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Tax notices + litigation · Penalty

Sec 273B: "reasonable cause" defence for penalty waiver

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  1. Facts

    Sec 273B is the master defence provision, it says that no penalty shall be levied if the person proves reasonable cause for the failure. This applies to penalties under Sec 271B (now Sec 446, Income-tax Act 2025; audit failure), 271D, 271E, 271(1)(c), and many others.

  2. Provisions and law

    • IT Act 1961, Sec 273B

  3. Analysis

    What constitutes reasonable cause: Serious illness of taxpayer or family member. Natural calamity. Genuine bona fide belief that certain income was exempt. Reliance on professional advice that turned out to be wrong. Fire destroying records. Courts have consistently held: Reasonable cause is a question of fact. AO cannot mechanically levy penalty, must consider the explanation offered. If explanation is plausible and good faith is evident, penalty must be waived.

  4. Conclusion

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