PENALTY U/S 271-B

This query is : Resolved

N GANESHAN. (Querist)
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15 November 2007 RESPECTED SENIORS, FRIENDS.

IN ONE OF MY CASES AUDIT REPORT AS REQUIRED U/S 44ab IS OPTAINED IN TIME AND THE RELEVANT REPORT IS YET TO BE FURNISHED. THE STATUS OF THE CLIENT IS INDIVIDUAL. CLARIFY WHETHER 271B IS ATTRACTED. KINLDY DONOT TELL JUST OPTAINING THE RPORT BEFORE 30/10 IS SUFFICIENT. AS IN THIS CASE THE RELEVANT RETURN IS YET TO BE SUBMITTED. PLEASE LET ME HAVE YOUR VALUEABLE REPLY

Late CA Sampat Jain

Late CA Sampat Jain (Expert)
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16 November 2007 Uploading of Returns & 44AB Audit Reports

The report of audit under section 44AB is not to be attached with the return.

It should not be furnished separately also before or after the due date.

However, an assessee should get the report of audit from an accountant under said section before the due date of the furnishing of the return and should fill out the relevant columns of these forms on the basis of such report. The assessee should retain the report with himself.

It may be furnished in original during the assessment proceedings.

No penalty under section 271B shall be initiated or levied for not furnishing the tax audit report on or before the due date.

However, if the audit report has not been obtained before the due date, provisions of section 271B shall be attracted.

New Return Forms for Assessment Year 2007-08 matters connected thereto reg.

CIRCULAR NO. 5 / 2007, DATED 26-7-2007

The Central Board of Direct Taxes, vide notification S.O. No.762(E) dated 14th May, 2007 have notified following new return forms for assessment year 2007-08 under a new series:-

(i) ITR-1 return of income for individuals having income from salary/ pension/ family pension and not having any other income except income by way of interest chargeable to income-tax under the head Income from other sources;

(ii) ITR-2 return of income for Individuals and Hindu Undivided Families (HUFs) not having any income under the head Profits or gains of business or profession;

(iii) ITR-3 return of income for Individuals and HUFs being partners in firms and not carrying out business or profession under any proprietorship;

(iv) ITR-4 return of income for individual and HUFs having proprietory business or profession;

(v) ITR-5 combined form for return of income and fringe benefits for Firms/ Association of Persons / Body of Individuals;

(vi) ITR-6 combined form for return of income and fringe benefits for companies (other than companies claiming exemption under section 11;

(vii) ITR-7 combined form for return of income and fringe benefits for persons including companies required to furnish return under section 139(4A) or section 139(4B) or section 139(4C) or section 139(4D);

(viii) ITR-8 stand alone form for return of fringe benefits for persons who are not required to furnish return of income but are required to furnish return of fringe benefits.

The above return forms are available at http//www.incometaxindia.gov.in.

2. Rule 12 of the Income-tax Rules has also been substituted by a new rule with effect from 14th May, 2007 for furnishing the return of income/ fringe benefits in the above mentioned Forms.

In sub-rule (5) of the said rule, it has been provided that the return of income/ fringe benefits for assessment year 2006-07 or any earlier assessment years shall be furnished in the appropriate form as applicable in that assessment year.

3. Sub-rule (3) of rule 12 provides that return of income/ fringe benefits can be furnished in any of the following manners:-

(i) furnishing the return in a paper form;

(ii) furnishing the return electronically under digital signature;

(iii) transmitting the data in the return electronically and thereafter submitting the verification of the return in Form ITR-V;

(iv) furnishing a bar-coded return in a paper form.

4. In exercise of powers conferred by section 139D read with clause (eebb) of sub-section (2) of section 295, it has been provided in sub-rule (3) of rule 12 that it shall be mandatory for the firms to whom provisions of section 44AB are applicable and for the companies (other than the companies claiming exemption under section 11) to furnish the return of income/ fringe benefits electronically in the manner mentioned at (ii) or (iii) of paragraph 3. The return of income/ fringe benefits in Form ITR-7 by charitable/ religious trusts, political parties and other non-profit is to be furnished in the paper form only. All other taxpayers has the option to furnish the return of income/ fringe benefits in any of the manner mentioned in paragraph 3.

