Reasonable cause defeats penalty for delayed audit report filing where assessments were completed using the reports and no revenue prejudice arose.

Penalty under Section 271B for delayed furnishing of the Section 44AB audit report was held unsustainable where the audit reports were filed before assessment completion and were used in finalising the assessments. The co-operative society assessees had no effective control over the statutory auditors' timing, and no material showed any fault on their part. As the delay caused no prejudice to the Revenue, Section 273B applied because reasonable cause was established. The penalty provision was therefore not to be applied mechanically for mere delay, and the Board's circular also supported non-imposition of penalty in such circumstances.

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Issues: Whether penalty under Section 271B of the Income-tax Act, 1961 was exigible for delayed furnishing of the audit report under Section 44AB of the Income-tax Act, 1961, and whether the assessees had established reasonable cause within Section 273B of the Income-tax Act, 1961.

Analysis: The audit reports were furnished before completion of the assessments and were relied on by the Assessing Authority while finalising the assessments. The assessees, being co-operative societies, had no effective control over the time taken by the statutory auditors under the Kerala Co-operative Societies Act and Rules to complete the audit. There was no material to show that the delay was attributable to any fault of the assessees. In such circumstances, the delay did not cause prejudice to the Revenue, and the statutory bar in Section 273B operated because reasonable cause was shown. The penalty provisions under Section 271B were therefore not to be applied mechanically as an automatic consequence of delay. The binding circular of the Board also supported the view that belated production of audit reports, where it does not prejudice assessment, need not invite penalty.

Conclusion: The assessees succeeded in establishing reasonable cause, and the penalty under Section 271B could not be sustained.

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