Tax Audit Due Date Extension – Practical Problems And Suggested Measures To Overcome

INTRODUCTION:

After lot of struggle by the Tax Payers, Tax Consultants, Chartered Accountants etc., the due date for e filing of tax audit U/s. 44AB of the Income Tax Act has been re extended by the Government to 07^th November, 2017.

The main reasons for seeking the due date extension were that (a) on one hand, due to last minute rush, the website of the Income Tax Department got crashed and (b) on other hand the Chartered Accountants also felt it difficult to complete the tax audit work within the due date, due to various reasons e.g., large no. of assesses came to their offices for audit only near about due date, due to festivals, GST problems, human tendency, unawareness, other priorities etc.

Since when the provisions for tax audit have been introduced, the demand to extend the above due date has been raised almost every year due to one or more similar or different reasons. It is seen that in the last few years this demand has been raised much strongly. Almost every year an unpleasant and bitter situation has aroused between the Government and the Tax Payers, Tax Consultants etc. on this issue.

This position is not good. There is a strong need for the permanent solution of this persisting problem. For that purposes, firstly, the reasons for the above problem are required to be well known and carefully analyzed. Thereafter, the effective steps will have to be taken by the Government for permanent solution of the problem.

CAUSES BEHIND THE PROBLEM OF TAX AUDIT DUE DATE EXTENSION :

There are many causes behind the above problem. Some are permanent and some may be of temporary nature which arises due to circumstances prevailing in the particular year.

(1) Natural Human Tendency To Do The Work On Last Moment : It is a natural human tendency to do the work on almost last moment. Though every person do not have such tendency but large no. of peoples have this tendency. It is a pain of the Chartered Accountants’ community that even after many reminders, significant no. of clients comes for audit only near about the last date. This creates last minute rush and load in the office of the CA as well as on the IT Department’s website.

(2) No Apparent Business, Monetary etc. Benefit Is Attached With Tax Audit Work : Many assessee generally considers that the tax audit work is merely a formality. It is to be done only to protect themselves from penalty. They will not get any additional business / monetary benefit if they will give priority to the tax audit work over their business / other monetary affairs. Similarly, even if they will get their audit work done on last moment, there existing business / other monetary gains will not be affected. Further, some assesses and / or their accountants believes that if they will go for audit on last moment, then due to time shortage, their accounts will not be examined much and they will have to spare minimum time and energy for audit work.

(3) Tax Audit Due Date Felling In Festival Season : In India, most of the businesses are festival based. Many times above due date fells near about the major Indian festivals like Deepawali etc. Therefore, the assessee gives priority to their business affairs over tax audit work. Due to social, cultural, religious and family reasons, the priority is given to the festivals. Thus, movement of large no. of assesses for tax audit on last moment after the festivals are over, creates heavy rush and load.

(4) Delayed Issuance Of Forms, Rules, Utilities etc. : Many times the relevant forms, rules, utilities etc. are not issued by the Department timely. Due to this the audit work could not be started timely. Further, they are frequently changed when the audit work remains in progress. Due to this, those work which are under process / substantially completed are to be re done significantly.

(5) Inadequate Capacity Of The Departmental Informational Technology infrastructure : It is experienced on almost every occasion that the, server, website etc. of the Department could not bear the load of the work of large no. of assesses which occurs on / near about due date.

(5) Single Due Date For E filing Of Tax Audit Report for All Type Of Assesses / Cases : There is only a single due date for filing of tax audit report of all type of the assesses / cases. Thus, the load of all type of assessee / cases is accumulated on a single date and did not get distributed.

(6) Panic Of Lump Sum Heavy Amount Of Penalty : If an assessee could not file the audit report up to the due date then he his liable for heavy lump sum penalty. So when it appears that audit report may not be filed within due date, due to website failure or other reasons, panic is created and the due date extension is sought strongly.

(7) Ignorance About Penal Consequences : Many assesses, specially who became liable for the tax audit for the first time, do not have knowledge about above heavy lump sum penalty. Therefore, even they could have got their audit work done in earlier stages, they do not move for the same till last date / near about that.

(8) Government Hesitation To Extend Due Date : The due date for filing tax audit report is attached with the due date for filing of Income Tax Return, which in turn is related with the payment of Self Assessment Tax and levy of interest U/s. 234A. Any extension of due date results in probable loss of interest U/s. 234A to the Government as well as of delayed collection of taxes. Therefore, the Government hesitates in extension of due date. This results in clashes between the Government and Tax Payers etc. on this issue.

(9) Temporary / Reasons Related To Particular Year Only : There may also be temporary reasons related to one particular year e.g., natural calamities, economic events, substantial changes in law, procedures etc. This year GST complications were such additional reasons.

