When Failure to get accounts audited

What happen when Failure to get accounts audited

Section 271B of the Income Tax Act mandates a penalty for failure to comply with the audit requirements under Section 44AB. However, Section 273B provides relief by allowing the penalty to be waived if the assessee can prove a reasonable cause for such failure. While Section 271B prescribes penalties for non-compliance with the audit requirements, Section 273B serves as a safeguard for taxpayers who face genuine difficulties. If any of the situations mentioned above (or similar ones) apply, the assessee can potentially avoid the penalty by demonstrating reasonable cause. However, the proof and explanation must be convincing enough for the tax authorities.

Penalty under Section 271B : If a person fails to:

• • Get their accounts audited as required under Section 44AB, or
  • Furnish the audit report within the prescribed time,

The Assessing Officer may impose a penalty, which is:

• • 0.5% of the total sales, turnover, or gross receipts, or
  • ₹1.5 lakh, whichever is lower.

Relief under Section 273B: Reasonable Cause

However, under Section 273B, no penalty will be imposed if the person can prove a reasonable cause for their failure. The onus is on the assessee to demonstrate that such failure occurred due to circumstances beyond their control.

Commonly Accepted “Reasonable Cause” Instances :

Tribunals and courts have accepted various situations as valid reasons for non-compliance, including:

• Death or incapacitation of a key person (such as a partner in charge of accounts).
• Failure of the official e-filing portal of the Tax Dept during the filing process.
• Labour disruptions, such as long-term strikes or lockouts.
• Bona fide misinterpretation of the term “turnover” or audit requirement, often based on expert advice.
• Seizure of accounts by authorities, leading to their unavailability.
• Natural calamities or public unrest, making compliance impossible.
• Resignation of the tax auditor leading to unavoidable delays.
• Loss of financial records due to unforeseen events like fire or theft.

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