PENALTIES FOR NOT FILING TAX AUDIT REPORT IN INDIA

Section 44AB OF THE INCOME TAX ACT 1961 requires the firms or entities to get their accounts audited every year by a Chartered Accountant before the due date. The provisions regarding the requirements to get them audited and penalties for non-compliance of the same has been mentioned under the statue.
In this article we shall examine the need and Penalties for not filing Tax Audit report within the prescribed period.

WHAT IS TAX AUDIT?

Tax Audit is an assessment of company’s status as a taxable entity. It reflects company’s financial transparency, credibility, reliability and assess the financial management of the company. Tax Audit involves verification of Books of accounts, income, deductions claimed and assures that data claimed in account is true and fair.

WHY TAX AUDIT IS NECESSARY?

• Verification of Compliance: Tax Auditing by CA ensures that tax payers are complying with the provisions and regulations of the Income Tax Act. By scrutinizing financial records and transactions, authorities can ensure that individuals and businesses are accurately reporting their income and paying the correct amount of taxes.
• Proper Administration: Tax Audit facilitates the administration of tax laws by proper presentation of accounts before tax authorities and save the time of assessing officers engaged in carrying out routine verifications.
• Detection of Fraudulent Practices: Tax audit restricts the chance of fraudulent practices as it keeps a regular check on the compliance of rules.
• Public Trust: When tax payers believes that auditing system is fair and transparent and non-compliance is duly addressed it helps build and maintain public trust in the tax system.
  Resource Allocation: Audits help identify high-risk and low-risk areas or industries which are more likely to attract non-compliance, so by conducting audits tax authorities can allocate their resources effectively and efficiently.

PROVISION UNDER INCOME TAX ACT

Section 44 AB of the Income Tax Act 1961 specifies categories of businesses and professions to get their accounts audited by a Chartered Accountant if they exceed the prescribed limit. They ensure that the firm or entity has complied with all the rules and regulations of the Act. However, if the entities fail to comply with the provisions they attract penalties.

PENALTIES FOR NOT FILING TAX AUDIT REPORT

Penalty under Section 271 B: Whenever a law requires a certain person to do a certain thing, it, invariably, makes provisions for penalty for failure to do that. So, section 271B of the Income-tax Act, 1961 was enacted simultaneously with section 44AB to provide for such penalty. This section provides that if the specified person fails to get his accounts audited or fails to furnish the audit report within the specified time he shall be liable to pay.

• A sum equal to one-half percent (0.5 %) of total sales, turnover or gross receipts in business or profession or
• A sum of 1,50,000 rupees whichever is less.
• Legal Proceedings: The non-compliance may also attract Legal Proceedings against the entity conducted by the income tax department which might result in additional fines and penalties.
• Credibility and Reputation: Not filling the tax audit report would hamper the credibility of the firm and injure its reputation in the financial market which would restrict investors, stakeholders, and clients.
• Financial Implications: Apart from this non filing of Tax audit report can have significant financial implications. It can lead to Income Tax Department disallowing various deductions and expenses claimed resulting into higher taxable income and slab rates thereby increased tax liability.

However, The Income Tax Appellate Tribunal in the case of Tarlok Singh v. ITO has held that if reasonable cause is shown for the failure of filing tax audit report within the due time it would not attract penalties under Section 271 B of the Income Tax Act.

CONCLUSION

Thus it can be concluded that Tax Audits are a critical component of a well-functioning tax system. It helps identify likely frauds, ensures compliance, maintains the integrity of the system and deters evasion. Non-compliance with the provisions could attract bigger penalties like falling into larger tax bracket and paying extra amount of tax. So, in order to stay updates and avoid penalties a team of expert advisors from Legal Window is here to assist you at every step. Feel free to reach us at admin@legalwindow.in.