Do You Really Need To Worry If You find it difficult to To File The Tax Audit Report Before The Existing Due Date of 31.10.2020?
Coronavirus disease 2019 (COVID-19) has caused serious disruptions to business and also to the normal life of all people. There was complete lockdown for about three months and partial lockdown in containment zones. Later local lockdowns in various states were imposed. Many professionals & businessmen were not able to operate their offices and are under undue pressure for completing their statutory compliance including tax audits.
Due to penal provisions, many professionals and businessmen are under tremendous pressure to complete the tax audit work. But is it correct on the part of the department to expect assesses to work by deadlines and impose penalties for not doing so during this life threatening pandemic?
Tax audit under section 44 AB of the Income Tax Act, 1961 and its due date and implications if not completed within the due date.
1. For the accounts of the year ended 31.3.2020, the tax audit was to be completed by 30.9.2020 and IT return to be filed by 30-10-2020.This was done to enable prefilling of details in the ITR form from the tax audit report.
2. Now the due date is extended by one month i.e for tax audit report submission, in place of 30.9.2020 it is 31.10.2020 and for ITR filing in place of 31.10.2020, it is extended to 30.11.2020.
3. Whether this extension of one month for all returns including tax audit is sufficient??
We are already locked down and work is affected for almost the last six months after the end of the financial year on 31.3.2020.
In many cities and localities, till date neither the clients staff are available in office full time nor the CAs or their staff to complete the work. Under the circumstances, it is just not possible to file the tax audit and the I T returns within the due date as most of the records have not yet been collected and whatever is available till the last week of March 2020 is what is available readily even today.
4. Now what happens if the tax audit report is not filed within the due date? Consequences of not filing Tax audit report:
Section 271 B gives the details of penalty leviable if the assessee fails to get the accounts audited.
A penalty is provided in the Act under Sec 271B for not filing the tax audit report on time. If any person who is liable and fails to get his accounts audited before the due date, then he will be liable for a penalty of 1/2% ( one half percent ) of the turnover or the gross receipts up to a maximum penalty amount of Rs. 1, 50,000.
5. So if no extension is given by CBDT and if you are unable to file the tax audit report within 31.10.2020 will you be liable for the penalty as per section 271 B.
Levy of penalty is not automatic that if you do not file the tax audit report, then automatically penalty is levied. If the assessee proves that there was reasonable cause, then no penalty can be levied.(section 273 B gives shelter)
Section 273 B starts with a Non obstante clause which is of very important nature . It says as follows
“Notwithstanding anything contained in the provisions of section 271 B……………………………………..”
Section 273 B provides that no penalty shall be imposable on an assessee, for any failure referred to in section 271 B, if he proves that there was reasonable cause for the said failure.
Section 273B provides that no penalty shall be levied under section 271B if there is a reasonable cause of delay. Outbreak of COVID-19 and consequent lockdowns, absence of proper public transport, non functioning of offices to full capacity is definitely a reasonable cause under Sec 273B, in the author’s opinion. The government had imposed a complete lockdown of almost 2 months followed by local lockdowns in states forcing all establishments except essential establishments to remain shut. CA offices were never considered to be essential establishments and were shut during lockdown. However, the government have extended the tax audit due date only by one month which is completely unjustified. Initially, as per law, the due date for furnishing the tax audit report was 30th September and due date for furnishing returns for Tax audit assesses was 31st October, 2020 but later due to COVID-19, the same was extended just by 30 days i.e. upto 31st October, 2020 and 30th November, 2020 respectively. A 30 day extension is surely not proportional to a sixty day complete lockdown and almost six months partial lockdown that was imposed across the country and the existing fear among the common man to go for work even now after almost six months of first lockdown.
Even after the government started stage wise unlocking, public transport is not operational as it was before COVID-19 pandemic. For Eg. Till date in Mumbai, local train services (being the life line of the city) have been shut. Due to all these reasons, offices of both businessmen as well as professionals have not been able to function properly but are functioning only with limited workforce and resources. Internet connectivity in India is not so very advanced to enable working from home for all persons and this cannot be expected pan India. All these will definitely constitute a “reasonable cause” as specified in Sec 273B and judicial authorities will surely consider it to be so, in the opinion of the author.
You can rely on the following case law of Delhi High Court 252 ITR 471 in the case of Aazadi Bachao Aandolan
The Delhi high Court observed as under:
“Reasonable cause, as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. The expression “reasonable” is not susceptible of a clear and precise definition; for an attempt to give specific meaning to the word “reasonable” is trying to count what is not number and measure what is not space. It can be described as rational according to the dictates of reason and is not excessive or immoderate. The word “reasonable” has in law the prima facie meaning of reasonable with regard to those circumstances of which the actor, called on to act reasonably, knows or ought to know” (See Re. A Solicitor (1945) KB 368).
Reasonable cause can be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or want of bonafides.
Referring to various precedents Courts have held that the burden under Section 273B is entirely on with the assessee and that a case which is beyond the control of the assessee and which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides, make out a reasonable cause.
So all businessmen and professionals, please take care of the family and your own health and do not worry about the tax audit penalty for the time being. The department may in due course, though delayed, would come out with an extension of the due date, but even if that does not come, still nothing to worry much about this as these are situations and circumstances which are beyond the control of anyone and there is no precedence for this.
Therefore, the liability to levy of penalty can be fastened only on the person who do not have good and sufficient reason for not complying with the law. Only those persons will be liable to penalty who do not have good and sufficient reason for the failure.”
6. What should the businessmen and professionals do under these circumstances. What precautions they should take, if the Government does not extend the due date beyond 31-10-2020 and 30-11-2020.
Of course this penalty issue is a grey area.
If there is loss in business, then definitely we need to complete and file the tax audit and income tax return before the due date to enable one to carry forward and / or set off the losses, in the opinion of the author.
Although the Registrar of companies has extended the due date of holding the AGM to 31.12.2020, that does not alter the position under the Income Tax Act.
Author’s opinion: Prioritise the filing of loss return on or before 31.10.2020 thinking that no extension will be given by the CBDT. Carry forward of loss is a very important thing and the penalty issue takes a back seat in that situation.
The taxation and other laws (relaxation & amendment of certain provisions) Bill 2020 is also being introduced in the parliament in the days to come. Let us hope for an extension of time limits for Tax audit and return of income.
(Disclaimer: The above are purely the opinion of the author and readers are requested to take legal opinion, where necessary. The author or the firm which he represents will in no way be liable for any penal consequences that follow by adopting the above opinions).