Bona fide belief and reasonable cause can defeat penalty for non-filing of audit report where audit applicability is genuinely disputable.

Penalty under section 271B was held unsustainable where a sub-broker had a bona fide belief that its share-broking turnover did not attract section 44AB and, on the facts, the relevant turnover basis did not exceed the statutory limit. That belief was supported by the assessee's assessment history and absence of earlier or later penalty action, establishing reasonable cause under section 273B. The non-filing of the audit report was therefore excused and the penalty was cancelled.

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Issues: Whether penalty under section 271B of the Income-tax Act, 1961 was exigible where the assessee entertained a bona fide belief that its share-broking turnover did not attract section 44AB, and whether such belief constituted reasonable cause under section 273B.

Analysis: The assessee dealt in shares as a sub-broker and credited brokerage separately, with the turnover on the relevant basis not exceeding the statutory limit. The assessee had filed the return without an audit report under a bona fide belief that audit under section 44AB was not required. That belief was supported by the treatment in earlier and later assessments, where no penalty proceedings under section 271B had been initiated. The facts brought the case within the scope of reasonable cause contemplated by section 273B.

Conclusion: Penalty under section 271B was not sustainable and was directed to be cancelled.

Ratio Decidendi: A bona fide belief, supported by surrounding assessment history and facts showing reasonable cause, can exclude penalty under section 271B notwithstanding non-filing of an audit report where applicability of section 44AB is genuinely disputable.

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