Reasonable cause shields first-year business from audit penalty where failure to obtain accounts audit was bona fide and unintentional.

Penalty under section 271B for failure to get accounts audited under section 44AB was held unsustainable where the assessee was in the first year of business, turnover was only slightly above the audit threshold, and the lapse was due to ignorance of the requirement. The Tribunal treated the default as bona fide and not mala fide, and applied the reasonable-cause protection under section 273B. On that basis, the penalty was cancelled.

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Issues: Whether penalty under section 271B of the Income-tax Act, 1961 was exigible for failure to get accounts audited under section 44AB of the Income-tax Act, 1961, or whether the assessee had reasonable cause under section 273B of the Income-tax Act, 1961.

Analysis: The assessee was in the first year of business and the turnover was only slightly above the audit threshold. The failure to obtain audit was attributed to ignorance of the statutory requirement. In these circumstances, the default was held to be bona fide and not actuated by mala fide intent. The statutory protection under section 273B was held to apply, since the lapse constituted reasonable cause.

Conclusion: The penalty was not sustainable and was cancelled.

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