Loading judgment…
Facts
The assessee filed a belated return and audit report for AY 2018-19. A penalty under Section 271B of the Income Tax Act was levied for failure to file the audit report within the due date. The assessee claimed a reasonable cause due to a medical emergency.
Held
The Tribunal held that the assessee had demonstrated a reasonable cause for the delayed filing of the audit report due to a medical condition. The penalty levied under Section 271B was annulled as it was a technical breach without any loss to the exchequer.
Key Issues
Whether the penalty under Section 271B for delayed filing of the audit report is sustainable when the assessee proves a reasonable cause for the delay.
Sections Cited
271B, 44AB, 273B, 139(4), 143(3), 250, 139(9)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A’’BENCH: BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
This appeal at the instance of the assessee is directed against the order of the ld. CIT(A)/NFAC dated 23.06.2025 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1077508702(1) for the assessment year 2018-19 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”).
The assessee has raised the following grounds of appeal:
Brief facts of the case are that the assessee filed belated return of income u/s 139(4) of the Act for the assessment year 2018-19 on 31.3.2019 admitting income of Rs.11,03,040/-. The assessee also filed the audit report u/s 44AB of the Act on. 31.3.2019. The belated return filed by the assessee found defective by CPC and intimated the same to the assessee. Hence, the assessee filed another return of income u/s 139(9) of the Act on Bhadravathi Ramalingasetty Manjunath Setty, Shivamogga Page 4 of 12 10.5.2019. The case was thereafter selected for limited scrutiny i.e. “bonus or commission to employees” under CASS and accordingly notices u/s 143(2) as well as 142(1) of the Act were issued to the assessee calling for details along with evidences. The assessee furnished all the details in response to the said notices. Based on the reply furnished by the assessee, the assessment was completed on 16.6.2020 u/s 143(3) r.w.s. 143(3A) and 143(3B) of the Act by accepting the returned income.
3.1 Further, the penalty proceedings u/s 271B of the Act was initiated vide notice dated 14.8.2024 for failure to get accounts audited or failure to furnish a report of such report as required u/s 44AB of the Act. The assessee during the course of penalty proceedings submitted that the assessee had maintained the books of accounts as required u/s 44A of the Act and also got the audit report u/s 44AB of the Act and uploaded the same to e-filing portal on 31.3.2019. There was no deliberate, willful violation and absolute default on the part of the tax payer and therefore requested to drop the penalty proceedings. Further, during the course of penalty proceedings, the proprietor also submitted his medical certificate in which the doctor had advised him for bed rest for 5 months due to his cardiac condition. The AO however did not accept the contention due to the following reasons:- a) As per return of income filed, the date of birth of the assessee is 5.10.1966 but the assessee has claimed as senior citizen, however the assessee has not attained the age of 60 years during the financial year 2017-18. b) The medical certificate produced by the assessee neither mentions the time from which the assessee was under the care of the doctor nor it is supported by bills etc. c) From the CPC 2.O website, it was ascertained that the assessee is always habitual in filing the return of income Bhadravathi Ramalingasetty Manjunath Setty, Shivamogga Page 5 of 12 belatedly u/s 139(4) of the Act and not filing the return u/s 139 of the Act. Further, the assessee had not filed audit report u/s 44AB of the Act within specified due date i.e. 31.10.2018 and filed the report only on 31/03/2019 & therefore, there is a delay in giving books of accounts for audit on which the assessee is silent. d) The issue that books of accounts were maintained in Tally software is not adequate as auditor needs to examine the correctness of accounts maintained based on certain checks. e) Further, it is ascertained from the Form No.3CB/3CD filed on 31.3.2019 by the assessee that the books of accounts of the assessee were audited by an auditor only on 29.3.2019. Hence, it is clear that the assessee had not filed the audit report u/s 44AB of the Act within the specified due date.
3.2 In view of the above facts and circumstances, the AO was satisfied that this is a fit case for imposition of penalty u/s 271B of the Act and the penalty will be the minimum of Rs.1,50,000/- or 0.5% of the total turnover i.e. Rs.5,97,056/-( 0.5% of 11,94,11,286/-) as per the provisions of section 271B of the Act for failure to furnish the audit report as required u/s 44AB of the Act within due date and accordingly levied penalty of Rs.1,50,000/- u/s 271B of the Act for the assessment year 2018-19.
Aggrieved by the penalty order of the AO passed u/s 271B of the Act dated 9.11.2024, the assessee preferred an appeal before the ld. CIT(A)/NFAC.
The ld. CIT(A)/NFAC dismissed the appeal of the assessee by reproducing the contention of the AO and held that the default u/s Bhadravathi Ramalingasetty Manjunath Setty, Shivamogga Page 6 of 12 44AB stands established and the assessee had failed to substantiate the existence of reasonable cause as envisaged u/s 273B of the Act.
