Penalty for Non filing or Late filing of Tax audit report – Section 271B and condonation in filing Tax Audit report

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Yesterday i.e. 31^st October 2019 was the last date for filing of tax audit report except for those living in the Union territory of Jammu & Kashmir and Ladakh and for those who are liable to file report u/s 92E i.e. those covered with transfer pricing provisions.

In one of the previous article of the website we discussed why auditor should not sign an audit report without properly examining it, however there would still be some people who would have issued/ signed the audit report in the end in a hurry because of a huge penalty which their client would have to face and now we will discuss that penalty.

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.”

According the above section failure to get accounts audited or furnish audit report under section 44AB would attract 1.5 lakh penalty or 0.5% of turnover whichever is less. Thus, one can be liable for a maximum of Rs. 1.5 lakh penalty plus they will also have to pay penalty for late filing of income tax return. Thus, in the end it turns out to be that penalty which an auditor would be liable to pay would always be less than his client and so his client will always convince him to sign his audit report in the last moment and save him from such huge penalty.

Also, one important thing to note here is that the power to levy penalty here lies with the Assessing officer unlike Income Tax return where you need to file Income tax return along with penalty. In this case if you file the audit report after due date you can file audit report without paying any penalty beforehand and wait for a notice from Assessing officer for recovery of such penalty.

Since the penalty is too huge there can be situations where people may have genuine issue in filing such Tax audit report in time. Then what to do?

In such instances the assessee should submit a letter for condonation of delay in filing of Tax audit report to his assessing officer and should properly mention the reason for such delay along with available evidence in support and if the reason is genuine and reasonable, AO might not charge penalty as there are various case laws where penalty u/s 271B has been dropped due to reasonable cause.

Many people might also wonder when to write such condonation of delay to assessing officer i.e. before filing Tax audit report or after filing Tax audit report or after receiving notice of penalty.

Now, condonation basically means asking permission for delay in submitting a report and this should always be submitted along with or before submitting the report as is evident form it’s nature, but since you don’t have place to attach such condonation you must submit it alongside filing of your Tax audit report, because the Assessing officer is going to issue notice for recovery of such penalty and there is no way where you can hide delay in filing of such Tax audit report so it’s better to submit such condonation along with your Tax audit report so that your delay in filing Tax audit report is not found intentional and it also proves that you are well aware of the laws of Income Tax.

The reasons for delay in filing Tax audit report can be different for different persons and all can be valid but only those reasons would be accepted which are genuine with supporting evidence and without which Tax audit report could have not been filed.

Some examples of such reasons are:

1. The head accountant who used to maintain all accounts was in a severe condition during the Tax audit period or demise of such person.
2. Delay due to fire or damage in the head office where accounts were maintained.
3. Your system and accounts software was stolen away by someone.
4. Demise of your auditor and you could not appoint another auditor within due time etc.

There can be multiple reason for such delay and some might be accepted and some not and it all depends on the situation and facts. If the facts prove that audit of your case was dependent on that incident then you might save yourself from such huge penalty.

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