Audit Compliance and Penalty Provisions under Indian Income Tax Law : Clause 446 of the Income Tax Bill, 2025 Vs. Section 271B of the Income-tax Act, 1961

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....utory audit requirements. This commentary provides a detailed analysis of Clause 446, elucidates its objectives, interprets its operative elements, and compares it with the current Section 271B, highlighting both continuity and divergence in legislative approach. Objective and Purpose The primary legislative intent behind both Clause 446 and Section 271B is to enforce compliance with mandatory audit provisions. These audits, typically required when a taxpayer's turnover or gross receipts exceed prescribed thresholds, are essential for: * Ensuring transparency and accuracy in financial reporting; * Facilitating effective tax administration and detection of tax evasion; * Enhancing taxpayer accountability; and * Promoting volunt....

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....dit and non-filing of audit reports are penalized, covering the entire spectrum of non-compliance. * Authority to Impose Penalty: The Assessing Officer is vested with the discretion to impose the penalty, reinforcing the role of tax authorities in enforcing compliance. * Quantum of Penalty: The provision prescribes a two-pronged cap: * 0.5% of total sales, turnover, or gross receipts in business, or gross receipts in profession for the relevant tax year(s); or * Rs. 1,50,000, whichever is less. This ensures proportionality and prevents excessive penalization, especially for smaller entities. * Reference to Section 63: The requirement to furnish the audit report is linked to section 63, which presumably contains the substantiv....

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....ts for administrative relief. 2. Impact on Tax Administration For tax authorities, Clause 446 offers: * A clear and quantifiable penalty structure, facilitating uniform enforcement; * Discretion to impose penalties, which must be exercised judiciously to avoid allegations of arbitrariness; * Potential administrative burden in handling representations or appeals arising from penalty orders. 3. Compliance Requirements Taxpayers must: * Monitor turnover/gross receipts to determine audit applicability; * Engage auditors and complete audits within prescribed timelines; * File audit reports in the manner and within the timeframe specified u/s 63. Comparative Analysis with Section 271B of the Income-tax Act, 1961 1. Textual Compa....

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.... possible shift in accounting period terminology. * Absence of "Reasonable Cause" Clause: Earlier versions of Section 271B included a "reasonable cause" exception, providing relief from penalty where the taxpayer could demonstrate a valid justification for non-compliance. This was omitted in 1986, and neither the current Section 271B nor Clause 446 explicitly provide for such an exception, potentially indicating a policy shift towards strict liability. * Legislative Modernization: Clause 446 is part of a broader legislative overhaul, potentially accompanied by new definitions, procedures, and administrative guidelines, which may affect its interpretation and application. 4. Judicial Interpretations and Administrative Practice u/s 27....