Aggrieved by the order of ld. CIT(A)/NFAC dated 23.6.25, the assessee has filed the present appeal before this Tribunal. The assessee has filed written submission along with an Affidavit, Doctor’s certificate and clinical discharge summary in support of his case.
Before us, the ld. A.R. of the assessee vehemently submitted that it is not a case that no audit report has been filed before completion of the assessment. In fact, the assessee had filed the audit report on 31.3.2019 along with the return of income. The delay in filing the audit report was attributed to the medical reasons and during the course of penalty proceedings, the assessee had produced the medical certificate. However, the ld. A.O. rejected the same by merely stating that the medical certificate did not mention the time from which the assessee was under the care of the doctor and it is also not supported by any bills.
7.1 The ld. A.R. of the assessee vehemently submitted that the delay was due to reasonable cause and the delay in filing the audit report was not intentional, willful or deliberate and was occasioned due to circumstances beyond the control of the assessee and accordingly prayed that the penalty may be deleted.
The ld. D.R. on the other hand supported the order of the authorities below and submitted that there is a clear violation to furnish the audit report within the due date as required u/s 44AB of the Act and accordingly penalty levied u/s 271B may be sustained. Further, the ld. D.R. submitted that the assessee is a
We have heard the rival submissions and perused the materials available on record. It is an undisputed fact that the assessee had filed the audit report on 31.3.2019 along with belated return of income u/s 139(4) of the Act. Therefore, it is not a case that no audit report has been filed by the assessee. The AO while completing the assessment proceeding had also considered the audit report filed by the assessee while passing order u/s 143(3) of the Act on 16.6.2020. While passing the penalty order, the AO reproduced the medical certificate submitted by the assessee in which we found that the doctor had advised him for the bed rest for 5 months due to his cardiac condition. We also take note of the fact that the ld. AO rejected the said medical certificate by merely stating that the medical certificate did not mention the time from which the assessee was under the care of the doctor and also the same is not supported by bills, etc.
9.1 Before proceeding further, we may take note of the provisions of section 44AB, 271B & 273B of the Act for the purpose of this case, which reads as under: 44AB. Audit of accounts of certain persons carrying on business or profession. Every person,— (a)carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year [***]: [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 "[ten] crore rupees" had been substituted:] [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 Bhadravathi Ramalingasetty Manjunath Setty, Shivamogga Page 8 of 12 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 fifty lakh rupees in any 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 section 44AE 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 previous year; or (d)carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under 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 profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or (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 audited by an accountant before the specified date and 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: Provided that this section shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD and his total sales, turnover or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year: Provided [further] that this section shall not apply to the person, who derives income of the nature referred to in section 44B or 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 [also] that in a case where such person is required by or under any other law to get his accounts audited , 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 and furnishes by that date the report of the audit as required under such other law and a further report 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; (ii)"specified date", in relation to the accounts of the assessee of the previous year relevant to an assessment year, means [date one month prior to] the due date for furnishing the return of income under sub-section (1) of section 139.
271B. [ Failure to get accounts audited. [Inserted by Act 21 of 1984, Section 30 (w.e.f. 1.4.1985).] - If any person fails ][* * *] [ Omitted by Act 46 of 1986, Section 21 (w.e.f. 10.9.1986).] to get his accounts audited in respect of any previous year or years relevant to an assessment year or [furnish a report of such audit as required under section 44-AB] [ Substituted by Act 22 of 1995, Section 48, for certain words Bhadravathi Ramalingasetty Manjunath Setty, Shivamogga Page 9 of 12 (w.e.f. 1.7.1995).], the [Assessing Officer] [ Substituted by Act 4 of 1988, Section 2, for " Income-tax Officer" (w.e.f. 1.4.1988).] 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. 273B. [ Penalty not to be imposed in certain cases. - Notwithstanding anything contained in the provisions of [clause (b) of sub- section (1) of] [section 271, section 271-A] [Substituted by Act 4 of 1988, Section 114, for " section 270, clause (a) or Clause (b) of sub-Section (1) of section 271, section 271-A, section 271-B, sub-Section (2) of section 272-A, sub-Section (1) of section 272-AA, sub-Section (1) of section 272-B" (w.e.f. 1.4.1989).][, section 271- AA] [ Inserted by Act 14 of 2001, Section 94 (w.e.f. 1.4.2002).][, section 271 B, ] [Inserted by Act 46 of 1986, Section 26 (w.e.f. 10.9.1986).][section 271- BA] [Inserted by Act 14 of 2001, Section 94 (w.e.f. 1.4.2002).][, section 271-BB,] [ Inserted by Act 12 of 1990, Section 50 (w.r.e.f. 1.4.1990).] [section 271-C, section 271-CA] [ Substituted by Act 21 of 2006, Section 55, for " section 271-C" (w.e.f. 1.4.2007).][, section 271-D, section 271-E, ] [Inserted by Act 46 of 1986, Section 26 (w.e.f. 10.9.1986).][section 271-F, ] [Substituted by Act 26 of 1997, Section 55, for " section 271-F" (w.r.e.f. 1.4.1997).][section 271-FA,] [ Substituted by Act 18 of 2005, Section 61, for " Section 271-FA" (w.e.f. 1.4.2006).] [section 271FAB, section 271FB, section 271G, section 271GA] [Substituted 'section 271-FB, section 271-G' by Finance Act, 2015 (No. 20 of 2015), dated 14.5.2015.][, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272-A, sub-section (1) of section 272-AA or ] [Inserted by Act 46 of 1986, Section 26 (w.e.f. 10.9.1986).][section 272-B or] [ Inserted by Act 20 of 2002, Section 106 (w.e.f. 1.6.2002).] [sub-section (1) or sub-section (1-A) of ] [Substituted by Act 21 of 2006, Section 55, for " sub-section (1) of section 272-BB" (w.e.f. 1.6.2006).][section 272-BB] [ Substituted by Act 20 of 2002, Section 106, for " section 272-BB or" (w.e.f. 1.6.2002).][or sub-section (1) of section 272-BBB or] [Substituted by Act 21 of 2006, Section 55, for " sub-section (1) of section 272- BB" (w.e.f. 1.6.2006).] [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.]”.
