Letter format for droping penalty under section 274 read with section 272A(2)(e) of the income tax

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Key points for the reply to the Sec 274 notice for not filing a trust's return under Sec 139(4A):

• Penalty under Sec 272A(2)(e) is Rs 100 per day of default. It cannot be levied if there was "reasonable cause" (Sec 273B).

• Grounds that tribunals have accepted:

– income was applied for charitable purposes, so no tax was payable and there was no loss to revenue

– the return was filed voluntarily before any notice

– the default was a first default

– the trustees were honorary or not familiar with the law

– reliance on a professional's advice

– illness or death of a trustee or accountant.

• Structure of the reply:

1. Facts and the date of filing

2. No tax effect, with the computation

3. Reasonable cause under Sec 273B, with supporting documents

4. A request to drop proceedings, citing case law that penalty is not automatic for a technical or venial breach (SC in Hindustan Steel, 1972)

5. A request for a personal hearing.

• Also check:

– that the notice carries a valid DIN (CBDT Circular 19/2019)

– limitation for the penalty order under Sec 275.

• Going forward: from tax year 2026-27, under the Income-tax Act, 2025, file before the due date, and make sure Form 10B/10BB audit and Form 10BD are filed in time.