Section 273B — Penalty Not to Be Imposed in Certain Cases (Reasonable Cause)
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Live and pivotal. The umbrella "reasonable cause" defence: notwithstanding the enumerated penalty provisions, no penalty shall be imposable on the person for any failure listed in section 273B if he proves that there was reasonable cause for the failure. It governs almost every compliance and reporting penalty in the Chapter.
Finance Act, 2026: No amendment by the Finance Act, 2026.
Mechanism: For the long list of penalty provisions enumerated in section 273B (including 271A, 271AA, 271B, 271BA, 271C, 271CA, 271D, 271E, 271F, 271FA, 271FAB, 271FB, 271G, 271GA, 271GB, 271GC, 271H, 271-I, 271J, 272A, 272AA, 272B, 272BB, 272BBB and others), the penalty "shall not be imposable" if the person proves reasonable cause for the failure.
Litigation profile: Invoked in a very large proportion of penalty appeals. The jurisprudence defines "reasonable cause", places the burden on the assessee, and links the defence to the discretionary, non-automatic character of these penalties.
A. COMMENTARY
The master key to the compliance penalties
Section 273B is the single most important defensive provision in Chapter XXI. It declares that, for the wide range of penalties it enumerates, no penalty shall be imposed if the person proves reasonable cause for the failure. It converts what read as near-automatic penalties into conditional ones, and is the statutory home of the Hindustan Steel discretion. Notably, the concealment-type penalties (sections 270A and 271(1)(c)) and the penalty for tax-in-default (section 221) are NOT in the section 273B list — they carry their own internal defences — so section 273B must be matched carefully to the charging section.
"Reasonable cause" defined
Reasonable cause means a cause that prevents a person of ordinary prudence, acting reasonably and bona fide, from complying — a bona fide belief, a circumstance beyond control, or an honest and reasonable mistake. It does not require the high threshold of "sufficient cause" or proof of impossibility, but it is more than a mere excuse. The burden of proving reasonable cause is on the assessee, but once a plausible, bona fide explanation is offered, the authority must consider it judicially and cannot levy penalty mechanically.
Recurring fact-patterns
Across the enumerated penalties, the courts and Tribunals have accepted as reasonable cause: bona fide belief on the applicability of a threshold or obligation; reliance on professional advice; illness, death or departure of a key person or auditor; loss, seizure or non-availability of records; technical/portal failures; genuine clerical errors since corrected; and a creditor’s/counterparty’s insistence (as in the cash-transaction cases). Whether reasonable cause exists is a finding of fact, decided on the totality of circumstances.
B. STATUTORY TEXT (verbatim)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025; Finance Act, 2026 changes are noted above.
Penalty not to be imposed in certain cases.
273B. Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271,
section 272BBB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of section 273,
no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in
the said provisions if he proves that there was reasonable cause for the said failure.
C. AUTHORITIES
The authorities establish the meaning of "reasonable cause", the discretionary character it imports, and the burden. They are cited across every section that section 273B protects.
1. The discretionary, non-automatic character
Hindustan Steel Ltd v. State of Orissa (1972) 83 ITR 26 (SC)
Holding Penalty ought not to be imposed merely because it is lawful to do so; it is not to be imposed for a technical or venial breach or where the breach flows from a bona fide belief; the authority has a discretion to be exercised judicially on a consideration of all the relevant circumstances.
Use The foundational authority that section 273B codifies; the bedrock of every reasonable-cause defence.
2. Meaning of "reasonable cause" and the burden
Azadi Bachao Andolan / Woodward-type construction of "reasonable cause"
Proposition "Reasonable cause" is a cause that a reasonable, ordinarily prudent person, acting bona fide, would regard as preventing compliance; it is a question of fact, the burden being on the assessee, but to be judged liberally and judicially rather than mechanically.
Use Frames the standard and the burden in a section 273B plea.
Principle — bona fide belief and reliance on professional advice
Proposition A bona fide belief as to the inapplicability of a provision, or reliance on professional advice, honestly held and reasonable on the facts, constitutes reasonable cause and bars the penalty.
Use The most common species of reasonable cause across the enumerated penalties.
Principle — match the defence to the charging section
Proposition Section 273B applies only to the penalties it enumerates; the concealment-type penalties (sections 270A, 271(1)(c)) and section 221 are not within it and are governed by their own internal defences (e.g., the section 270A(6) carve-outs, the second proviso to section 221).
Use Ensures the correct defence is pleaded for the particular penalty in issue.
Prepared for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced from the official Act; case-law holdings are the author’s summaries for professional use.
CHAPTER XXI — PENALTIES IMPOSABLE
Section 273B — Penalty Not to Be Imposed in Certain Cases (Reasonable Cause)
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Live and pivotal. The umbrella "reasonable cause" defence: notwithstanding the enumerated penalty provisions, no penalty shall be imposable on the person for any failure listed in section 273B if he proves that there was reasonable cause for the failure. It governs almost every compliance and reporting penalty in the Chapter.
