Angpal Vs ITO (ITAT Delhi)
Accountant’s Resignation Constitutes Reasonable Cause: Delhi ITAT Deletes Tax Audit Penalty
₹1.50 Lakh Penalty Deleted Despite 106-Day Delay in Filing Audit Report
In Angpal v. ITO, ITA No.4331/Del/2026, concerning AY 2019–20, the Delhi ITAT deleted a ₹1,50,000 penalty under Section 271B after accepting that the resignation of the assessee’s accountant at a crucial stage disrupted finalisation and audit of the accounts.
The Tribunal held that the circumstances constituted reasonable cause under Section 273B. It criticised the Assessing Officer’s mechanical imposition of penalty and the first appellate authority’s perfunctory confirmation.
The order was pronounced on 11 November 2026 by Vikas Awasthy, Judicial Member, and Amitabh Shukla, Accountant Member.
Background: Audit Report Filed After the Extended Due Date
The dispute concerned the delayed filing of the assessee’s tax audit report for AY 2019–20.
According to the order, the extended due date was 31 October 2019, whereas the report was filed on 14 February 2020, resulting in a delay of 106 days.
The Assessing Officer noted the failure to furnish the report within the prescribed time and imposed the maximum penalty of ₹1.50 lakh under Section 271B, through an order dated 18 September 2025.
The assessee challenged the penalty, maintaining that the delay arose from an unavoidable disruption in accounting arrangements. The first appellate authority sustained the Assessing Officer’s action, leading to the appeal before the Tribunal.
Accountant Resigned During Finalisation and Audit
The assessee explained that it was a small business entity and depended upon its accountant, Naveen Kumar, for maintaining and finalising the accounts.
The accountant resigned at a crucial period when the accounts were being finalised and audited. According to the assessee, this caused a temporary disruption that delayed completion of the audit and submission of the report.
The explanation was that the default was neither deliberate nor intentional. The delay resulted from the sudden interruption of the accounting process rather than a decision to disregard the statutory requirement.
The assessee accordingly invoked Section 273B, contending that the circumstances amounted to reasonable cause for the failure.
Reasonable Cause Was the Central Issue
The controversy before the Tribunal was not whether the report had been filed late. The delay itself was undisputed.
The material question was whether the explanation for that delay justified protection from penalty under Section 273B.
The assessee emphasised the relationship between the accountant’s departure and the disruption of the audit process. The Department, on the other hand, relied upon the findings of the lower authorities.
The Tribunal examined the explanation in the context of the peculiar facts of the case, including the assessee’s position as a small business and the timing of the accountant’s resignation.
Assessing Officer Had Not Effectively Countered the Explanation
The Tribunal found that the Assessing Officer had not effectively countered the assessee’s explanation.
It observed that the penalty had been imposed in a mechanical manner, without adequately addressing the circumstances responsible for the delay.
This finding was significant because the assessee had offered a specific explanation: the person handling the accounts had left at the very stage when finalisation and audit were underway.
The Tribunal accepted that this disruption constituted reasonable cause. Its reasoning therefore rested on the explanation connecting the accountant’s resignation with the delayed compliance, rather than merely on the fact that an employee had resigned.
CIT(A)’s Confirmation Also Found Perfunctory
The Tribunal was equally critical of the first appellate order.
It recorded that the appellate authority had confirmed the penalty in a perfunctory manner, without adequately examining the reasonable-cause defence.
Having accepted the assessee’s explanation under Section 273B, the Tribunal set aside the orders of the lower authorities and directed the Assessing Officer to delete the ₹1.50 lakh penalty.
The assessee’s appeal was consequently allowed.
Author’s Comments: Resignation Must Be Connected to the Delay
The decision provides useful support where an accountant’s unexpected departure materially disrupts statutory compliance.
However, it should not be read as holding that every accountant’s resignation automatically excuses every audit delay. The important feature here was the timing of the departure and its connection with accounts finalisation and audit.
For a similar explanation to carry weight, the factual record should clearly show when the accountant left, what work remained incomplete, and how the disruption affected timely filing. A specific chronology is more persuasive than a general statement that accounting staff were unavailable.
The order also refers to the absence of mens rea. Nevertheless, the safer reading of its operative reasoning is that the penalty was deleted because reasonable cause under Section 273B was established on the facts. The observation should not be expanded into an unrestricted proposition that every Section 271B penalty requires separate proof of deliberate wrongdoing.
The ruling’s practical message is that an admitted delay does not justify a mechanical penalty order. Where a taxpayer offers a concrete explanation supported by the surrounding circumstances, the authorities must meaningfully examine that explanation before rejecting the statutory reasonable-cause defence.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is directed against the order of the National Faceless Appeal Centre/ Ld. Commissioner of Income Tax (Appeals), New Delhi, [hereinafter referred to as ‘ld. CIT(A)] dated 02.03.2026 arising out of order dated 03.03.2025 passed under section 147 r.w.s 144B of the Income Tax Act, 1961, for the Assessment Year 2019-20. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
2. The only issue present in this appeal is regarding the imposition of penalty u/s 271B of the Act dated 18.09.2025 amounting to Rs. 1,50,000/-. The ld counsel for the assessee has vehemently argued against the imposition of penalty. As per brief factual matrix of the case, original return of income was filed by the assessee. The ld Assessing Officer noted that the assessee had not filed tax audit report along with the return of income. The said audit report was filed on 14.02.2020 after the expiry of extended due date on 31.10.2019 thus contributing to a delay of 106 days. The ld Assessing Officer considering the impugned delay imposed the penalty of Rs. 1,50,000/- u/s 271B vide its order dated supra.
3. Heard rival parties. Case records perused.
4. The ld counsel for the assessee vehemently argued that within the meanings of section 273B of the Act, it had a reasonable cause for the said delay. It has been argued that the assessee is a small business entity and its accountant namely Shri Naveen Kumar had resigned at a crucial period when the accounts were finalized and being audited. It has been submitted that the temporary disruption led to the inordinate and unavoidable delay and that the same was not intentional. The ld counsel argued that the same falls within the meanings of reasonable cause u/s 273B of the Act. The ld DR placed reliance upon the order of the lower authorities.
5. We have noted that the ld assessing officer has not been able to effectively counter the argument taken by the assessee and imposed the penalty in a mechanical manner. The essential ingredients of mensrea has not been established in the penalty order. Upon consideration of the peculiar facts of the case, we are of the considered view that the appellant had reasonable cause u/s 273B for non- imposition of penalty. We have also noted that the ld first appellate authority has also confirmed the action of the Assessing Officer in a perfunctory manner. Accordingly, in the interest of justice, we set aside the order of the lower authorities and direct the ld Assessing Officer to delete the penalty u/ 271B imposed vide order dated supra.
6. In the result, the appeal of the assessee is allowed.
