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Income Tax Appellate Tribunal, ‘A’ BENCH MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI OM PRAKASH KANT
PER OM PRAKASH KANT (A.M): The captioned appeals by the assessee for A.Y. 2012-13, 2013- 14 and 2014-15 are directed against three separate orders each dated 03.12.2025 and for A.Y. 2015-16, 2016-17 and 2017-18 are directed against three separate orders each dated 11.02.2025, passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’]. As common issue-in- dispute of levy of penalty for non-auditing of the books of accounts is involved in all these appeals, therefore same were heard together and disposed off by way of this consolidated order for sake of convenience.
As facts and circumstances and grounds raised in all the appeals are identical except the amount of penalty, the appeal of the assessee for the A.Y. 2012-13 is taken as a lead year. The effective ground is grievance against levy of penalty u/s 271B of the Income-tax Act, 1961(in short ‘the Act’). For ready reference, the grounds raised in the appeal No. 2522/Mum/2025 for A.Y. 2012-13 are reproduced as under: “(1) On the basis of facts and circumstances of the case and in law, the Lrnd. Commissioner of Income Tax (Appeal) - National Faceless Appeal Centre ["CIT(A)"] erred in confirming the penalty u/s 271B amounting to Rs. 82,705/- levied by Income Tax Officer, National Faceless Appeal Centre, Delhi without appreciating the facts of the case and judgements relied upon.
Apex Education Solutions (2) The Ld. CIT(A) erred in law and on facts in confirming the penalty order without providing an opportunity of personal hearing to the appellant thereby violating the principles of natural justice. Your Appellant craves leave to add to, amend and / or alter all or any of the above Grounds of Appeal
.”
3. Briefly stated facts of the case are that during the year under consideration, the assessee, a partnership firm, was engaged in conducting various pre-school programs aimed at the development of children. The firm derived its income by way of charging fees from parents for such activities. The assessee did not file its return of income within the prescribed time. Consequently, the assessment was reopened by the Assessing Officer (“AO”). During reassessment proceedings, the AO noticed that the assessee’s turnover exceeded the statutory threshold requiring a tax audit under Section 44AB of the Income-tax Act, 1961 (“the Act”), but no such audit report had been furnished. The ld AO, therefore, issued a show cause notice proposing to levy penalty u/s 271B of the Act, directing the assessee to pay by way of penalty a sum equal to one half percent of the total sales turnover or a sum of Rs. 1,50,000/-, whichever is less. It was submitted by the assessee that it had opted for Vivad-se-Viswas scheme, 2024 (VSVS) for settlement of its dispute of the tax liability in quantum proceedings, under which an assessee was provided immunity from penalties, therefore the penalty u/s 271B of the Act levied on the assessee might be dropped. However, the ld AO rejected the reply of the assessee on ground that the VSVS,2024 didn’t provide for immunity from penalty u/s 271B of the Act. Accordingly, in absence of explanation on Apex Education Solutions merit of levy of penalty , the ld AO levied penalty to the extent of one half percent of Sales Turnover of Rs. 1,65,41,000/-, which was worked out of Rs. 82,705/-, which being less than the maximum limit of Rs. 1,50,000/-, he levied penalty of Rs. 82,705/-.
3.1 Before the ld CIT(A) , the assessee submitted that its partners were educationists with no expertise in tax matters, and that they were wholly dependent on their erstwhile consultant. That consultant failed to advise and ensure timely filing of the return and audit report. On receipt of notice under Section 148, the assessee engaged a new consultant, promptly got its books audited, and filed the return. It was thus urged that the failure was attributable to inadvertence and professional lapse, and amounted to “reasonable cause” within the meaning of Section 273B of the Act. However, the CIT(A) rejected this contention, holding that no satisfactory cause was established, and upheld the penalty.
Before us ld. counsel for the assessee reiterated the submissions made before the Ld. CIT(A) and submitted that the assessee had already settled the tax dispute in quantum proceeding under the under the VSVS, 2024, which manifest its intention of tax compliance. He submitted that the assessee was dependent on his tax consultant for tax related matters as the partners were not having knowledge or prior experience of tax related matters. He submitted that due to carelessness on the part of the earlier tax consultant, the assessee missed not only Apex Education Solutions the due date for auditing the books of accounts but also filing return of income 4.1 The ld Counsel for the assessee submitted that the partners were lay persons in tax law, and their bona fides were established by their conduct: (i) promptly filing the return and audit report once the default was noticed, (ii) settling the tax liability in full under VSVS, 2024, along with applicable interest, and (iii) maintaining compliance in subsequent years. It was submitted that no loss has accrued to the Revenue, and that the case squarely falls within the protective umbrella of Section 273B, which exempts from penalty where reasonable cause is demonstrated.
