ITAT Chennai Cancels Rs 1.5 Lakh Penalty For Delayed Audit Filing, Cites Reasonable Cause

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) on 2 February deleted a penalty of Rs. 1,50,000 imposed on a jewelry export company for delayed filing of its audit report under Section 44AB of the Income-tax Act, 1961.

A Bench of Judicial Member Abhy T. Varkey and Accountant Member S.R. Raghunatha, observed that penalty provisions could not to be mechanically invoked and that the assessee was prevented by “reasonable cause.”

They held:

“Penalty provisions being quasi-criminal in nature, the same cannot be mechanically invoked where reasonable cause is duly demonstrated.”

Sahana Jewellery Exports Private Limited, the assessee had challenged the order dated 28 August 2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, which had confirmed the penalty levied under Section 271B of the Act. Section 271B provides for penalty for failure to get accounts audited or furnish the audit report within the prescribed time, while Section 44AB mandates audit for specified assessees.

The Tribunal noted that the assessee had furnished its audit report on 11 January 2017, beyond the extended due date of 17 October 2016. Penalty proceedings were initiated, and the Assessing Officer levied the penalty under Section 271B.

Before the Tribunal, the assessee submitted that its Managing Director, aged about 68 years, was bedridden from 10 October 2016 to 5 January 2017 due to illness, which prevented effective supervision of statutory compliances. A medical certificate was placed on record.

The Bench observed that the company was closely held and statutory compliances were supervised by the Managing Director. It noted:

“The explanation furnished by the assessee remains uncontroverted by the Revenue and there is nothing on record to suggest any deliberate or contumacious conduct on the part of the assessee. It is also noted that the audit report was ultimately furnished, though with delay, and there is no allegation of suppression of income on this account.”

Accordingly, the ITAT Bench directed deletion of the penalty of Rs. 1,50,000 levied under Section 271B and set aside the order of the CIT(A).

For the Appellant: N. Arjun Raj, Advocate