Goyal Associates is a partnership firm having annual Turnover of ₹ 3.5 crores as firm fails to get its accounts audited under section 44AB. The Assessing Officer levied penalty under section 271B of the Income Tax Act, 1

According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB or fails to furnish such report as required under section 44AB, the Assessing Officer may impose a penalty. The penalty shall be lower of the following amounts: 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years. Or ₹ 1,50,000. According to section 273B, no penalty shall be imposed if reasonable cause for such failure is proved. The word 'reasonable cause' has not been defined under the Income-tax Act. The initial burden is on the assessee to show that reasonable cause existed for the failure referred to in the concerned provision. Thereafter, the officer dealing with the matter has to consider whether the explanation offered by the assessee was on account of reasonable cause. Reasonable cause can be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence from acting under normal circumstances, without negligence or inaction or want of bona fides. As per the decision held by ITAT in Shrishaila Mallikarjun vs. Income Tax officer, where due to sudden illness of main partner and unexpected departure of accountant who was responsible for maintaining accounts of firm, assessee could not get accounts audited as per provisions of section 44AB and file audit report within time, assessee had demonstrated that there was a reasonable cause for failure to submit audit report on or before extended due date, therefore, penalty levied under section 271B was to be cancelled. Accordingly, the action of AO of levying the penalty on Goyal associates is not correct.