Kerala High Court Rules No Penalty u/s 271B If Delay in Filing Audit Report is Due to Statutory Audit Process

The Kerala High Court, in its order dated 03.12.2025, gave relief to a Co-operative Society, ruling that the penalty for delayed submission of an audit report should not be levied if the delay is caused by the Statutory Audit Process.

The case started when the Income Tax Department initiated penalty proceedings against the Chowara Service Co-operative Bank, a Co-operative Society engaged in offering credit services. The penalty was initiated because the Co-operative Bank failed to submit the audit report on time, as mandated under Section 44AB of the Income Tax Act, 1961. The Income Tax Department imposed a penalty of Rs 1,50,000, for the said violation.

However, the petitioner, Co-operative Bank, submitted that it has to go through a statutory audit as required under sections 63, 64 and 64A of the Income Tax Act, and the delay was caused due to the completion of the statutory audit process. The petitioner argued that it had no control over the said process, so the penalty should not be levied. The petitioner relied on the decision of this Court in Chavakkad Service Co-Operative Bank Ltd. v. Income Tax Officer [2024 KLT Online 2804].

The High Court observed that the petitioner’s issue was covered in Chavakkad Service Co-Operative Bank Ltd., where it was held that no penalty under section 271B could be imposed if the delay is due to the audit process. The court agreed that the petitioner was not directly responsible for the delay in submitting the audit report, as the same was caused due to the Audit Process. Therefore, the penalty under Section 271 B of the Income Tax Act, 1961, was deleted by the Court.