A situation arose in which a company could not call its board meeting due to NCLT embargo and other reasons. The auditor was appointed, but balance sheet and financial statements could not be signed as requirement of sec 134 of companies act 2013 was not fulfilled. Section 134 requires a board meeting to take place and approve the accounts which shall be forwarded to auditor.
The audited approved accounts are not available and therefore income tax return cant be filed. In case of a company having turnover exceeding 2 crore ,Section 44AB of the income tax act require audit report along with audited accounts to be filed along with income tax return. Section 139(9) of the IT Act makes return defective if filed without ITR.
So how to file income tax return of such companies ?
In view of the above circumstances it is a difficult situation to file income tax return of the companies wherein board meeting is held up for some or other reasons and thereby all statutory requirements are pending. The audit is complete but technically incomplete as board has not approved accounts.
Section 134 of CA 2013 is as under –
“(1) The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorised by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his report thereon.”
The requirement of law is clear that board meeting is must for audited financial statement. That means unless signed financial statements are not available.
Section 44AB of the Income Tax Act 1961
“44AB. Every person,—
(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year; or
get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed :
Therefore Income Tax act requires that audit of account is mandatory for income tax purposes. However absence of board meeting is creating problems in approved financial statement.
Section 139(9) of Income Tax Act
“(9) Where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing Officer may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return :
(bb) the return is accompanied by the report of the audit referred to in section 44AB, or, where the report has been furnished prior to the furnishing of the return, by a copy of such report together with proof of furnishing the report;”
So the Income Tax Return filed without Tax audit report becomes defective return and thereafter if defects not rectified it becomes invalid means it is never filed. The CPC is very prompt in sending such notices and making return invalid. It’s a automatic programmed action.
Further if Return of Income is not filed before the due date or say by 31 march, the loss may be disallowed and if it is a Income it becomes concealment. There is no other way to file income Tax return eg manually and once the 31 March passes the return can never be filed. It is a difficult situation for companies having management disputes and cases running in NCLT and board meetings, annual genral meeting are held up.
The ICAI in its GUIDANCE NOTE ON TAX AUDIT UNDER SECTION 44AB OF THE INCOME-TAX ACT, 1961 has predicted such situations and provides guideline to come out of this problem.
The para 9.6 reproduced as under-
“9.6 A question may arise in the case of a public sector company or any other company where the statutory auditor has not been appointed by the authorities concerned as to whether the tax auditor appointed under section 44AB can complete his audit without waiting for statutory audit report on the accounts audited by the statutory auditors. It may be noted that Form No. 3CA requires the tax auditor to enclose a copy of the audit report conducted by the statutory auditor or the auditor of the financial statements as the case may be. Where a statutory auditor has not been appointed by the authorities concerned or where the report of the statutory auditor is not available for whatever reasons, it will be possible for the tax auditor to give his report in Form No. 3CB and to certify the relevant particulars in Form No.3CD. This is particularly important in those cases where the assessee concerned has suffered losses in the relevant accounting year. It may, however, be noted that the tax auditor in such cases will have to conduct the financial audit as well in order to enable him to certify whether or not the accounts reported upon by him give a true and fair view of the state of affairs of the assesse whose accounts are audited by him under section 44AB.”
Thus it is possible to file Income Tax Return of such companies by having a separate financial audit under Income Tax act . The auditor shall submit reports in Form 3CB instead of regular 3CA. The form 3CD can be prepared in usual manner. Accordingly Return of Income of such companies can be filed and unnecessary consequences of non filing of ITR can be avoided.
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