the Act and consequential penalty u/s. 271B is levied. 25. We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. We find that assessee is a co- ITA Nos.739 to 747/Bang/2025 Page 9 of 11 operative society found to be executing the civil contract work to various schemes of the Karnataka Govt. No doubt the assessee is registered u/s. 12A of the Act. The assessee accordingly offered its income and claimed exemption u/s. 11 & 12 of the Act. The ld. AO noted that assessee is not carrying on charitable activity but carrying on business. Accordingly benefit of section 11 & 12 was denied and the income of the assessee was assessed as business income. As the turnover of the assessee for this year is approximately Rs.7.5 crores, the ld. AO issued a notice for levy of penalty u/s. 271B of the Act. The ld. AO categorically held that in view of the quantum addition confirmed by the Tribunal, the explanation given by the assessee is not “considerable” and therefore he rejected it and levied a penalty u/s. 271B of Rs.1,50,000. The ld. CIT(A) confirmed the penalty stating that it is consequential as the quantum addition made by the ld. AO is confirmed by ITAT. In a nutshell, the ld. lower authorities have held that penalty u/s. 271B is consequential in nature as the quantum additions treating the income of the assessee as business income is confirmed by the ITAT. 26. We find that a person carrying on business is required to get his accounts audited if it exceeds the specified turnover by a specified date under the provisions of section 44AB of the Act. If the assessee fails to comply with the provisions of section 44AB without reasonable cause (u/s. 273B of the Act), he could be subjected to a penalty to the maximum amount of Rs,1,50,000 for an assessment year. ITA Nos.739 to 747/Bang/2025 Page 10 of 11 27. In the present case, the assessee has explained the reasonable cause stating that assessee is registered society u/s. 12A of the Act, claimed exemption u/s. 11 & 12 which was denied by the ld. AO and confirmed upto ITAT, itself is reasonable cause for not getting the accounts audited in terms of provisions of section 44AB of the Act. On careful reading of the order of the AO and the CIT(A), it is apparent that both the authorities have rejected the explanation of the assessee first and thereafter levied penalty u/s. 271B of the Act as a consequential penal provision when the quantum additions are confirmed. We do not subscribe to this view. Had it been so, the penalty would have proceeded to be levied in the assessment order itself. Both the proceedings are separate and independent of each other. Further the assessee has also shown the reasonable cause that it is registered u/s. 12A of the Act and benefit of section 11 & 12 were denied to it and the income of the trust is assessed as business income. Therefore, looking to the facts and circumstances of the case, we find that the orders of the ld. lower authorities are not sustainable and even otherwise there is reasonable cause for not getting the accounts audited u/s. 44AB of the act and therefore penalty u/s. 271B of the Act of Rs.1,50,000 deserves to be deleted. The ld. AO is directed to delete the same. 28. The appeals of the assessee for AYs 2012-13, 2013-14 & 2016-17 are also on identical facts and circumstances, we also quash the penalty orders passed u/s. 271B of the Act levying penalty of Rs.1,50,000 for all these years. ITA Nos.739 to 747/Bang/2025 Page 11 of 11 29. Thus, all these 4 appeals of the assessee are allowed. 30. In the result, all these 9 appeals filed by the assessee are allowed. Pronounced in the open court on this 25th day of June, 2025. Sd/- Sd/- (KESHAV DUBEY) (PRASHANT MAHARISHI) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, the 25th June, 2025. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. "
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