Does TAR signed by a CA on 30th September violate sec. 44AB of the Act?

By Subash Agarwal, Advocate

As per the provision of sec. 44AB, an assessee is required to get his accounts audited by a CA before the specified date  and furnish [  the same is required to be furnished electronically w.e.f. A.Y.:2013– 2014 as per proviso to Rule 12(2)] by the said date.

2.         Thus, as per the plain language of the statute, the Tax Audit Report (TAR) is required to be –

(a)        Signed by a CA before 30^th September, i.e., on 29^th September, or earlier

(b)        Electronically uploaded before the expiry of 30^th September (i.e., 12 O’ clock mid -night)

3.         It is seen that due to extreme pressure of workload, CAs are completing the tax audit work and signing (digitally w.e.f. A.Y.:  2013 – 2014) the TAR bang on 30^th September, which is the “specified date” for the purposes of sec. 44AB r.w. section 139(1) and Explanation 2 thereto, though as per the plain language of sec. 44AB, the same should have been done on or before 29^th September.

The moot question that arises is whether digitally signing of TAR on 30^th September by the CA violates sec. 44AB and makes the assessees vulnerable to penalty u/s. 271B of the Act?

One will analyse here the relevant provision on the touchstone of rules of statutory interpretation and strive to arrive at the correct conclusion.

4.         Normally, the golden rule of Statutory Interpretation is that the language of the statute should be read as it is and the intention of the legislature is primarily gathered from the language used.

Let us  now see what is the dictionary meaning of the term “before”?

As per “The Oxford Large Print Dictionary”, word “before” means “at an earlier time; earlier than; ahead of”.

But as per “Chamber’s Twentieth Century Dictionary”, it means “previous to the expiration of”.

As per the Law Lexicon (General Editior: Justice Y.V. Chandrachud), word “before” means –

(a)               Prior to; in time preceding; earlier.

(b)               Upto.

(c)                Not later than [ Premchand vs. Kisanlal, AIR 1976 Bom 82, 86]

Thus, the word “before” is capable of two meanings – One the common meaning, according to which, the TAR should be signed prior to the specified date. But as per other dictionaries including Law Lexicon, it also means “upto, not later than”. In other words, TAR can be signed on the specified date also.

5.         In Vegetable Products’ case 88 ITR 192   , Hon’ble Supreme Court held that where the provision of the statute is capable of two interpretations – one which is favourable to the assessee is required to be adopted.

6.         Further, the language used in the provision (Sec. 44AB) is – every person shall (under the specified circumstances) get his accounts audited by an accountant –

(a)        Before the specified date and

(b)        Furnish by that date, the TAR in the specified form.

Thus, if the term “before” is given common dictionary meaning, the TAR is to be obtained  / completed / signed prior to the specified date but has to be uploaded / furnished “upto” the specified date. Thus, the two interpretations create disharmony between the two limbs – thus, if the TAR is required to be signed one date before, why it is required to be furnished / uploaded a day after? It defies any logic.

Courts have held that inconsistency and repugnancy should be avoided and there should be harmonious construction of the statute [ see page 123 of Justice G.P. Singh’s Principles of Statutory Interpretation, 8^th Edition]

7.         Thus, from the point of view of the Rule of Harmonious Construction of the statues, the term “before” has to be given a liberal meaning in favour of the assessee in the sense of “upto the specified date “as used in the second limb of the provision.

8.            The Hon’ble Bombay High Court in Premchand Nathmal Kothari’s case (AIR 1976 Bom. 82) interpreted the word "before" in section 3 of Maharashtra (Vidarbha Region) Agricultural Debtors’ Relief Act in the expression "before the 1st day of April, 1970." It was observed that the word will have to be considered and interpreted with reference to the context and the subject of enactment. It was no doubt true that a general principle of interpretation, where the words of the statute are plain, precise and unambiguous, the intention of the Legislature is to be gathered from the language of the statute itself and no external aid is admissible to construe those words. It is only where the language is ambiguous, uncertain, cloudy or susceptible or more than one meaning or shades of meaning that external aid will be permissible.

Thereafter certain other parts of the Act were also examined and it was observed that if all these sections were read together and harmoniously, it was obvious that the word ‘before’ was used by the Legislature in the context of the word ‘within’ meaning thereby ‘not later than’. Thereafter, it was observed that even if the dictionary meaning of the word ‘before’ is to be adhered to, the meaning of the word as given in Chamber’s Twentieth Century Dictionary is ‘previous to the expiration of’. If this meaning is given, it would mean that an application under section 3 of the Act could be filed before the expiration of or not later than 1st day of April, 1970.

9.         On the basis of various considerations analysed above, it can be safely concluded that if the CA concerned has digitally signed the TAR bang on 30^th September, there is no violation of sec. 44AB.

10.       The issue under discussion has also fallen for consideration in the case of Chandra Kumar Seth vs. ITO 62 ITD 106 (All), where a view in favour of the assessee has been taken holding that TAR can be signed on the specified date and not necessarily prior to that date.

How to avoid penalty u/s. 271B for failure to file audit report within 30th Sept., 2013?

