Suggestions For Budget 2017-18 – Rationalization Of Penalty Provisions U/s. 271B For Non / Delayed Filing Of Tax Audit Report
BACKGROUND : In India, every year, large number of Income Tax Assesses are required to get books of account of their businesses audited under section 44AB of the Income Tax Act (“the Act”). The report of such audit is required to be furnished to the Income Tax Department within the prescribed due date which at present, is 30th September of the concerned assessment year. 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 maximum of Rs. 1,50,000/-).
PROBLEM : Almost every year demand is raised by Tax Payers / CAs etc. for extension of above due date. The main reason behind the above demand generally remains the big amount of penalty even for the delay of only few days. On other hands the government feels it difficult to generally extend the above due date, as it may results in loss of revenue in form of waiver of interest U/s. 234A, delayed collection of taxes etc.
SUGGESTIONS : To overcome the above problem, it is often suggested that the above penalty provisions should be rationalized and the penalty amount should be linked with the number of days of delay, say for example Rs. 500/- per day of delay.
In this article an attempt has been made to further elaborate the above concept. It is further suggested that a ceiling of maximum amount of penalty leviable should also be provided. Such ceiling may be the amount of penalty leviable under the present provisions themselves i.e., the maximum amount of penalty leviable should not exceed the penalty amount leviable at present (i.e., amount at the rate of ½ % of turnover etc. or Rs. 1,50,000/- whichever is minimum).
The present penalty provisions in Income Tax Act in this regard are :
“Failure to get accounts audited.
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.”
In this regard, the suggested provisions of Section 271B may be as under:
Failure to get accounts audited.
271B. (1) 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 of five hundred rupees for every day during which the failure continues.
(2) Any penalty imposable under sub-section (1) shall not exceed the 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.
Expected Benefit s Behind The Suggestion :
(1) If the penalty is levied on the basis of number of days of default, the same may be affordable in almost all the cases as generally the additional period required by the Tax Payers etc. remains within the range of 15-30 days. Due to lower / affordable amount of penalty, there may not be demand for extension of due date.
(2) There may not be any need to make general extension of due date therefore, there may not be loss of revenue in form of waiver of interest U/s. 234A, delayed collection of taxes etc. Rather, there may be increase in revenue because many tax payers may opt to avail some more time for proper accounting and auditing, by paying the above slight amount of penalty as per their affordability.
(3) Due to low amount of penalty, there may be reduction of litigation. The tax payers may choose to pay the same instead of filing the appeal etc. against the same.
(4) Many assesses always every year approaches their auditor for audit, only few days before the last date, with the intention that due to last days work pressure the auditor may not be able to thoroughly examine their accounts. But in case of rationalized penalty provisions, the auditors may not be under much pressure in the last days, due to low amount of penalty and consequently, such assesses will get discouraged for their such practices.
CONCLUSION : The union budget for the year 2017-18 may be under preparation. If the above suggestions for rationalization of penalty under section 271B of the Act are accepted and acted upon, they may result in simplification, rationalization, better tax compliances and increase in revenue.