Penalty on Failing to Submit Income Tax Audit Report by Deadline

The deadline for submitting an income tax audit report under Section 44AB of the Income Tax Act for Financial Year 2023-24 has has been extended by the Income Tax Department by 7 days. The due date for filing Tax Audit for the Previous Year 2023-24, which was 30th September 2024 has been extended to 07th October 2024.

It is essential to note that in case the Tax Audit is applicable, and if an income tax return (ITR) is filed without an audit report, the ITR would be considered defective. The income tax department will send you a tax notice to correct your ITR. A taxpayer must file an audit report and then file ITR again. Please also note that the applicability of the penalty is not automatic.

Penalty on Not Filing Tax Audit Report

In order to ensure proper compliance with section 44AB, section 271B has been enacted which reads as under:

“Failure to get accounts audited

271B. If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred fifty thousand rupees, whichever is less.”

As such, the failure of a person, to get his accounts audited in respect of any previous year or furnish a copy of such report as required under section 44AB may attract a penalty equal to 0.5% of the total sales, turnover or gross receipts, or Rs.1.5 lakh whichever is less. However, due to the special provisions included in section 273B, no penalty is imposed on the assessee under section 271B for the aforementioned failure if he can demonstrate that there was reasonable cause for the failure. The onus of proving reasonable cause is on the assessee.

Some of the instances where Tribunals/Courts have accepted as “reasonable cause” are as follows:

(a) Resignation of the tax auditor and consequent delay;
(b) Bona fide interpretation of the term `turnover’ based on expert advice;
(c) Death or physical inability of the partner in charge of the accounts;
(d) Labour problems such as strikes, lockout for a long period, etc.;
(e) Loss of accounts because of fire, theft, etc. beyond the control of the assessee;
(f) Non-availability of accounts on account of seizure;
(g) Natural calamities, commotion, etc.
(i) Resignation of the accountant and his consequent non-cooperation.
(j) Official E-filing portal (of the Income-tax department) failure