Chennai ITAT: Delay in Filing Tax Audit Report Is a Mere Technical Breach; Penalty under Section 271B Deleted

Karalan Arul Kumar Vs ITO (ITAT Chennai)

Chennai ITAT: Delay in Filing Tax Audit Report Is a Mere Technical Breach; Penalty under Section 271B Deleted

The Chennai Bench of the ITAT, in Karalan Arul Kumar v. ITO (AYs 2017-18, 2018-19, 2021-22 & 2023-24), held that where the tax audit report is furnished before completion of the assessment and is duly considered by the Assessing Officer, the delayed filing constitutes only a technical or venial breach, and therefore penalty under section 271B is not leviable.

For AY 2017-18, the assessee had filed the tax audit report along with the belated return under section 139(4) on 05.02.2018. Although the report was not furnished within the due date prescribed under section 44AB, it was available with the Assessing Officer when the return was processed under section 143(1) and the returned income was accepted. Nevertheless, the Assessing Officer levied a penalty of ₹1.50 lakh under section 271B for delayed furnishing of the audit report, which was upheld by the CIT(A).

The Tribunal observed that the audit report had been available before the Assessing Officer during the assessment proceedings, and the assessment had been completed after taking note of the same. Consequently, the delay did not prejudice the Revenue or impair the assessment process and amounted only to a technical or venial default.

Relying on the judgment of the Madras High Court in P. Senthil Kumar v. PCIT (416 ITR 336) and its earlier decisions in Kalaiarasan Selvaraj v. ITO and Balaji Logistics v. ACIT, the Tribunal held that where the audit report is on record before completion of assessment, penalty under section 271B cannot be sustained merely because it was not furnished within the prescribed due date. Accordingly, the penalty for AY 2017-18 was deleted.

Since the facts for AYs 2018-19, 2021-22 and 2023-24 were identical, the Tribunal applied the same reasoning mutatis mutandis and deleted the penalties levied under section 271B for those years as well. All four appeals were allowed.

Cases Discussed

• Kalaiarasan Selvaraj v. ITO (ITAT Chennai), ITA No.3448/Chny/2025 (order dated 04.02.2026)
• Balaji Logistics v. ACIT (ITAT Chennai), [2023] 147 taxmann.com 647
• P. Senthil Kumar v. PCIT (Madras High Court), 416 ITR 336

FULL TEXT OF THE ORDER OF ITAT CHENNAI

These appeals filed by the assessee are directed against four orders of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (all the orders of NFAC are dated 26.03.2026) passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The orders of CIT(A)-NFAC arise out of the orders of the AO imposing penalty u/s.271B of the Act. The relevant Assessment Years are 2017-18, 2018-19, 2021-22 & 2023-24.

ITA No.1965/CHNY/2026, Assessment Year 2017-18

2. Brief facts of the case are as follows: The assessee is an individual. For the assessment year 2017-18, the assessee filed his return of income belatedly u/s. 139(4) of the Act on 05.02.2018 declaring total income of Rs.9,77,640/-. As the assessee’s turnover exceeded the prescribed threshold, the assessee was liable to furnish the tax audit u/s.44AB of the Act within the prescribed time. The assessee furnished the audit report on 05.02.2018. Hence, the AO observed that the assessee had failed to furnish the tax audit report within the due date prescribed u/s. 44AB of the Act. Accordingly, penalty proceedings u/s. 271B were initiated by issuing notice u/s. 274 r.w.s. 271B of the Act dated 27.08.2024. Though the assessee filed his explanation in response thereto, the AO was not convinced and, vide order dated 13.02.2025, levied a penalty of Rs.1,50,000/- u/s. 271B of the Act.

3. Aggrieved by the said order, the assessee preferred an appeal before the First Appellate Authority (FAA). However, the FAA upheld the action of the AO and confirmed the levy of penalty, thereby dismissing the appeal.

4. Aggrieved by the order of the First Appellate Authority confirming the levy of penalty u/s. 271B of the Act, the assessee has preferred the present appeal before the Tribunal. The Ld. AR submitted that the assessee has submitted the audit report along with the return of income on 05.02.2018 and that the assessment was completed u/s.143(1) of the Act only on 30.05.2018 by accepting the returned income of the assessee. It was contended that the audit report was very much available on record at the time of completion of the assessment. According to the Ld. AR, the delay in furnishing the audit report was merely a technical and venial breach which did not result in any loss to the Revenue or prejudice to the assessment proceedings. The Ld.AR contended that the AO has also accepted the income returned by the assessee. Therefore, it was submitted that the levy of penalty u/s. 271B was not justified and deserved to be deleted. In support of the above contention, the Ld. AR placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of P.Senthilkumar vs. PCIT reported in 416 ITR 336 and Chennai Bench of the Tribunal in the cases Kalaiarasan Selvaraj vs. ITO in ITA No.3448/Chny/2025 (order dated 04.02.2026) and Balaji Logistics vs. ACIT reported in [2023] 147 taxmann.com 647.

5. The Ld.DR supported the order of the AO and the FAA.

6. We have heard rival submissions and perused the material on record. The undisputed fact is that, though the assessee failed to furnish the tax audit report within the due date prescribed u/s. 44AB of the Act, the same was furnished on 05.02.2018 along with the return of income filed belatedly. The assessment was completed on 30.05.2018, and the AO himself has recorded in the impugned penalty order that the tax audit report had been filed on 05.02.2018. Thus, the tax audit report was available before the AO at the time of completion of the assessment, and the delay in furnishing the audit report constituted only a technical or venial breach.

7. We find that the AO sought to distinguish the decision of the Hon’ble Madras High Court in the case of P. Senthil Kumar (supra) on the ground that the said decision was rendered in the context of “reasonable cause” mentioned u/s.273B of the Act. However, we find that the Hon’ble High Court, while answering the substantial question of law as to ‘whether the Tribunal was justified in deleting the penalty when the tax audit report was filed along with the return and hence, constitutes only a venial breach’, held in favour of the assessee by observing that the tax audit report was available before the AO during the assessment proceedings and, therefore, the non-furnishing of the report within the prescribed due date amounted only to a technical or venial breach. In the present case also, though the audit report was not furnished within the due date prescribed u/s.44AB of the Act, it was admittedly available before the AO during the assessment proceedings.

8. On identical facts, the issue is squarely covered by the decisions of the Chennai Bench of the Tribunal in the case of Shri Kalaiarasan (supra) and Balaji Logistics (supra), wherein, the penalty levied u/s.271B of the Act was deleted by holding that where the tax audit report was available before the AO at the time of completion of the assessment and the assessment was completed after taking note of the said report, the delayed furnishing of the audit report amounted only to a technical or venial breach.

9. Respectfully following the aforesaid decision of the Hon’ble Jurisdictional High Court and the orders of the Chennai Bench of the Tribunal, we hold that the delay in furnishing the tax audit report is merely a technical or venial breach and does not warrant levy of penalty u/s.271B of the Act. Accordingly, the penalty levied by the AO is directed to be deleted. It is ordered accordingly.

ITA Nos.1966 to 1968/CHNY/2026, AYs 2018-19, 2021-22 & 2023-24

10. Since the facts and circumstances of the assessment years 2018­19, 2021-22 & 2023-24 are materially identical to those considered by the Tribunal for assessment year 2017-18, the findings and conclusions recorded therein para Nos.6 to 9, shall apply mutatis mutandis to the years under consideration. Accordingly, the penalty levied u/s.271B of the Act are directed to be deleted. It is ordered accordingly.

11. In the result, the appeals filed by the assessee are allowed.

Order pronounced in the open court on 17th July,2026 at Chennai.