ITAT Upholds Section 271B Penalty for Failure to Audit Accounts; No “Reasonable Cause” Shown

ITAT Upholds Section 271B Penalty for Failure to Audit Accounts; No “Reasonable Cause” Shown

Issue

Whether the penalty levied under Section 271B of the Income-tax Act for the failure to get books of account audited as required under Section 44AB is sustainable when the assessee fails to provide any satisfactory explanation or “reasonable cause” for the default.

Facts

• Context: The assessee filed appeals for Assessment Years 2013-14 and 2014-15.

• The Default: The assessee had declared a turnover exceeding the specified limit of Rs. 1 crore in both years. Under Section 44AB, this mandated a tax audit of the books of account.

• Non-Compliance: The assessee failed to get the books audited. Consequently, the lower authorities levied penalties under Section 271B amounting to Rs. 81,564/- (AY 2013-14) and Rs. 78,588/- (AY 2014-15).

• Appellate Proceedings: The CIT(A) confirmed the penalties. Before the Tribunal, the bench specifically asked the assessee to explain any mitigating circumstances for the non-compliance.

Decision

• The Income Tax Appellate Tribunal (ITAT) dismissed both appeals filed by the assessee.

• Lack of Explanation: The Tribunal observed that the assessee offered no reply, let alone a satisfactory one, to explain the failure to conduct the audit.

• No Reasonable Cause: To avoid the penalty under Section 271B, an assessee must demonstrate “reasonable cause” (as envisaged under Section 273B, though referred to as 274 in the text). Since no such cause was shown, the Tribunal expressed its inability to interfere with the lower authorities’ findings.

• Conclusion: The penalties for both years were upheld.

Key Takeaways

• Mandatory Audit Threshold: Compliance with Section 44AB is mandatory once the turnover exceeds the specified limit (Rs. 1 crore in this context). Ignorance or silence is not a defense.

• Burden of Proof on Assessee: In penalty proceedings, the burden lies on the taxpayer to prove the existence of “reasonable cause” (e.g., illness, seizure of books, statutory impossibility) for the default.

• Consequence of Silence: If an assessee fails to provide a valid reason for the default before the appellate authorities, the confirmation of the penalty is almost automatic.