SUGGESTED MEASURES TO OVERCOME THE PROBLEM OF TAX AUDIT DUE DATE EXTENSION :

In this regard, various steps may be taken by the Government to ensure the permanent / substantial solution of the above problem. These are discussed as under :

(1) REMINDER LETTER BY THE DEPARTMENT : The Department may issue reminder letters in the months of June-July for timely filing of tax audit report, specially to those assesses who had filed their tax audit report on or near about due date in the immediately last year. This is practicable as presently the Department has already practice to send the reminder letters e.g., for deposit of advance tax to those who had deposited large amount of self assessment tax in preceding years, for filing of return who have entered in to specified transactions etc. The peoples takes the Departmental notices seriously. Therefore, this may gear up the tax audit process in much early stage.

(2) REMINDER MAIL AND MESSAGES : Presently, the Department has practice to send mail and messages to the assesses for various matters. Similarly, the reminder mail and messages may also be send to the existing tax audit assesses 5-6 times starting from the months of June-July mentioning the due date, penal consequences for not filing the report up to due date and warning that due date will not be extended. It may be effective as it is seen that generally the peoples takes the mails and messages from the CPC very seriously.

(3) NEWS PAPER AND ELECTRONIC MEDIA ADVERTISEMENT : Presently, the Department has practice to give advertisements in print and electronic media for various matters e.g., for deposit of advance tax etc. This may also be done for spreading awareness regarding tax audits.

(4) TIMELY ISSUANCE OF FORMS, RULES, UTILITIES : Apart from making the assesses aware and gearing them up timely, the Department is also required to issue the relevant forms, rules and utilities up to the 1^st April of the assessment year and is also required to refrain from frequent changes therein up to the due date.

(5) MAINTAINING SUFFICIENT INFRASTRUCTURAL CAPACITY : The Department should also increase and maintain the capacity of its servers, website etc. at sufficient level (considering that almost 50%-60% assesses file their reports on or about last date) so that its system can bear the heavy load due to last minute rush.

(6) DIFFERENT DUE DATES FOR DIFFERENT TYPES OF ASSESSES / CASES : Different due dates for filing of tax audit report may be fixed for different types of assesses / cases e.g., The audits in the 44AD, 44AE etc. cases generally remains small and easy, The due date in respect thereof may be kept earlier and in respect of normal audits it may be kept later. This bifurcation may also be done on some other practical criteria/ basis. In such case, the last minute rush and load in CA offices as well as on IT Department website may get distributed.

(7) INSTEAD OF LUMPSUM HEAVY PENALTY, PENALTY / LATE FEE ON PER DAY BASIS ON SOME TIME BLOCK BASIS MAY BE PROVIDED : Instead of lump sum heavy amount, the penalty may be kept on the basis of per day up to which the default continuous (up to present penalty quantum of maximum of ½ percent of turnover or Rs. 1,50,000/- whichever is higher). This may reduce panic situation on last day or near about that, as the capable assesses may find themselves comfortable in filing the tax audit report even after the due date by paying the bearable late fee. This may increase the Government’s revenue on one hand and on other hand the auditor and the assesses will get sufficient time for good quality audit.

(8) ENSURING EARLY FILING OF TAX AUDIT REPORT THROUGH BANKS ETC. OTHER INSTITUTIONS: Many assesses gets loans / renewal of loans / subsidies and other benefits from the banks and other institutions. For this purpose they are required to submit the audited statements, audit report etc. to these institutions. The deadline for submitting the same for obtaining these benefits may be fixed earlier e.g., up to the month of August. Further, these institutions may be directed to make follow up for obtaining tax audit reports from earlier period e.g., from June July itself. Since in such situation, when the direct business / monetary benefit will be affected, the assessees may himself move for audit in early stage.

(9) SEPARATION OF TAX PAYMENT WITH TAX AUDIT AND RETURN FILING DUE DATE: The payment of self assessment tax and levy of interest U/s. 234A may be separated from the due date of filing of TAR and ITR. In that case the Government will be in a comfortable position to extend the due date as and when required, without any fear of probability of loss / delayed collection of revenue. Presently, there is already a successful independent system for the payment of advance tax and levy of interest U/s. 234B and C for non payment / delayed payment of advance tax. They are not related with due date of filing of TAR and ITRs.

(9) SUO MOTO EXTENSION OF DUE DATE FALLING IN FESTIVAL SEASON: Whenever the due date fell on or near about the major festivals, the Government should suo moto extend the same. Further, it should also be seen that the extended due date do not fell on or near about any other major Indian festival.

(10) EXTENSION SHOULD NOT BE TOO EARLIER OR TOO LATE: Whenever the due date is extended, it should not be extended much earlier or too later. Because in both the situations, the extension do not have required benefit. This year the first extension was made too earlier. Due to that the assesses became engaged in their other business etc. work and again moved for audit near about extended date and then further extension was required to be sought. The second extension was made too late when almost audit work was completed in any how manner. Thus, to obtain required benefit, the due date should be extended at least 7-8 days before the due date. Similarly, it should be extended in piecemeal of 10-10 days (instead of for lump sum period) as per the requirements of prevailing circumstances.

CONCLUSION : These were few suggested measures. There may be some more other effective steps which may help in ensuring timely completion of tax audits within the due dates, obtaining maximum benefits from date extension, if any in avoiding clashes arising on this issue almost every year.