Tax Audit Penalty of Rs 10000 on Chartered Accountants for error in the report

Tax Audit Penalty of Rs 10000 on chartered Accountants for error in the report

This article discusses the penal provisions wherein a Penalty can be levied on a Chartered Accountants for giving erroneous reports.

• As per Section 271J of the Income Tax Act, 1961 the Assessing Officer can levy a penalty of Rs. 10,000 on a Chartered Accountant.
• The Penalty can be levied if the Assessing Officer believes that the CA has furnished incorrect information in his report.

Tax Audit Penalty of Rs 10000 on chartered Accountants for error in the report

Tax Audit Penalty Section 271J of the Income Tax Act, 1961 is presented below for reference:

Penalty for furnishing incorrect information in reports or certificates.

271J. Without prejudice to the provisions of this Act, where the Assessing Officer or the Commissioner (Appeals), in the course of any proceedings under this Act, finds that an accountant or a merchant banker or a registered valuer has furnished incorrect information in any report or certificate furnished under any provision of this Act or the rules made thereunder, the Assessing Officer or the Commissioner (Appeals) may direct that such accountant or merchant banker or registered valuer, as the case may be, shall pay, by way of penalty, a sum of ten thousand rupees for each such report or certificate.

Explanation.—For the purposes of this section,—

(a) “accountant” means an accountant referred to in the Explanation below sub-section (2) of section 288;

(b) “merchant banker” means Category I merchant banker registered with the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(c) “registered valuer” means a person defined in clause (oaa) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).

Some of the common errors in Tax Audit that are made by Chartered Accountant while filing tax audit are as follows:

1. Interest, Late fees & Penalties under GST:

There are two views on allowing Interest, late fees, and penalties under GST:

• The Income Tax Act, 1961 does not permit the deduction of penalties, fees, fines from the turnover for calculation of Profit as per section 37. Section 37 disallows the expenditure incurred for any purpose that is an offense or which is prohibited by any law. One view can be disallowing Interest, late fees, and penalties under GST.
• Another view can be allowing Interest and Late Fees considering them as a charge against late payment of GST. Same is Allowed under income tax. However, Penalty under GST is disallowed as per section 37.

The CAs should as per their point of view take into account these expenses while making tax audit report.

2. Taking care of Section 145A of the Income Tax Act, 1961

Section 145A. For the purpose of determining the income chargeable under the head “Profits and gains of business or profession”,—

(i) …

(ii) the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation;

Discussions:

• As per Section 145A, for calculating Valuation of inventory for Sale of Goods amount of any tax, duty, cess, or fee shall be included in the valuation of sale.
• CA should ensure that while doing stock valuation the value of inventory shall include the amount of any tax, duty, cess or fees. The amount of taxes on the goods shall be included in the cost. Taxes included Goods and Service Tax.

3. TDS credit in books should match which TDS as per 26 AS

The receipts and TDS as shown in 26AS may be checked with the receipts and TDS in the books of accounts. The same should be shown in ITR. If there is any mismatch in details furnished in ITR and 26AS, then one may receive notice for such mismatch.

4. CA should not forget to take care of sec 14A of Income Tax Act, 1961 which provides for disallowance of expenses incurred for earning tax-exempt income as read with Rule 6D.

5. Turnover as per Books should match with the GST Return Return.

6. Noncompliance or non reporting of ICDS will tantamount to professional negligence and will be a fit case for levy of penalty u/s 271J.

7. Payment of interest to NBFC also attracts TDS and is not exempt like payment of interest to Bank. Needless to say, just casualness in incorporate it in the TAR will result in adverse consequences.

8. Acceptance & repayment of loan from NBFC will also form the part of section 269SS & 269T reporting.

This list is not exhaustive. These are some of the general things you need to take care so that to ensure that Tax Audit Penalty is not levied on CA.

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