5. In exercise of powers conferred by section 139C read with clause (eeba) of sub-section (2) of section 295, it has been provided in sub-rule (2) of rule 12 that the return to be furnished in above mentioned Forms (except in ITR-7) shall not be accompanied by any attachments/ annexures. Thus, taxpayers should not enclose with these return forms any statement showing the computation of income or tax, copies of balance-sheet, profit and loss account, TDS/ TCS certificates, proof of payment of advance tax or self-assessment tax. However, these documents shall have to be produced before the Assessing Officer on demand by him. The Chief Commissioners of Income-tax/ Commissioners of Income-tax must ensure that documents, if any, annexed with these returns or Form ITR-V are detached at the time of receiving these returns/ ITR-V and return the same to the taxpayers immediately.

6. Following clarifications are also issued in respect of certain issues arising from furnishing the returns in the above mentioned forms:

(i) The report of audit under section 44AB is not to be attached with the return. It should not be furnished separately also before or after the due date. However, an assessee should get the report of audit from an accountant under said section before the due date of the furnishing of the return and should fill out the relevant columns of these forms on the basis of such report. The assessee should retain the report with himself. It may be furnished in original during the assessment proceedings. No penalty under section 271B shall be initiated or levied for not furnishing the tax audit report on or before the due date. However, if the audit report has not been obtained before the due date, provisions of section 271B shall be attracted.

(ii) These returns are not to be accompanied with any other document including any statutory form or report of audit (other than the report under section 92E) which is otherwise required to be furnished before the due date or along with the return for making any claim. The provisions of the law shall be deemed to have been complied with in respect of the requirement of the filing of the attachments or documents or reports along with the return. No penalty shall be initiated/ levied for not furnishing such documents if such documents were otherwise obtained before the specified date, if any, provided in the statute. All these documents should be retained by the taxpayers and be furnished in original during the scrutiny proceedings.

(iii) The report as required under section 92E of the Income-tax Act shall continue to be furnished before the date specified in rule 10E.

(iv) In case, a return is furnished under digital signature, the date of such furnishing shall be the date of furnishing the return. In case, the assessee chooses to transmit the data in the return electronically and thereafter submit the verification of the return in form ITR-V, the date of transmitting the data electronically will be the date of furnishing the return if ITR-V has been furnished within fifteen days from the date of transmitting the data electronically. In case, Form ITR-V, is furnished after the above mentioned period, the date of furnishing Form ITR-V shall be deemed to be the date of furnishing the return. Further, in case, Form ITR-V is not furnished, it will be deemed that no return has been furnished.

(v) The e-Return has to be furnished at http://incometaxindiaefiling.gov.in. The ITR-V shall be furnished at separate counter(s) to be set up exclusively for this purpose at each local income-tax office (whether on net-work or not).

(vi) The ITR-V Forms are bar-coded. Therefore, CCITs/ CITs must ensure that these Forms are handled and stored with care and caution. While storing the returns, precaution should be taken not to fold them. These ITR-Vs should be sent to the RCCs immediately.

7. Separate instructions regarding the procedure for processing the returns filed electronically and verified in Form ITR-V are being issued separately.

8. The returns filed electronically shall be processed on priority basis.

[F.No.142/3/2007-TPL]

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Source : CA.Saibaburao Nanduri -

Amarjeet Singh

Amarjeet Singh (Expert)
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16 November 2007 ) The report of audit under section 44AB is not to be attached with the return. It should not be furnished separately also before or after the due date. However, an assessee should get the report of audit from an accountant under said section before the due date of the furnishing of the return and should fill out the relevant columns of these forms on the basis of such report. The assessee should retain the report with himself. It may be furnished in original during the assessment proceedings. No penalty under section 271B shall be initiated or levied for not furnishing the tax audit report on or before the due date. However, if the audit report has not been obtained before the due date, provisions of section 271B shall be attracted. As u have obtained the tax audit report before the due date no penalty can be lavied u/s271B irrespective of the fact that u file the return after the due date.

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N GANESHAN.

N GANESHAN. (Querist)
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16 November 2007 sir this is again N GANESHAN

MY QUESTION IS THE RETURN ITSELF IS NOT YET FILED. YOUR LENTHLY REPLY DO NOT SERVE ANY PURPOSE. KINLDY AVOID THIS UNNECESSARY REPLY MAILS . PLEASE JUST UNDER STAND MY QUERRY. I HAAVE CLEARLY DISCLOSE THAT THE ROI IS NOT YET FILED. BUT YOUR REPLY IS NOT FOR THIS SITUATION. EVERY ONE KNOW THAT NO NEED TO ATTACH ANY AUDIT REPORT . DONT WAST YOUR TIME

N GANESHAN.

