Thursday, October 3, 2013

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 23rd May, 2013 & Notification no. 44 dated 19th 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 30th 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:, may be taken before CIT(A).

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