Limitation on penalty under section 275(1)(c): show-cause issued beyond reasonable time invalidates section 271B penalty.

The note addresses whether a penalty for failure to furnish an audit report is time-barred under the limitation framework of section 275(1)(c). It explains that timelines require initiation and completion of penalty proceedings within the statutory periods or, where extensions applied, within a reasonable time thereafter; a show-cause issued substantially later falls outside that statutory contemplation. The operative effect stated is that a notice issued beyond the reasonable time and the consequent penalty are time-barred and therefore invalid, resulting in setting aside of the penalty order imposed for non-filing of the audit report.

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Issues: Whether the penalty imposed under section 271B of the Income-tax Act, 1961 for failure to furnish the audit report is time-barred under section 275(1)(c) of the Income-tax Act, 1961.

Analysis: The assessment under section 143(3) of the Income-tax Act, 1961 was completed on 26.12.2019 and did not refer to initiation of proceedings under section 271B. Section 271B penalties may be independent of assessment proceedings, but the need for an audit report under section 44AB would normally become apparent at assessment. Section 275(1)(c) provides two timelines: completion before the end of the financial year in which action is initiated or within six months from the end of the month in which action for imposition of penalty is initiated, whichever is later. Even where the latter part of clause (c) applies, proceedings must be initiated and completed within a reasonable time of the assessment order; the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 extended certain timelines to 31.03.2022, and respondents were obliged to issue notice within a reasonable time thereafter. The show cause notice in the present case was issued on 21.03.2024, which, on the facts, is beyond the reasonable time and therefore outside the statutory contemplation of section 275(1)(c).

Conclusion: The show cause notice dated 21.03.2024 and the consequent order imposing penalty under section 271B of the Income-tax Act, 1961 are time-barred under section 275(1)(c) of the Income-tax Act, 1961; the impugned penalty order is invalid and set aside.

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