9.2 An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the 9.3 Section 273B starts with the non obstante clause and provides that notwithstanding anything contained in several provisions enumerated therein including section 271B, no penalty shall be imposable on the person or the assessee, as the case may be, for failure referred to in the said provisions, if he proves that there was reasonable cause for the said failure. A clause beginning with ‘notwithstanding anything’ is sometimes appended to a section in the beginning with a view to give the enacting part of the section in case of conflict, an overriding effect over the provision or Act mentioned in the non obstante clause. A non obstante clause may be used as a legislative device to modify the ambit of the provision or law mentioned in the non obstante clause, or to override it in specified circumstances. The true effect of the non obstante clause is that in spite of the provision or the Act mentioned in the non obstante clause, the enactment following it will have its full operation or that the provisions embraced in the non obstante clause will not be an impediment for the operation of the enactment. Therefore, in order to bring in application of section 271B in the backdrop of section 273B, absence of reasonable cause, existence of which has to be established by the assessee, is the sine qua non.
9.4. Levy of penalty under section 271B is not automatic. Before levying penalty, the concerned officer is required to find out that even if there was any failure referred to in the concerned provision, the same was without a reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause which was the reason for the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider Bhadravathi Ramalingasetty Manjunath Setty, Shivamogga Page 11 of 12 whether the explanation offered by the assessee or the person, as the case may be, as regards the reason for failure, was on account of reasonable cause. ‘Reasonable cause’ as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as a probable cause. In the present case the assessee could only file the audit report on 31.3.2019 and the same was also considered while passing the assessment order u/s 143(3) of the Act. Before us also the assessee filed an affidavit along with the Doctor’s certificate and Clinical Discharge summary. This clearly establishes the reasonable cause for filing the Audit report belatedly.
9.5 Taking into cumulative effect of the explanation offered by the assessee, and from a reading of the relevant provisions of section 271B r.w.s. 44AB of the Act, we are of the considered opinion that assessee demonstrated that there was a reasonable cause for the said failure as per provisions contained in section 273B of the Act. It is an undisputed fact that the assessee had submitted a medical report from a doctor and stated that due to his cardiac condition, the doctor had advised him for complete bed rest for 5 months and for these reasons, the assessee could not file the audit report within the due date as specified under the Act. The assessee could only file the audit report on 31.3.2019 and the same was also considered while passing the assessment order u/s 143(3) of the Act.
9.6 We find that the assessee had only committed a technical breach without any loss to the exchequer of the Government as there was no addition made by the AO while concluding the assessment proceedings. The AO has also observed that the case is audited u/s 44AB of the Act. The AO after considering the audit report had concluded the assessment proceedings by accepting the returned income. This Tribunal has also taken a consistent view Bhadravathi Ramalingasetty Manjunath Setty, Shivamogga Page 12 of 12 that when the tax audit report was made available to AO before the completion of the assessment proceedings, then for technical venial breach without any malafide intention on the penalty cannot be levied u/s 271B of the Act.
9.7 Further, there is nothing contrary that has been brought on record by the ld. D.R. at the time of hearing. We are of the opinion that assessee has only committed a technical breach without any loss to the exchequer of the Government. Above being the position, the ld. CIT(A)/NFAC non-consideration of the plea raised by the assessee about the existence of reasonable cause vitiate the order. On that score, we find that the order passed by the ld. CIT(A)/NFAC to be non-maintainable and accordingly we annul the same and cancel the penalty levied u/s 271B of the Act and direct the AO to delete the penalty.