The Hindu Business Line : Late filing of tax audit report — I-T experts want fresh look at penalty provisions

PREVENTION is better than cure may be a good mantra for general purposes. But for direct tax laws, it may not always work out so well, as is being discovered by both taxpayers and consultants, going by the increasing complexities with regard to penalties imposable under Sections 271 (1) (c), 271B and 221 (1) of the Income-Tax Act.

Suggesting that the penalty clauses should be made more logical, direct tax experts say that penalties invoked over non-filing of tax audit report (TAR) by corporates should be in direct proportion to the period of delay, and not indiscriminately fixed at a high rate irrespective of whether the delay is for a day, or a month or an year.

It is felt that the amount of penalty for default in non-filing of TAR in time should be Rs 100 per day just as under Section 272A (2).

As per existing provisions, if there is a delay in filing the TAR (should be done by October 31) as required u/s 44AB, there is a penalty (under 271B of Act) of half per cent on turnover or gross receipts (in the case of a professional) or a maximum of Rs 1 lakh. If, however, the assessee is able to prove that there was reasonable cause for the said failure, no penalty is to be leviable.

Experts opine that legitimate causes of non-filing or late filing of TAR, going by the decisions of the various courts and ITAT Benches, could be illness of the auditor, resignation of auditor, illness of accountant, delay in finalisation of accounts, etc.

Analysing the various provisions governing penalties under direct tax laws at an interactive session organised by the Association of Corporate Advisers & Executives here recently, Prof N.P. Jain, tax lawyer and Faculty at West Bengal NUJS (West Bengal National University of Juridical Sciences), said in the case of TAR, penalty should depend on period of delay, somewhat as specified in Section 271A(2) of the Act, which prescribes a penalty of Rs 100 per day for delayed TDS returns.

Seeking a fresh look at the existing penalty provisions, Mr Jain said as far as tax audit under Section 44AB was concerned, the turnover threshold of Rs 40 lakh, fixed some 20 years ago (Finance Act of 1984) should be suitably increased and adjusted to the inflation rate.

He said while this amount has remained static, the cost inflation index has climbed from 125 in 1984-85 to 480 in 2004-05. The proportionate threshold for tax audit, going by the current cost inflation index, should be Rs 1.53 crore, he pointed out.

According to Mr Gopal Dokania, practising CA, it was in the taxpayers' own interest to get a tax audit done, so that the taxpayer may know the discrepancy involved and take timely steps to rectify the same.

According to Mr Jain, with effect from assessment year 1996-97, even if the tax return is not filed within due date, the tax audit report has to be furnished by the due date of filing the returns, otherwise the penalty u/s 271B becomes leviable.

Mr Jain said the penalty ranging between 100 per cent and 300 per cent for offences under 271(1) (c) was also not justified, and "this should be revised to a maximum of 100 per cent". Concealment of income or inaccuracy must be evident for imposing penalty under 271 (1) (c).