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Facts
The assessee passed away before the due date for filing the audit report. His legal heir, who was unfamiliar with the business and a cancer survivor, filed the return of income and audit report late. The Assessing Officer initiated penalty proceedings under Section 271B of the Income Tax Act for the delayed filing.
Held
The Tribunal held that the delay in filing the audit report was due to reasonable cause, considering the circumstances of the legal heir. The penalty imposed under Section 271B was deleted as it was a technical and venial breach without any loss to the exchequer, especially since the additions made in the assessment order were set aside.
Key Issues
Whether the penalty imposed under Section 271B of the Income Tax Act for delayed filing of the audit report is justified, considering the circumstances of the assessee's legal heir.
Sections Cited
271B, 139, 44AB, 273B, 144
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA
आदेश/ O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 10.07.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2017-18.
2 -: 2. The solitary issue that is raised is whether the First Appellate Authority (FAA) is justified in confirming penalty imposed u/s.271B of the Act amounting to Rs.1,50,000/-.
Brief facts of the case are as follows: For the assessment year 2017-18, assessee did not file his return of income u/s.139 of the Act. Assessee had made cash deposits during the demonetization period. In order to examine the source of cash deposits, a notice was issued to the assessee calling for the return of income to be filed. Assessee’s legal representative (assessee’s wife) filed the return of income on 21.09.2018 along with the audit report as mandated u/s.44AB of the Act. The deceased assessee was into the business of gas agency and has disclosed a turnover of Rs.7,90,81,037/-. Since the audit report was filed beyond the due date prescribed, the AO initiated penalty u/s.271B of the Act. During the course of penalty proceedings it was submitted that assessee had expired on 01.06.2017 (few months before the due date of filing the audit report) leaving behind his wife who was a cancer surviving patient and a married daughter. It was submitted that the legal heirs of the deceased assessee was unfamiliar with the business carried on by the deceased assessee. It was stated that legal representatives after taking over the business immediately filed the return of income and audit report. In this context, it was submitted that the delay in filing the audit 3 -: report may be condoned as there is reasonable cause as mandated u/s.273B of the Act. However, the contentions raised by the assessee during the course of penalty proceedings were rejected and penalty u/s.271B of the Act was imposed vide order dated 17.01.2022 amounting to Rs.1,50,000/-.
Aggrieved by the order imposing penalty u/s.271B of the Act, assessee filed appeal before the FAA. Before the FAA, there was a delay in filing the appeal. Assessee had filed condonation application stating that assessee’s legal heir who is a cancer surviving patient was not aware of the impugned order of penalty u/s. 271B of the Act and became aware of the order only when logging into the Income-tax portal on 26.12.2022. The FAA held that the reasons stated for condonation of delay is not reasonable and did not condone the delay (para 6.4 of the impugned order). However, he discussed the issues on merits and adjudicated the same by holding that there is no reasonable case for belated filing of the audit report since the legal representative is duty bound to file the return of income and audit report within the due date prescribed.
Aggrieved by the order of the FAA, assessee has filed the present appeal before the Tribunal. The assessee has filed a paper- book enclosing therein the death certificate, the legal heir certificate, 4 -: the return of income filed, audit report, notices and replies submitted during the course of scrutiny proceedings, penalty proceedings and the first appellate proceedings. The Ld.AR submitted that though in the quantum assessment, additions were made by the AO, the same were deleted by the FAA vide order dated 27.06.2025. By referring to page 87 of the paper-book, the Ld.AR submitted that as regards the FAA order with regard to quantum addition, the AO has given effect to the same by granting refund to the assessee. Therefore, it was submitted that there was no loss to the exchequer since there was no addition that was sustained in the quantum assessment. It was stated that the audit report was furnished much prior to completion of assessment and it is only a technical breach and venial breach without any loss to the exchequer. As regards the issue of late filing of return of income and audit report, the Ld.AR reiterated the submissions made before the AO and the FAA stating that the legal heir was not familiar with the business conducted by her late husband and the legal representative being a cancer surviving patient took time to understand the day-to- day affairs and submit the return of income and audit report. Therefore, in the interest of justice, it is submitted that penalty imposed u/s.271B of the Act needs to be deleted.
The Ld.DR on the other hand supported the order of the AO imposing penalty u/s.271B of the Act and order of the FAA confirming the same.
5 -: 7. We have heard rival submissions and perused the material on record. The assessee had expired on 01.06.2017. The copy of the death certificated is placed on record at page 1 of the paper-book submitted by the assessee. The assessee at the time of his death was 75 years aged. The assessee survived by his wife who is a legal representative. The legal representative is a cancer surviving patient. Late assessee was in the business of gas agency and was conducting the day-to-day affairs of the business. The legal representative was not involved in the business since she is a doctor. The married daughter is based in UK and returned to India in April, 2017 for taking care of her ailing parents. The legal representative not being familiar with the business would not have noticed the passing of the impugned order u/s.271B of the Act. Therefore, the delay in filing the appeal before the FAA according to us, is reasonable and we condone the same.
It is an admitted fact that additions made in the quantum assessment order (best judgment assessment u/s.144 of the Act) has been set aside in the appellate order. The AO has given effect to the appellate order wherein assessee was granted refund. Moreover, assessee had filed the return of income and audit report much before the completion of assessment proceedings. The AO while completing the assessment proceedings have the benefit of audit report. Since in 6 -: the instant case no addition is sustained, there is no loss to the exchequer. Hence, default in not filing audit report in time is only a technical and venial breach which has not resulted in any loss to exchequer. Further on facts of the instant case, since legal representative was not familiar of the business obviously they would have taken time to get familiar with the business and then filed the return of income and audit report. On the facts of the instant case, there is reasonable cause as mandated u/s.273B of the Act for belated filing of audit report u/s.44AB of the Act. Hence, we delete the penalty imposed u/s.271B of the Act. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 30th January, 2026 at Chennai.