PERSONAL TAX: Upload tax audit while filing return

This week's case involves a business taxpayer who filed his return of income for assessment year 2013-14 on October 31, 2013. The taxpayer's gross turnover (sales) in business was Rs 1.55 crore and in view of the provisions of Section 44AB of the Income Tax Act, 1961 ('the Act') was liable to get his books of accounts audited, hereby referred to as 'tax audit'. Further, the taxpayer is required to upload the tax audit report along with the return of income. However, the taxpayer failed to upload the tax audit report before filing his return of income.

The tax officer accordingly proceeded to levy penalty at the rate of 0.5% of the turnover, that is, Rs 77,559 in this case for failure to submit the tax audit report. The Act prescribes that if a taxpayer fails to get his accounts audited or fails to furnish the tax audit report, a penalty equal to 0.5% of total sales or Rs 1,50,000; whichever is less can be levied.

In his defense, the taxpayer submitted before the tax officer that the tax audit was completed on September 27, 2013. But thereafter the auditor suddenly fell ill and thus the audit report could not be filed along with the return of income. The tax return was electronically uploaded without the tax audit report as it was lying with the auditor. But the tax officer levied the penalty vide a penalty order.

At the first appellate level against the penalty order the taxpayer also submitted a medical certificate stating the taxpayer's sickness from September 28, to November 02, 2013, thus expressing his inability to obtain the tax audit report from the auditor to upload the same along with the return of income. The appellate authority observed that no reasonable cause could be adduced from the taxpayer's submissions and accordingly upheld the tax officer's actions.

When the matter came up for hearing the tax tribunal observed that the taxpayer had got his accounts tax-audited for the said year on September 27, 2013. The same was filed before the tax officer before the completion of assessment proceedings. Hence, it is a case of tax audit report obtained before the due date of filing of return of income, but filed before the tax officer before completion of assessment proceedings.

The subject matter of this case was whether the tax officer was justified in levying penalty under the prescribed section of the Act. The tribunal observed the taxpayer had only committed a technical pardonable breach without creating any loss to the tax department. Relying on a decision in another case, where the Madras High Court had observed that once the audit report has been made available to the tax officer, before completion of assessment proceedings, the taxpayer was entitled to deduction claimed in the return of income.

The tribunal noted that the same analogy as applicable for claim of a deduction in the above referred case could be very well be applied to the current case for levy of penalty. In view of the same, the tribunal concluded that as the taxpayer had committed only a technical pardonable breach, wherein he had got his accounts audited but could not submit the same before the filing of his tax return, he could not be penalised for the same. The tribunal instructed the tax officer to delete the penalty.

The writer is Sebi-registered investment adviser