N GANESHAN. (Querist)
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CA. O.P. Agarwalla

CA. O.P. Agarwalla (Expert)
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17 November 2007 As per section 44AB of the Income Tax Act, 1961, assessee is bound to submit his audit report on or before due date (31st October).
During this year, after introduction of new Return Forms, CBDT has issued several clarifications and had repeatedly said that audit report is not required to be submitted. Circular No. 5/2007 dated 26/07/2007 is very clear in this regard.

As per section 139C the Board (CBDT) may make rules providing for a class or classes of persons who may not be required to furnish…….. reports of audit or any other documents, which are otherwise under any other provisions of this Act, except section 139D, required to be furnished.

In tune with the power given in the said section, the Board utilizing its power u/s. 295 has amended the rule 12 of the Income Tax Rules, 1962 vide Notification No. 169/2007, dated 14/05/2007.

As per amended rule-12(2) “The return of income and return of fringe benefits required to be furnished in Form No. ITR-1 or Form No.ITR-2 or Form No. ITR-3 or Form No. ITR-4 or Form No. ITR-5 or Form No. ITR-6 or Form No. ITR-8 shall not be accompanied by a statement showing the computation of the tax payable on the basis of the return, or proof of the tax, if any, claimed to have been deducted or collected at source or the advance tax or tax on self assessment, if any, claimed to have been paid or any document or copy of any account or Form or report of audit required to be attached with the return of income or the return of fringe benefits under any of the provisions of the Act.

Hence, by this amendment in Rule-12, it is very clear that Form-IV or other forms as the case may be should not be accompanied with audit report u/s. 44AB. Accordingly, in this aspect section 139(9) seems to be rightly superseded by this amendment.

But the question - whether amendment in Rule-12 will supersede the requirement of filing audit report u/. 44AB? It is true that, section 139C empowers the board to make rule for non submission of audit reports. The point is that, whether the board has made any rule in this regard? In my opinion the work is half done. The Board had made rule regarding not accompanying of audit report with new returns, but did not make any rule giving relaxation to the assessees in filing the audit reports otherwise. Up to this juncture, a reasonable interpretation may be drawn that, the assessees are required to submit audit report u/s. 44AB separately.

But, this is not the end of the discussion. The rule making authority, i.e. the Board had further issued clarifications on 26/07/2007 vide Circular No. 5 and clarified that tax audit reports are not required to be filed at any point of time (except during the course of assessment proceedings).

The above said circular raised the following questions:-
a) Whether there is any ambiguity in the language of the clarification [particularly in para 6(1)]?
b) Whether the clarification provided in para-6 of the said circular is restricted to the assessees who are filing return within due date?
c) Whether the said clarification will be binding on the Department?

To find out the answers of first two questions, let us analyse the para-6 of the said Circular. The para reads as under:

The report of audit under section 44AB is not to be attached with the return. It should not be furnished separately also before or after the due date. However, an assessee should get the report of audit from an accountant under said section before the due date of the furnishing of the return and should fill out the relevant columns of these forms on the basis of such report. The assessee should retain the report with himself. It may be furnished in original during the assessment proceedings. No penalty under section 271B shall be initiated or levied for not furnishing the tax audit report on or before the due date. However, if the audit report has not been obtained before the due date, provisions of section 271B shall be attracted.

I do not find any ambiguity in the said para. Accordingly, in my opinion, the only interpretation which can be drawn from the said para of the Circular is that- The assessee is supposed to obtain the audit report under section 44AB before the due date and should submit the same only at the time of assessment proceedings and though not submission of audit report may be ultra-vires of the section 44AB, but no penalty u/s. 271B will be levied or initiated if the Assessee succeeds in obtaining the audit report before the due date.

Few comments has been made that, the intention behind this circular was only to give relief from submission of audit report to the assessees who are filing their returns within due date. In respond to this it is rightly been replied some where that the intention should be found in expressed words only and had it been the intention of the CBDT to restrict this relief , the same could have been expressed some where in the circular. Language of the circular is very clear and there is no need to under- estimate the language skills of the drafts man of the CBDT.
Now, the third and most important question- Whether the said clarification will be binding on the Department?