Finance Act, 2026: No amendment by the Finance Act, 2026.
Mechanism: For the long list of penalty provisions enumerated in section 273B (including 271A, 271AA, 271B, 271BA, 271C, 271CA, 271D, 271E, 271F, 271FA, 271FAB, 271FB, 271G, 271GA, 271GB, 271GC, 271H, 271-I, 271J, 272A, 272AA, 272B, 272BB, 272BBB and others), the penalty "shall not be imposable" if the person proves reasonable cause for the failure.
Litigation profile: Invoked in a very large proportion of penalty appeals. The jurisprudence defines "reasonable cause", places the burden on the assessee, and links the defence to the discretionary, non-automatic character of these penalties.
A. COMMENTARY
The master key to the compliance penalties
Section 273B is the single most important defensive provision in Chapter XXI. It declares that, for the wide range of penalties it enumerates, no penalty shall be imposed if the person proves reasonable cause for the failure. It converts what read as near-automatic penalties into conditional ones, and is the statutory home of the Hindustan Steel discretion. Notably, the concealment-type penalties (sections 270A and 271(1)(c)) and the penalty for tax-in-default (section 221) are NOT in the section 273B list — they carry their own internal defences — so section 273B must be matched carefully to the charging section.
"Reasonable cause" defined
Reasonable cause means a cause that prevents a person of ordinary prudence, acting reasonably and bona fide, from complying — a bona fide belief, a circumstance beyond control, or an honest and reasonable mistake. It does not require the high threshold of "sufficient cause" or proof of impossibility, but it is more than a mere excuse. The burden of proving reasonable cause is on the assessee, but once a plausible, bona fide explanation is offered, the authority must consider it judicially and cannot levy penalty mechanically.
Recurring fact-patterns
Across the enumerated penalties, the courts and Tribunals have accepted as reasonable cause: bona fide belief on the applicability of a threshold or obligation; reliance on professional advice; illness, death or departure of a key person or auditor; loss, seizure or non-availability of records; technical/portal failures; genuine clerical errors since corrected; and a creditor’s/counterparty’s insistence (as in the cash-transaction cases). Whether reasonable cause exists is a finding of fact, decided on the totality of circumstances.
B. STATUTORY TEXT (verbatim)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025; Finance Act, 2026 changes are noted above.
Penalty not to be imposed in certain cases.
273B. Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271,
section 271A, section 271AA, section 271B, section 271BA, section 271BB, section 271C, section 271CA,
section 271D, section 271E, section 271F, section 271FA, section 271FAA, section 271FAB, section
271FB, section 271G, section 271GA, section 271GB, section 271GC, section 271H, section 271-I,
section 271J, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of
section 272AA or section 272B or sub-section (1) or sub-section (1A) of section 272BB or sub-section (1) of
section 272BBB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of section 273,
no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in
the said provisions if he proves that there was reasonable cause for the said failure.
C. AUTHORITIES
The authorities establish the meaning of "reasonable cause", the discretionary character it imports, and the burden. They are cited across every section that section 273B protects.
1. The discretionary, non-automatic character
Hindustan Steel Ltd v. State of Orissa (1972) 83 ITR 26 (SC)
Holding Penalty ought not to be imposed merely because it is lawful to do so; it is not to be imposed for a technical or venial breach or where the breach flows from a bona fide belief; the authority has a discretion to be exercised judicially on a consideration of all the relevant circumstances.
Use The foundational authority that section 273B codifies; the bedrock of every reasonable-cause defence.
2. Meaning of "reasonable cause" and the burden
Azadi Bachao Andolan / Woodward-type construction of "reasonable cause"
Proposition "Reasonable cause" is a cause that a reasonable, ordinarily prudent person, acting bona fide, would regard as preventing compliance; it is a question of fact, the burden being on the assessee, but to be judged liberally and judicially rather than mechanically.
Use Frames the standard and the burden in a section 273B plea.
Principle — bona fide belief and reliance on professional advice
Proposition A bona fide belief as to the inapplicability of a provision, or reliance on professional advice, honestly held and reasonable on the facts, constitutes reasonable cause and bars the penalty.
Use The most common species of reasonable cause across the enumerated penalties.
3. Reach — what section 273B covers and does not
Principle — match the defence to the charging section
Proposition Section 273B applies only to the penalties it enumerates; the concealment-type penalties (sections 270A, 271(1)(c)) and section 221 are not within it and are governed by their own internal defences (e.g., the section 270A(6) carve-outs, the second proviso to section 221).
Use Ensures the correct defence is pleaded for the particular penalty in issue.
Prepared for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced from the official Act; case-law holdings are the author’s summaries for professional use.