Penalty for delayed audit report is not automatic; reasonable cause can justify relief under section 271B.

Penalty for delayed audit report under section 271B is not automatic. Reading sections 44AB, 271B and 139(9) together, the Madras High Court noted that the audit-report requirement is mandatory, but penalty can be imposed only through a judicial exercise of discretion and may be declined where reasonable cause is shown. On the facts, the return was filed in time, the audit delay arose from the statutory audit process under the Tamil Nadu Co-operative Societies Act and Rules, and the assessee had no control over auditor appointment. As no deliberate or contumacious default was established, the penalty was set aside.

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Issues: Whether penalty for delayed audit report under section 271B was automatic, whether the assessing authority had discretion to decline penalty on proof of reasonable cause, and whether penalty was justified on the facts.

Analysis: The statutory scheme of section 44AB, section 271B and section 139(9) was read together. The audit report requirement was mandatory, but the levy of penalty under section 271B was held to be discretionary and not automatic. The Court found that the petitioner had filed the return within time, the delay in completion of audit was attributable to the statutory audit process under the Tamil Nadu Co-operative Societies Act and Rules, the assessee had no control over appointment of auditors, and no deliberate, contumacious or dishonest default was shown. The authorities failed to consider these relevant circumstances and exercised power mechanically. Applying the principle that penalty for breach of a statutory obligation must be imposed judicially and only where the circumstances warrant it, the Court held that reasonable cause existed.

Conclusion: Penalty under section 271B was not warranted on the facts, and the impugned orders were liable to be set aside in favour of the assessee.

Ratio Decidendi: Penalty for failure to furnish an audit report under section 44AB is not automatic; the authority must exercise discretion judicially and may decline penalty where reasonable cause for the delay is established.

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