Clipped from: https://economictimes.indiatimes.com/tech/startups/byjus-stares-at-tax-issues-as-deloitte-delays-audit-nod/articleshow/93561570.cms
SynopsisEdtech firm files returns under special provision; auditor in-principle agrees to sign statements, say executive
A delay in signing the fiscal 2021 financial statement of Byju’s by its auditor Deloitte has led to compliance issues for the education startup, four people close to the development said.
In the absence of an audited financial statement, the company, one of India’s most valuable startups, filed its income tax returns after roping in a Chennai-based audit firm, Suri & Co, under a special provision [rule 6 (g)] in the income tax laws, said executives in the know.
Filing of returns is a must for companies to carry forward losses and set off against future profits. While Byju’s has filed the returns, experts said the tax department has the option to reject such accounts and order a special audit.
Byju’s and Deloitte did not respond to emails seeking comment till press time Sunday.
The company could be sitting on a consolidated loss of Rs 2,400 crore, said company insiders.
Deloitte has reportedly raised questions around how revenue was recognised by Byju’s parent company, Think & Learn Ltd. The startup had denied such media reports as speculation.
ET spoke to several of Byju’s executives and audit and tax experts in the past few weeks. They said a spree of acquisitions the company made in the past few years, of businesses with different models and accounting policies, had made the calculations complex.
Audit experts said an auditor would usually broaden the scope of work in an audit if the acquired companies have smaller revenues but big losses.
White Hat Jr, which it has acquired, alone had a total loss of Rs 1,690 crore in FY20, said people in the know.
“As it stands today, there are deliberations going on between the audit firm, board and management. As we see it, it could still take one or two months before they (the audit firm) submit the report,” a person aware of the development told ET.
“The acquisitions are complicated and the work for the auditor has increased,” said a senior Byju’s executive on the condition of anonymity. “We have to bring all these large acquisitions under one umbrella and, in principle, the auditor has agreed to sign the statements.”
While filing tax returns may be a procedural issue, for Byju’s, this could have resulted in huge future tax bills.
This is mainly because the company is sitting on a large loss, and under the income tax regulations, Indian companies are allowed to carry forward losses for eight years, and set off against profits during those years to reduce the tax outgo.
But under Section 44AB of the Income Tax Act, losses cannot be carried forward if the tax returns are not filed by the due date.
The section deals with the rules and regulations of tax audits for individuals and businesses. Under the section, a CA has to conduct an audit and submit the reports to the tax department. These returns are based on the audited financial accounts adopted and accepted at the company’s board meeting.
This can only be done after the statutory auditor submits the signed audit report, which hasn’t been the case for Byju’s. Technically, if tax returns are not accompanied or based on audited accounts, the tax return filed is ruled defective and can be termed invalid, meaning tax losses claimed in that return may be disallowed.
In an ideal situation, the auditor has to submit the signed financial statements and reports to the company it audited to the income tax department on the Form 3CA. In cases where the statutory auditor has not signed the report, or it is not available, this can be done under the Form 3CB, which Byju’s has completed for fiscal year 2021.
The circumventing solution in such cases, where the accounts are audited by a CA other than the statutory auditor, is available only for income tax purposes and not for filings under the Companies Law, said Jeenendra Bhandari, partner at professional services firm MGB & Co.
Byju’s had another firm for filing tax returns and it filed the income tax return for the year, two senior Byju’s executives told ET on the condition of anonymity.
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