There are judgements of different courts that such instructions, clarifications and circulars are binding on the department. Some relevant case laws are as follows:-
01. [CIT vs. SRIRAM AGRAWAL, (1986) 54 CTR(PAT)367].
CBDT Circulars- Binding nature- Circular against legislative intent-Circular No. 18D (XLV-14) dt. 15th July, 1963, providing that no penalty should be levied if at the time of the appearance before the ITO in connection with the hearing under proviso to s. 221(1), the assessee had already paid tax- This circular though against the legislative intent, is binding on the Departmental officers who are bound to give effect to it.
02. [BOMBAY CLOTH SYNDICATE vs C.I.T. (1995)214 ITR 210 (Bom)]
The advertisement dt. 5th January, 1971, was a promise that penalty would not be imposed for concealing income in case it was offered for assessment, it had to be kept and the IAC could not ignore it.
03. [NAVNIT LAL C. JAVERI vs K.K. SEN, AACIT (1965) 56ITR 198(SC)]
It is clear that Circular of this kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under s. 5(8).

From the above judgements it seems to be clear that the said circular of the Board is binding on the department and no penalty u/s. 271B can be initiated or levied for non filing of audit report u/s. 44AB, if the Assessee obtains the said report before the due date.
The above findings and discussions may not be agreed by few persons, but in that case they will have to agree that if the penalty for non submission of tax audit report within due date is leviable, it is leviable on all such cases, where audit reports have not been submitted before the due date, irrespective of the date of filing of returns in new dates. One can reasonably conclude that this will be most unwanted situation for the CBDT and for the department too. Hence, at this point we may be rest assured that no penalty is going to be ultimately imposed for non submission of audit reports (unless such reports are not obtained before the due date).
Further more, even the department initiates such penal proceedings, such penalty will be waived considering the situations under which the Assessee was under bonafide belief. Ultimately, for the fault of the Board, Assessee could not be punished. In support of my said view, I would like to refer the follwing case law:-
[1981] 048 STC 0466- - Associated Cement Co. Ltd. Vs. Commercial Tax Officer, [1970] 026 STC 0302- - Hindustan Steel Ltd. Vs. State of Orissa (SC-3 Judges)
“An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out.”

One more point in this regard has been raised by few learned colleagues that the language used in the CBDT’s order u/s. 119 issued on 31/01/2007 says about filing of tax audit report. The said order says- “In view of the technical difficulties being faced by taxpayers in filling their returns in electronic format, the Central Board of Direct Taxes, in exercise of powers conferred under section 119 of the Income Tax Act, 1961, hereby allows the returns and reports of audit detailed below to be filed up to 15th day of November 2007 instead of 31st day of October 2007 in case of companies and firms which are required to furnish e-returns for Assessment Year 2007-08”. This order has certainly succeeded to create confusion and if it is not due to typographical mistake, it goes contrary to the circular dated 26/07/2007.

Here, we will have to keep in mind the following points:-
01. It appears that unlike the circular dated 26/07/2007, the said order has been drafted hurriedly.
02. The language used in the order does not match with the Press release. In the press release it has been clearly mentioned that-“the dates for obtaining tax audit report under section 44AB of the Income Tax Act have also been extended accordingly”. The word ‘obtaining’ used in the press release is very important. It does not agree with the language used in the order issued on the same date.
03. Press Release issued by the department on 30th October in connection with Bihar is also used the word “obtaining”.
04. Further, as per the above said order, it is clear that the said extension of due date has been made “In view of the technical difficulties being faced by taxpayers in filling their returns in electronic format”. Obtaining and filing of audit reports have no relation with such technical difficulties, hence it could be opined that the above said order is in fact not dealing with furnishing of audit report.
Hence it can be concluded that the order does not supersede or counter the Circular dated 26/07/2007 as regards obtaining and submission of audit report.

Amarjeet Singh

Amarjeet Singh (Expert)
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17 November 2007 I have answered in my reply that irrespective of fact that u still not filed the return,you are not liable to penalty u/s 271B as you have obtained the audit report before the due date.

o.velavan

o.velavan (Expert)
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18 November 2007 I agree with the opinion of Mr Amarjeet Singh.

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Late CA Sampat Jain

Late CA Sampat Jain (Expert)
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19 November 2007 I would like to appreciate and congratulate omprakash agarwala for his indepth analysis .....