Reasonable cause defeats tax audit penalty where the assessee's bona fide explanation and conduct show no mala fide default.

Penalty under section 271B for failure to obtain tax audit under section 44AB is not automatic where the assessee establishes reasonable cause under section 273B. Here, the assessee's initial year of operations, lack of professional guidance and infrastructure, bona fide belief that audit under the Co-operative Societies Act was sufficient, and later compliant conduct supported the explanation. The explanation was found genuine and not mala fide, and the nil-income assessment also weighed against penalty. The penalty was therefore held unsustainable and directed to be deleted.

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Issues: Whether penalty under section 271B for failure to get accounts audited under section 44AB was sustainable when the assessee showed reasonable cause under section 273B.

Analysis: The assessee's case was that it was in its initial year of operations, lacked professional guidance and infrastructure, and bona fide believed that audit under the Co-operative Societies Act was sufficient. The subsequent conduct of obtaining audits and filing returns in later years supported the explanation. The Authorities below treated the turnover threshold breach as sufficient for penalty, but the statutory scheme under section 273B requires consideration of reasonable cause, and penalty is not automatic. On the facts, the explanation was found to be genuine and not mala fide, and the assessment itself resulted in nil income.

Conclusion: The assessee established reasonable cause, and the penalty under section 271B was not sustainable; it was directed to be deleted.

Ratio Decidendi: Penalty for failure to comply with tax audit requirements is not leviable where the assessee proves reasonable cause within the meaning of section 273B.

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