Tax Audit Mandatory Even When Income is Exempt — ITAT Kolkata Upholds Section 44AB Applicability Based on Turnover

Case Background

Jalpaiguri Zilla Regulated Market Committee Vs ITO (ITAT Kolkata)
Assessment Year: 2017–18
Bench: ITAT Kolkata
Order Date: 10th February, 2026

A significant ruling has emerged from the Kolkata bench of the Income Tax Appellate Tribunal clarifying the relationship between income tax exemption and the mandatory tax audit obligation under Section 44AB of the Income Tax Act, 1961. The Tribunal addressed a penalty imposed under Section 271B for failure to obtain a tax audit, even in circumstances where the assessee — an Agricultural Produce Market Committee — claimed full income exemption under Section 10(26AAB).

The ruling draws a clear distinction between the computation of taxable income and the compliance obligation of obtaining a tax audit, holding that these two operate in entirely separate and independent domains.

Procedural History and Delay Condonation

Before proceeding to adjudicate on the merits, the Tribunal dealt with a preliminary procedural aspect. The order of the Commissioner of Income Tax (Appeals) — NFAC, Delhi, passed under Section 250 of the Income Tax Act, 1961, was dated 19.09.2025, whereas the appeal before the Tribunal was filed on 21.11.2025.

Although the Registry had not flagged any specific delay, the assessee filed a condonation application as a precaution. The reason cited was administrative difficulty in retrieving records from earlier NFAC proceedings — a constraint that was neither intentional nor deliberate in nature. The Tribunal accepted this explanation and condoned any delay, admitting the appeal for adjudication on merits.

Grounds of Appeal Raised by the Assessee

The assessee, M/s. Jalpaiguri Zilla Regulated Market Committee (AOP), challenged the penalty order on multiple fronts:

  1. Ground 1: The penalty order under Section 271B was alleged to be legally unsustainable since the mandatory preconditions for imposing the penalty were not fulfilled, and adequate opportunity of hearing was not provided.
  2. Ground 2: The assessee, being an Agricultural Produce Market Committee, enjoys income exemption under Section 10(26AAB), making the penalty for audit non-compliance unjustified on facts.
  3. Ground 3: The turnover adopted during the ex-parte best judgment assessment under Section 144 was an estimation and could not legitimately serve as the foundation for imposing penalty under Section 271B.
  4. Ground 4: The CIT(A) dismissed the appeal solely on the ground of non-prosecution, without adjudicating the substantive merits — a course of action that violated the principles of natural justice.
  5. Ground 5: A general liberty to add, alter, or withdraw any ground at the time of hearing.

Factual Matrix

Non-Filing of Return and Best Judgment Assessment

M/s. Jalpaiguri Zilla Regulated Market Committee failed to file its return of income for AY 2017–18. Based on departmental information, the assessee had made significant cash deposits in its bank account during FY 2016–17.

A notice under Section 142(1) of the Income Tax Act, 1961 was issued directing the assessee to furnish its return of income. The assessee did not respond. A subsequent show-cause notice also went unanswered.