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With the start of Tax Audit season, CAs need to refresh various clauses of the Form 3CD and create a check list along with step-wise process to capture the information required to present the desired information in the said form to the satisfaction of Tax Authorities. The intention behind the implementation of Tax Audit was to help the tax authorities in the process of assessments which was a huge and cumbersome. A tax auditor is supposed to verify the details and replies to various clauses of 3CD to the best of his ability and knowledge and must be true and fair. Whether auditor or client or both will prepare the data or information required to complete the tax audit has not been provided in the Act. But one thing is sure the liability of the correctness of the information provided in 3CD or its annexures lies with the auditor unless it is proved that an auditor has carried the assigned job with utmost caution and to the best of his ability.

In this article the discussion is not about the process of tax audit but what will happen if information provided in the tax audit report is proved to be incorrect. Is a CA liable for action by the department or not? The answer lies in Section 271 J inserted from April 1st. 2017. The section is reproduced hereunder for our quick analysis.   

Penalty on professionals for furnishing incorrect information in statutory report or certificate. [Section 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).

The Important points to note from the above definition are:

  • The Chartered Accountant who has signed a report or any certificate under the Income Tax Act must appear before the assessing authorities to prove reasonable cause of failure to deliver the desired results wherever the assessment of his client is under process. It may involve travelling to any city for the purpose of appearance before assessing officer.
  • This section is inserted from April 1st, 2017 but does not exclude the reports and certificates signed before such date.
  • This section starts with “without prejudice to the provisions of this Act”

Key considerations:

  • Keeping in view the above, since section 271J is “without prejudice to the provisions of the Act”, if the Chartered Accountant is liable to any other penalty or prosecution proceedings under the Act, he will continue to be liable under those provisions.
  • The penalty may be levied by Assessing Officer or CIT(Appeal). No other authority can impose this penalty.
  • The penalty can be levied on if during the proceedings it is established that information furnished was incorrect.

References:

The Judicial explanation of “without prejudice to the provisions of this Act” has been explained in the following cases:

  • A.P. State Financial Corporation V. Gar Re-Rolling Mills, AIR 1994 SC 215
  • CIT v. Punjab National Bank [2001] 116 Taxman 310 (Delhi)

General:

In short, the intention of the ligature is not stalling any plea/submission already placed before any forum or with any department or court. There is, without prejudice to the provisions of this Act, freedom to try/ to resolve any issue by adopting parallel or alternative course of action without any disruption or stalling any proceedings undergoing at the same time in the same matter.

The importance of “without prejudice to the provisions of this section” means that the right of the assessing officer to proceed under section 143(2) even though intimation under section 143(1) (a) was preserved and not taken away. The process was not in any way curtailed but was saved.

Implications under Institute of Chartered Accountants Regulations:

A Chartered Accountant in practice who is being tried by Income Tax Department u/s 271 J can also be penalized by the Institute of Chartered Accountants of India for professional misconduct under the Chartered Accountants Act, 1949.

At last, it appears that penalty u/s 271J can be levied independently of the fact whether the concerned assessee may or may not be subject to penalty using the same incorrect information.

Note: This article is the creation of reading many articles, listening video lectures and consulting books and judgments.


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Category Income Tax, Other Articles by - Dilip K Raina 



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