Tax audit is made compulsory u/s.44AB of the Income tax Act, 1961 for those
a) carrying on business having sales, turnover or gross receipts, as the case may be, exceed or exceeds Rs. 100.00 lacs in the previous year from the previous year ending 31.03.2013
b) carrying on profession having gross receipts exceed Rs.25 lacs from the previous year ending 31.03.2013
c) carrying on business the income from which needs to be computed on a presumptive basis and the assessee claims that the income earned is less than the prescribed minimum amount or percentage, as the case may be.
The persons covered above need to get the accounts audited before the specified date and furnish the same by that date. Specified date for this purpose is 30th September of every assessment year. However, in current AY 2014–15 CBDT had extended the due date till 30th November for Tax Audit.
Penalties for Tax Audit not done/ delay in Tax audit
Sec 271B provides for levy of penalty for non-compliance of the provisions of sec. 44AB. According to that section, the assessing office may direct that the assessee shall pay penalty for
a) non getting the books of account audited or
b) not furnishing the audit report as per sec 44AB, i.e., for delay than the time specified in sec 44AB
The penalty so leviable shall be ½% of the sales, turnover, or gross receipts or Rs.1.50 lacs whichever is less.
Further, to clarify that as per sec 44AB, audit report is to be obtained before the specified date and NOT “on or before” the specified date. Therefore, one can hold a view that penalty can be levied wherever audit report is dated as 30th September i.e., on the last day of the assessment year.
Where Penalty Cannot Be Levied
- Section 273B provides that notwithstanding anything contained in sec 271B, no penalty shall be imposable for any failure referred to in sec 271B if the assessee proves that there was reasonable cause for the said failure.
- The onus is on the assessee to prove the existence of reasonable cause for failure and if he proves so, no penalty shall be levied.
- The word used in sec.271B is “may” and not “shall”. Therefore, the adjudicating authority shall have to exercise the discretion after considering the non-obstante clause provided in sec 273B (i.e., reasonable cause). Existence or absence of a reasonable cause is essentially a question of fact.
- Levy of penalty under sec 271B is not mandatory but discretionary.
- As per sec 44AB(1)(d), there is no need to get the books audited u/s 44AB when the income from the business otherwise required to be computed u/s. 44AD is less than 8 % of the turnover but the total income itself is less than the basic limit of that year. In those cases, levy of penalty for not getting the accounts audited is not applicable at all.
- Sec 44AA requires the assessee to maintain the books. As per sec 271A, penalty can be levied in case where the books are not maintained as per sec 44AA. Where the case of the assessee falls under sec 44AA and sec 44AB and the assessee claims that he did not maintain books of account, levy of penalty under both the sections namely 271A and 271B are not possible as per the case of Ram Prakash C Puri – 77 ITD 210. Where penalty is already levied u/s 271A for not maintaining books of account, another penalty u/s. 271B for not getting the accounts audited cannot be levied.
Following are the instances in which the courts/tribunals have reversed the penalty levied u/s. 271B
i. Where the approval of the joint commissioner was not obtained, levy of penalty is held to be not valid (Sree Malathi Chit Funds – 278 ITR 258).
ii.The assessing officer did not mention about the initiation of penalty proceedings in the assessment order. Therefore, subsequent levy of penalty was held to be invalid (Indian Handloom Textiles – 68 ITD 560).
iii. Illness of an accountant of the assessee.
iv. Illness of the Chartered Accountant of the assessee.
v. Illness of the partner and subsequent his undergoing surgery.
vi. Books impounded by the department12.
vii. Bonafide belief that the assessee is not covered by sec 44AB.
viii. Delay in obtaining branch reports from overseas branches.
ix. Delay due to time consumed in collection of details from customers who are upcountry constituents and pressure of work of Chartered Accountan.
x. Current year audit report is filed belatedly because of delay in completion of audit last year.
xi. Delay was due to late appointment of auditors under Co-op societies Act.
xii. Delay was due to the delay in finalizing the accounts by the Accountant General’s office.
xiii. Delay is for few days