Penalty u/s 271B for non audting of accounts

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A client faces a penalty under Section 271B for failing to get accounts audited for AY 2017-18, despite significant business losses and business closure. While the audit report was filed late, case law from the Madras and Calcutta High Courts suggests that the penalty under Section 271B is discretionary. These rulings indicate that a mere failure to file on time may not always justify a penalty, especially if there are bonafide reasons for the delay.

Vikas Gupta

Vikas Gupta (Querist)
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06 February 2020 the case of one of my client was under scrutiny for A.Y 2017-18 and in that year the assessee failed to get his accounts audited due to huge losses in the business and the turnover was around 15 cr during the year now A.O has issued the penalty notice u/s 271 B can you give any suggestion or any case law of similar circumstances so that penalty can be saved as my assessee is in huge losses and has shut down his business and has also sold his shop.

Amol S Joglekar

Amol S Joglekar (Expert)
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06 February 2020 did you file the audit report during scrutiny?

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Amol S Joglekar

Amol S Joglekar (Expert)
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06 February 2020 It has been held in various decisions that mere failure to file Audit report in time will not justify levy of penalty as power. The section 271B is discretionary (Hon'ble Madras High Court in the case of Thanjavur Silk Handloom Weavers Co-operative Production and Sales Society Ltd. Vs. Union of India reported in 263 ITR 334). Similar view has been taken by the Hon'ble Calcutta High Court in the case of CIT Vs. Capital Electronics (Gariahat) reported in 261 ITR 4. Since in the instant case, there is no absolute default and the assessee has filed Audit report although belatedly, we are of the considered opinion that there was bonafide reasons for not getting the accounts audited before the statutory due date and therefore this is not a fit case for levy of penalty u/s.271B of the I.T. Act.

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