Central Board of Direct Taxes
In the year 2018, You have already extended the date for filing Income Tax Returns by those assessees whose accounts are not required to be audited for a month without levy of any interest and also extended the submission of Tax Audit Reports by 15 days i.e up to 15th October 2018. The cases have already been filed in various High courts of the issue of extension of Tax Audit due dates. Through your extension order, you have also introduced the pattern on 234A to be applied. The said issue was also raised at various High Courts. However your attention is drawn towards the direction of Rajasthan High Court to consider representation of Petitioner Tax Consultants Association and take a decision on both aspects i.e. extension of date by another 15 days and extension of due date for purpose of Explanation 1 to section 234A for waiver of interest and decide same by passing speaking preferably before 10.10.2018. We are expecting a judicious decision from you over the matter. Tax Audit Due date extension: Status of Writ filed in various High Courts
The Tax Audit report is required to be furnished to the Department within the prescribed due date which at present, is 15th October. For non-submission / delayed submission of the above report, a penalty under section 271B of the Act may be levied at the rate of ½ % of turnover etc. (up to the maximum of Rs. 1, 50,000/-). This time there were a number of changes to the base utility version required for e-filing tax returns as also for the tax audit reporting requirements.
Almost every year demand is raised by Tax Payers / CAs etc. for extension of the above due date. Chartered Accountants always took lead in challenging you for extension of Tax Audit Dates. Many quarters feel that it’s the FICCI/Chamber of Commerce etc. to go take a legal battle with you but the Tax Audit is a matter between auditors and the department. Section 44AB gives the provisions relating to the class of taxpayers who are required to get their accounts audited to ensure that the books of account and other records are properly maintained and such books of accounts reflect the income of the taxpayer and claims for deduction correctly. It is also to check fraudulent practices if any and such provision facilitates authorities to see the ready-made information and ultimately save the considerable time of Assessing Officers in carrying out routine verifications. This is a direct work to be performed by the chartered accountants for the department for executing the audits & uploading the same in digital form directly to your site. Their role cannot be ignored.
The present penalty provisions in the Income Tax Act in regard to the failure to get accounts audited is provided in the below-given section.
271B. If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred fifty thousand rupees, whichever is less.”
Rationalise Penalty Provisions U/s. 271B for Tax Audit Report
To get rid of this year to year legal tussle among the assessee, Professionals and CBDT, There is a simple solution to overcome the above problem i.e the penalty provisions should be rationalized and the penalty amount should be linked with the number of days of delay, say for example Rs. 200/500/1000/- per day of delay. This provision will directly hit the present penalty provision of a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred fifty thousand rupees, whichever is less. Such rationalisation shall scrap the need to do the extension of a due date, therefore; there may not be a loss of revenue in form of a waiver of interest U/s. 234A, the delayed collection of taxes etc. Rather, there may be the increase in revenue because many taxpayers may opt to avail some more time for proper accounting and auditing, by paying the above slight amount of penalty as per their affordability.
Expand the information base of Form 3CD by inserting a provisional assessment order
Further, in the interest of revenue, a few changes can be made in the tax audit report Form 3CD to make it more authentic and responsive. The tax audit format is included a provisional assessment order of the assessee keeping in view of all provisions of the Income Tax Act. At present, the assessee themselves approach the Chartered Accountants for conducting the Tax Audit. The regulator of the Chartered Accountants I.e. the Institute of Chartered Accountants of India and ICAI has prescribed the limit of Tax Audit per member to make it uniform and to ensure the quality of Tax Audits. As Department has nothing to do with the number of audits done by a Chartered Accountant, on the other side, ICAI do want to regulate the number of tax audits prescribed by them. Hence a close coordination between these two regulators shall be a boom for the economy of the country. The CBDT, as well as the ICAI, has failed to monitor the abuse of the system for filling the Tax Audit reports because of this communication gap. The ICAI has established the Tax Audit Review Board to go through the tax audit report quality thus a proper coordination between two regulators will be a win-win situation for all.
Explore the mechanism to use MEF data of ICAI for Tax Audit Allotment
Your attention is drawn towards a need of the hour that Tax Audits allotment be monitored through the department. It is certain that the tax audit reports shall be more qualitative and certainly result in achieving the objective of the Tax Audits. The said allotment may be monitored through your field offices under the 50 Principal CIT spread over to throughout the country. There are approx. 42000 Chartered accountants firms which have been segregated into categories based on the strength of the partners of the firm. ICAI creates a yearly empanelment of firms through MEF. The empanelments are readily available with the Institute and you only have to link the same with the Turnover of the assessee. At year-end, the assessee must submit its details before the PCIT to seek the name of the auditor. PCIT should allow the Tax audits from the empanelment list maintained by their office obtained from the PDC of ICAI. PDC can also provide software to allow such audits. A uniform fee structure may also be prescribed.
Your attention is drawn that your department is already maintaining the empanelment of auditors under Section 142(2A) of the Income Tax Act, 1961 in regard to Special Audit which could be initiated during the proceedings as an Assessing Officer in regard to the nature and complexity of the accounts of the assessee and the interests of the revenue. The combo of both the provisions shall be an effective tool in the hand of the revenue authorities. Your attention is drawn that through this MEF empanelment, the PSU banks are being audited at year end and thousands of crores of NPA are being identified by this audit pattern. It has become possible because RBI appoints the auditors and look towards auditors with confidence to present them the true and fair view of the advances. Banking Industry and RBI are relying on the data of MEF to appoint the auditors why CBDT can’t initiate on such direction.
In the interest of revenue, kindly decide the fate of demand of further extension of 15 days and applicability of 234A interest judiciously keeping in view of the earlier Judgements s of various High Courts in the year 2014 & 2015 and the present pending cases for extension and levying 234A interest in various high courts under adjournments keeping in view of speaking order preferably by 10th October 2018.
(About the Author– Author was Member of ICAI- Capacity Building Committee 2010-11 and ICAI- Committee For Direct Taxes 2011-12 and can be reached at email email@example.com or on phone Phone: 0121-2661946. Cell: 9837515432 having office at 115, Chappel Street, Meerut Cantt, UP, INDIA)