And the proposal to abolish section 44AB audit scrapped?


And the proposal to abolish section 44AB audit scrapped?

Background prior to the new Proposal:

Very Silently, Section 271J was made the part of Finance Bill-2017 & then introduced in the Income Tax Act – 1961 by the Finance Act – 2017. It has imposed a penalty of Rs. 10,000/ was introduced.  The said section reads as under:

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).

After section 271J introduction, authorities were empowered to impose a penalty of Rs. 10,000/- on every CA, merchant Banker & valuer in the course of its professional activity even it commits any bonafide error or make a report on the basis of judicial pronouncements as against literal interpretation of the I.T Act,  for every such report or certificate. (Needless to say, no penalty is imposable on the authorities for numerous errors, intentional or unintentional, in their assessment order),

Lots of representations were given against section 271J by various professional associations after the 2017 budget proposal, but none of them were considered.

Section 271J was incorporated in the Act without even a single word change as per Finance Bill 2017. There were enough justifications, representations, and grounds for dropping of the proposal of section 271J but none of the post budget memorandum was considered.

Reason is obvious. After the proposal is the part of the Finance Bill, it not a proposal but it is an EGO, PRESTIGE & POWER (unless and until it adversely affect the share market). Ignoring post budget representations is considered as a strength & power, be it FBT, 271J, Notional taxation on builder on unsold stock, etc.

Solution: Open the proposal for public debate before it is even the part of the Finance Bill. The real questions is, what is the need of keeping Finance Bill as a hidden & secret document till 1st Feb as far as direct tax proposals are considered.

Taxation is a public policy and there should not be any proposal without due representation and discussion. Let the best and justifiable proposal be the part of the Finance Bill. Why we need post budget memorandum on direct tax? Why it not be a pre budget memorandum on the readily prepared finance bill before even it is introduced in the parliament. Why the stakeholders are not even consulted prior to making it as a part of the finance bill.

Coming back to section 271J, it could not be that that section 271J were not known to the top few professionals or bureaucrats. But, none of them bring it out in public domain. Had it been like the proposal to abolish tax audit, section 271J for sure would not have seen the light of the day.

Coming to section 44AB:

For ease of doing business, can we dare to scrap section 44AB? Because there are penal consequences on taxpayers for false or wrong ITR, we can remove section 44AB from the Income Tax Act?

The proposal to abolish tax audit u/s 44AB would least affect the professionals but more to the tax collections of the country in the long run.

Even just thinking about it would not be in the interest of the Nation & its fiscal policy. It is not at all affecting “ease of business” but it will be surely affecting the tax collection in the country where major part of the society is least aware of the tax laws of the country and through section like 44AB audit enables taxpayers to know the tax laws. Its abolition would result in high scale removal of mechanism of creating knowledge and compliance of the tax laws.

The proposal under consideration to abolish section 44AB was timely brought out in the public domain by and was a matter of discussion all over the country. It was not only the part of the discussion at the professional forum but also amongst the industries and business association, bureaucrats and intellectuals. The matter has rightly taken in a true spirit and probably abolition of section 44AB would not be there as a part of the Finance Bill 2020.

Keeping the tax proposal is kept on the public domain prior to making it as a part of finance bill will result in better conclusions and considerations. And then, it will not be a matter of EGO but a matter of national interest.

Thanks to the professionals for due representations on the issue of abolition of section 44AB and the timely raising of the voice against abolition of section 44AB.

Thank you readers of for the due representations of the issue. Keep responding and sharing your tax ideas. Hopefully, it will get the attention of the law makers as it has reached the lawmakers.

And now it’s time to get ready for the other announcements on the Budget – 2020 wherein lot of proposal for ease of business is proposed, more particularly with regard to the amendment and abolition of numerous penal provisions.

would not result in moot,