No Penalty for Not Filing Tax Audit When Mutuality Applies | ITAT

Case Details: Commissioner of Police Coimbatore City Tamilnadu Police Canteen v. Income tax Officer [2025] 179 taxmann.com 639 (Chennai - Trib.)

Judiciary and Counsel Details

• Manu Kumar Giri, Judicial Member & S.R. Raghunatha, Accountant Member
• V. Swaminathan, C.A. for the Appellant.
• Ms Anitha, Addl. CIT for the Respondent.

Facts of the Case

The assessee was a unit established under the Government of Tamil Nadu’s Home Department to cater to the requirements of police personnel for household items, such as groceries. It procured household items from various suppliers and distributed them to nine canteens (units) that served the requirements of police personnel.

The assessee was established to serve its members without any profit motive and was founded on the principles of mutuality.AO initiated separate penalty proceedings under Section 271B, as the assessee failed to furnish the tax audit report under Section 44AB. The penalty was levied for non-filing of the tax audit report despite the fact that the assessee’s activities do not constitute ‘business’ under the Income-tax Act.

On appeal, the CIT(A) upheld the order of the AO. The aggrieved assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that all transactions undertaken by the assessee were exclusively with its members, and the same were reported under the GST regime. AO, after a detailed scrutiny, accepted the returned income on the basis of mutuality, thereby acknowledging that the assessee was not carrying on any ‘business’ or ‘profession’ as contemplated under the Act.

It is well settled that the provisions of Section 44AB of the Act apply only to income under the head “Profits and gains of business or profession.” In the present case, since the assessee’s activities do not fall within the ambit of “business or profession,” the provisions of Section 44AB of the Act are inapplicable.

Therefore, the levy of penalty under section 271B for failure to file the tax audit report under section 44AB is not tenable under the present circumstances of the case.

List of Cases Reviewed

• Joint Commercial Tax Officer v. Young Men’s Indian Association 1970 taxmann.com 192 (SC) (para 17)
• Century Club in ITA Nos. 205-207/Bang/2006, dated 28.07.2006 (para 18)
• Koramangala Club v. ITO [ITA No.279 & 280 of 2010 dated 26-02-2016] (para 19) followed

List of Cases Referred to

• Joint Commercial Tax Officer v. Young Men’s Indian Association 1970 taxmann.com 192 (SC) (para 17)
• Koramangala Club v. ITO [ITA No.279 & 280/2010, dated 26-02-2016] (para 19).