Here’s a detailed analysis of Section 273B of the Income Tax Act, 1961, which provides immunity from penalties in cases where the taxpayer demonstrates “reasonable cause” for non-compliance:
1. Overview of Section 273B
Section 273B states that no penalty shall be imposed for failures under specified provisions (e.g., Sections 271A, 271B, 271C, 271D, 271E, 271F, 271H, etc.) if the taxpayer proves there was a “reasonable cause” for the default.
Key Objective: To protect taxpayers from harsh penalties for bona fide errors or circumstances beyond their control, ensuring fairness in enforcement.
2. Conditions for Immunity
- Burden of Proof: The taxpayer must provethe existence of a “reasonable cause”.
- Non-Applicability:
- Does notcover penalties for undisclosed income during searches (e.g., Section 271AAB).
- Excludes willful defaults(e.g., fraud, suppression of facts).
3. Judicial Interpretations of “Reasonable Cause”
Courts have defined “reasonable cause” as:
- Genuine Ignorance:
-
- Newly introduced laws (e.g., TDS on property purchases under Section 194IA).
- Lack of awareness due to illiteracy or rural background.
- Unavoidable Circumstances:
-
- Hospitalization of an accountant delaying book maintenance.
- Impounding of documents during surveys hindering audit reports.
- Bona Fide Belief:
-
- Misinterpretation of legal provisions (e.g., transfer pricing reports under Section 92E).
- Lender’s insistence on cash loan repayments (Section 269T violations).
Key Precedents:
- Chhattisgarh High Court: Penalty under Section 271E for cash loan repayment waived due to lender’s instructions.
- ITAT Pune: Delay in tax audit reports excused due to impounded documents.
- Supreme Court: Penalties under Section 271C are not automaticif reasonable cause exists.
4. Procedural Aspects
- Application: No formal application is required; taxpayers can raise “reasonable cause” during penalty proceedings.
- Authority’s Discretion: The Assessing Officer (AO) must consider explanations before imposing penalties