We have heard rival submission of the parties and perused the relevant material on record. In the instant case, the ld AO levied penalty u/s 271B of the Act on failure on the part of the assessee in getting his books of account audited. For ready reference, said section is reproduced as under:
271B. If any person fails, without reasonable cause, to get his accounts audited in respect of any previous year or years relevant to an assessment year or obtain a report of such audit as required under section 44AB, the Income-tax Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent. of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred thousand rupees, whichever is less . 5.1 The Section 44AB mandates audit of accounts where turnover crosses the prescribed threshold. The provision of section 44AB prescribing requirement of books of accounts is also reproduced as under for ready reference:
“Section - 44AB, Income-tax Act, 1961 - FA, 2025 58[Audit of accounts of certain persons carrying on business or profession. 59 44AB. 60Every person,- (a) carrying on business shall 61, if his total sales, turnover or gross receipts 61, as the case may be, in business exceed or exceeds 62[one crore rupees] in any previous year 63[***] 64[***]: 65[Provided that in the case of a person whose- (a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount; and (b) aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment, this clause shall have effect as if for the words “one crore rupees”, the words “ 66[ten]crore rupees” had been substituted:] 67[Provided further that for the purposes of this clause, the payment or receipt, as the case may be, by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt, as the case may be, in cash; or] (b) carrying on profession shall, if his gross receipts in profession exceed 68[ 69[fifty] lakh rupees] in any 70[previous year; or (c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under 71[section 44AE ] 72[or section 44BB or section 44BBB], as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any 73[previous year; or]] 74[***] 75[(d) carrying on the 76[profession] shall, if the profits and gains from the 76[profession] are deemed to be the profits and gains of such person under 77[section 44ADA] and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his 76[profession] and his income exceeds the maximum amount which is not chargeable to income-tax in any 78[previous year; or]] 79[(e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,] get his accounts of such previous year 80[***] audited by an accountant 81before the specified date and 82[furnish by] that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed : 83[Providedthat this section shall not apply to a person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA:] 84[Provided85[further]that this section shall not apply to the person, who derives income of the nature referred to in 86[***] section 44B or 87[section 44BBA], on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later : Provided 88[also] that] in a case where such person is required by or under any other law to get his accounts audited 89[***], it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date 90 and 91[furnishes by] that date the report of the audit Apex Education Solutions as required under such other law and a further report 92[by an accountant] in the form prescribed under this section. Explanation.-For the purposes of this section,- (i) “accountant” shall have the same meaning as in the Explanation below sub- section (2) of section 288; 93[(ii) “specified date”, in relation to the accounts of the assessee of the previous year relevant to an assessment year, means 94[date one month prior to] 95[the due date for furnishing the return of income under sub-section (1) of section 139].]]” 5.2 Further, the Section 273B of the Act carves out a significant exception: where the assessee demonstrates “reasonable cause” for failure, no penalty shall be imposed under, inter alia, Section 271B of the Act. For ready reference, the relevant section 273B is reproduced as under:
273B. Notwithstanding anything contained in the provisions of 39[clause (b) of sub-section (1) of] 40 [section-271, section- 271A, section-271B, 41 [section-271BB,] section-271C, section- 271D, section-271E, clause (c) or clause (d) of sub-section (1) or sub- section (2) of section-272A, sub-section (1) of section-272AA] or 42[sub- section (1) of section-272BB or] clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of section-273, 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.] 5.3 It is a settled principle that penalty cannot be imposed merely for technical or venial breaches. In Hindustan Steel Ltd. v. State of Orissa (83 ITR 26, SC), the Hon’ble Supreme Court held that penalty cannot be imposed unless the conduct is contumacious or deliberate in defiance of law. 5.4 In view of the above background of provisions of law, if an assessee demonstrates existence of a reasonable cause for not getting the books of account audited before due date, then under the provision of sec 273B of the Act the penalty may not be levied.
Apex Education Solutions 6. In the instance case, the assessee has demonstrated that due to lack of knowledge of tax related matters by the partners of the firm, neither the return of income was filed nor books of accounts were audited, but when this mistake was brought to the notice of partners, the assessee immediately got its books of accounts audited and filed the return of income. The assessee also settled the tax liability, which arose in quantum assessment proceedings under the VSVS, 2024 by way of paying due taxes. In the present case, the Revenue does not dispute that:
the partners were educationists with no background in tax compliance; the assessee relied on its tax consultant, whose negligence caused the lapse; upon detection, the assessee immediately got the books audited and filed its return; the entire tax liability has since been settled under VSVS, 2024, with taxes and interest duly discharged; and subsequent compliance has been regular.
6.1 These facts, taken together, establish that the failure was not willful, but attributable to reasonable cause. The legislative intent behind Section 273B is precisely to mitigate hardship in such circumstances. The ld CIT(A), while mechanically affirming the penalty, failed to appreciate the substance of the assessee’s explanation and the bona fide conduct evidenced by the prompt corrective action and full settlement of dues. Once reasonable 6.2 In view of the above discussion, we are of the considered view that the assessee has discharged its burden of showing reasonable cause within the meaning of Section 273B. The lapse was neither deliberate nor contumacious. Therefore, we deem it appropriate to set aside the orders of the lower authorities on the issue in dispute and delete the penalty levied for not getting the books of accounts audited on time. 6.3 The grounds of the appeal of the assessee are accordingly allowed. 7 Since in all the remaining appeals the issue-in-dispute involved is identical except the amount of penalty, therefore following our finding in assessment year 2012-13, the penalty levied for not getting accounts audited in other remaining years is also deleted mutasis mutandis. 8 In the result, all the appeals of the assessee are allowed.