By Subash Agarwal, Advocate

For a variety of reasons and mainly for the following reasons, a number of CAs could not upload / file ROI and / or TAR within 30.09.2013 –

(i)                 Online filling of report is a new system implemented by the department this year. Notifications for the same had been issued too late, i.e. in the month of May & June (Notification no. 36 dated 23^rd May, 2013 & Notification no. 44 dated 19^th June, 2013)

(ii)               Lot of time was wasted in understanding the system as it was a new system.

(iii)             Initially, there was a faulty system of uploading the Tax Audit Report.

(iv)             There was a constant change in the utility by the department (12 times). Actually, the department had changed utility every week and sometimes two or three times in a week.

(v)               The CAs were under tremendous mental pressure due to the uncertainty arising out of the above reasons.

2.         In exercise of power u/s. 119(2)(a) r.w. sec. 139 and Rule 12, CBDT relaxed the requirement of furnishing the Audit Report u/s. 44AB as prescribed under Rule 12(2) for the A.Y.: 2013 – 2014. As per the said order u/s. 119, following requirements were stated –

(a)                The assessee who were finding it difficult to upload the prescribed Reports of Audit in the system electronically may also furnish the same manually before the jurisdictional Assessing Officer within the prescribed due date.

(b)               The said Report of Audit should however be furnished electronically on or before 31.10.2013.

The professionals reasonably instructed / aware of the rules of statutory interpretation interpreted the CBDT circular / order as under –

(i)                 There was extension of time for furnishing of the audit report electronically till 31.10.2013.

(ii)               The requirement of furnishing of TAR manually to the A.O. was optional since the word “may” was used in clause (a) of the circular.

On the same date, CBDT issued a Press Release.

The Press Release dated 26.09.2013 has imposed the following two conditions for availing the benefit of the circular which were not present in the circular issued –

(i)                 Mandatory requirement to file audit report manually with the A.O. by 30.09.2013.

(ii)               Mandatory requirement to file ROI electronically by 30.09.2013.

3.         Because of the above-mentioned circular r.w., Press Release, there is a likelihood of initiation of penalty u/s. 271B for the violation of sec. 271B in a case where TAR could not be uploaded / filed manually by 30.09.2013 and the ROI also could not be uploaded by that time.

4.         It must be clearly understood that penalty u/s. 271B is not mandatory in nature. As per sec. 273B, penalty shall not be imposable u/s. 271B, amongst others, if a reasonable cause is shown by the assessee for his failure.

5.         To take advantage of the provisions of sec. 273B, the professionals should ensure that there is no further delay in submission of the TAR, online or manually, if the same could not be submitted / uploaded by 12 o’clock night of 30^th September, 2013. If TAR is submitted / uploaded on the very next day or next few days, penalty is not leviable since it will show the bonafide conduct of the assessee. In the case of Stay well Hotels (P) Ltd. vs. CIT 283 ITR 92 (MP), Hon’ble High Court held that where there was a short delay and the assessee offered explanation for the delay, penalty u/s. 271B cannot be levied. Hon’ble Calcutta High Court in the case of CIT vs. Ramakrishna Stores 253 ITR 175 (Cal.) held that where there is a marginal delay in filing TAR (in this case, a delay of 1½ months was held to be marginal) and some reasonable cause was shown (in this case, the reasonable cause was shown to be the illness of the accountant), no penalty u/s. 271B can be imposed.   

6.         Thus, on receipt of the show-cause notice from the A.O., the assessee should submit a proper reply to the show-cause notice and annex evidence in support of the plea taken.

Thus, where due to slowing down of the departmental software, the TAR was uploaded next day, this fact should be stated in the reply and a certificate / affidavit from the CA should be annexed in support of the stated fact.

7.         In the reply, the assessee should also state that the delay in completion of audit was due to a variety of reasons stated above in para 1 above, which should also find reflection in certificate of CA concerned.

8.         The assessee should also take a legal plea before the A.O. in his reply to the show-cause that he was under the “bonafide belief” that CBDT circular dated 26.09.2013 has extended the date of furnishing of TAR electronically till 31.10.2013 and the requirement to file the TAR manually by 30.09.2013 was optional.

It may also be stated that the contents of the Press Release asking for mandatorily filing of TAR manually by 30.09.2013 came to the knowledge of the assessee subsequently and by that time the said date had expired and in any case, the assessee had made substantial compliance of circular dated 26.09.2013 r.w. the Press Release by submitting TAR electronically much before the extended date 31.10.2013.

9.         In the case of Wadiwala & Co. vs. ACIT 72 TTJ (Ahd.) it has been held in the context of sec. 271B r.w. sec. 44AB that “bonafide belief” is a reasonable cause for avoiding penalty.

In this case, the assessee who was a sub-broker, had taken the plea that the turnover of dealings in shares on behalf of various buyers and sellers of shares was not included for determining the applicability of sec. 44AB.

10.       Where the assessee is unfortunate to have sustained the penalty u/s. 271B, a further legal plea, apart from the ground relating to the merit, based on my article titled “Failure to file audit report manually and ROI within Sept., 30 – Any penalty u/s. 271B would be illegal” (Please visit my blog to see the article: www.subashagarwal.blogspot.in), may be taken before CIT(A).