Section 271B : 12 Reasonable Cause for Non Imposition of Penalty

section%20271BSection 271B of the Income Tax Act provides penalty in case a tax payer required to get his accounts auidted u/s44AB does not comply with section 44AB or fails to furnish the audit report within in due date ( generally 30th September ) . However , section 273B of the I.T.Act states that no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.  Therefore , this post is providing you a list of 12 such reasonable causes , accepted by the Courts and Tribunals for non-imposition of penalty u/s 271B .

List of Reasonable Cause for Non-Imposition of Penalty u/s 271B

Approved by High Courts

  1. Audit Report Obtained , But Delay Because of Late Filing of Tax Return– CIT vs K.K. Spun Pipe  200 CTR 107
  2. Delay due to the fact that accountants left services and partners not competent to complete accounts. CIT vs Ashoka Dairy [2005 ] 279 ITR 32 (P & H)
  3. Delay due to illeness of accountant -Madras High Court in Lakshmi Card Clothing Manufacturing Co. (P.) Ltd. vs DCIT [2013] 353 ITR 544 (Madras) held that Where delay in filing audit report was attributable to illness of assessee’s auditor, penalty under section 271B should not be imposed. Similar judgment can be found in Calcutta High Court in  CIT vs Ramkrishna Stores  253 ITR 175 (Cal)
  4. Many proprietorship concern, some exceeding turnover limit , some not . Tax audit was done only in case of properitory concern in which turnover was more than specified limit given u/s 44AB under bonafide belief that if the  turnover was less than specified limit, tax audit was not required  . Karnataka High Court in ACIT vs Dr. K Satish Shetty [ 2009] 310 ITR 366 (Kar) another judgment is that of Rajasthan High Court in Bajrang Oil Mills vs ITO [2007] 295 ITR 314 (Rajasthan)
  5. Bonafide belief based on Profesional JournalGujarat High court in ITO vs Sachinam Trust [ 2010]  320 ITR 445 (Guj) held that since the assessee under bonafide belief based on an artcile publsihed in Bombay Chartered Accountants Society that in case of banking business , gross receipt will be considered for determining the requirement of tax audit and the amount of money lent is not to be taen in account , penalty u/s 271B is not not imposable.
  6. Assessee provided books to auditor , but auditor failed to audit -Where assessee had provided books of account to auditors in time, but failed to get accounts audited in time due to delay on part of auditors – Allahabad High Court in CIT vs U.P. Rajya Sahkari Evam Bhoomi Vikas Bank Ltd [2013] 353 ITR 152 (Allahabad)
  7. Where the Auditor appointment not within assessee’s control – Where it was not within assessee’s domain to have auditor appointed by registrar or State Government to complete audit within specified date, no penalty under section 271B should be imposed on assessee Uttrakhand High Court in CIT vs Iqbalpur Cooperative Cane Development Union Ltd [2013] 356 ITR 343 (Uttarakhand)  , Allahabad High Court in CIT vs District Co-Operative Bank [2013] 217 Taxman 145 (Allahabad)(MAG.)
  8. Filing of unsigned report of auditor by mistake . High Court considered as  merely an irregularity and where it was duly rectified on being pointed out, no case for levying penalty under section 271B was made out.Allahabad High Court in CIT, Meerut vs Shivalik Medicare (P.) Ltd 2014] 223 Taxman 19 (Allahabad)(MAG)

Decision of ITAT

9. Bonafile belief of non application of audit u/s 44AB due to ICAI guidelinesITAT , Jaipur Prem Prakash Gupta vs ITO [2015] 168 SOT 58 (Jaipur – Trib.) Where assessee, a licensed vendor for sale of stamps on commission was under a bona fide belief that he was not liable for audit of accounts under section 44AB as per circular No. 452 and ICAI guidelines, penalty under section 271B was not to be imposed

10. Sudden resignation of Auditor – ITAT , Hyderabad in caase of Progressive Constructions (P) Ltd vs ITO 20 ITD 182 (Hyd) held that the delay in filing of audit report due to resignation of auditor is a resoanble cause for non- imposition of penalty u/s 271B

11. Delay in finalization of accounts due to reconciliation of accounts with customers and others – ITAT , Ahmedabad , in H. Ajitbhai & Co vs Ass.CIT  [ 1993] 47 TTJ (Ahd.)_ 22.

12. Late  completion of statutory audit by auditors and consequent late receiving of tax audit report constitutedreasonable cause for non-compliance with provisions of section 44AB APL India (P) Ltd vs JCIT (OSD) [2014] 62 SOT 91 (Mumbai – Trib.)(URO)

There are even more reasonable causes which were accepted by High Courts and Tribunals for non levy of penalty u/s 271B . That means that if a fault in non audit of accounts u/s 44AB has happened, it is important to find if there was a reasonable cause for the occurance of such a fault. The I.T. Authorities must be impressed upon with forceabke argument about such “reasonable cause”.

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