Failure to get accounts audited.

446

If any person fails to get his accounts audited for any tax year or years or furnish the audit report as required under section 63, the Assessing Officer may impose a penalty on such person, which shall be the lesser of––

• (a) 0.5% of the total sales, turnover, or gross receipts in business, or the gross receipts in profession for such tax year or years; or
• (b) one lakh fifty thousand rupees.

Explanation

Section Summary:

Section 446 of the new income tax law addresses the consequences of failing to get accounts audited or failing to furnish the audit report as required under Section 63. The purpose of this section is to ensure compliance with audit requirements, which are critical for maintaining transparency and accuracy in financial reporting for tax purposes.

Key Changes:

• Penalty Structure: The penalty for non-compliance is now explicitly defined as the lesser of:
  1. 0.5% of the total sales, turnover, or gross receipts in business or profession for the relevant tax year(s), or
  2. ₹1,50,000 (one lakh fifty thousand rupees).
• Clarity on Penalty Calculation: The new law provides a clear formula for calculating the penalty, which was not as explicitly defined in the prior income tax act.

Practical Implications:

• For Taxpayers: Businesses or professionals required to undergo a tax audit must ensure timely compliance to avoid penalties. The penalty is significant and can be a substantial financial burden, especially for businesses with high turnover.
• For Assessing Officers: This section provides a clear framework for imposing penalties, reducing ambiguity in enforcement.
• Compliance Burden: Taxpayers must ensure that their accounts are audited and the audit report is submitted within the prescribed deadlines to avoid penalties.

Critical Concepts:

• Audit Report (Section 63): Refers to the report prepared by a chartered accountant after auditing the accounts of a taxpayer, as required under the Income Tax Act.
• Total Sales/Turnover/Gross Receipts: These terms refer to the total revenue generated by a business or professional during the tax year. The penalty is calculated as a percentage of these amounts, capped at ₹1,50,000.

Compliance Steps:

1. Identify Audit Requirement: Determine if your business or profession falls under the criteria requiring a tax audit under Section 63.
2. Engage a Chartered Accountant: Hire a qualified chartered accountant to conduct the audit.
3. Submit Audit Report: Ensure the audit report is submitted to the Income Tax Department within the due date (typically September 30 of the assessment year).
4. Maintain Records: Keep all financial records and documentation ready for audit purposes.

Examples:

• Scenario 1: A business with a turnover of ₹5 crore fails to get its accounts audited. The penalty would be the lesser of:

  • 0.5% of ₹5 crore = ₹2,50,000, or
  • ₹1,50,000. Therefore, the penalty imposed would be ₹1,50,000.

• Scenario 2: A professional with gross receipts of ₹20 lakh fails to submit the audit report. The penalty would be the lesser of:

  • 0.5% of ₹20 lakh = ₹10,000, or
  • ₹1,50,000. Therefore, the penalty imposed would be ₹10,000.

This section ensures that taxpayers take audit requirements seriously, as non-compliance can lead to significant financial penalties.