Unit - 4

Tax Audit

4.1 Definition of Accountant

As per the provisions of Companies Act, 2013, “accountant” means a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949) who holds a valid certificate of practice under sub-section (1) of section 6 of that Act.

In other words, an accountant is a professional who performs accounting functions such as audits or financial statement analysis. This is also known as account analysis. Accountants can either be employed with an accounting firm or a large company with an internal accounting department, or they can set up an individual practice. Accountants are given certifications by national professional associations after meeting state-specific requirements, although non-qualified persons can still work under other accountants or independently.

Following are the functions of an Accountant:

1. Maintaining Books of Accounts
2. Statutory & other Audits
3. Internal Audit
4. Taxation
5. Cost Accounting
6. Management Accounting
7. Financial Advice

4.2 Tax Audit

In case the turnover of the taxpayer (irrespective of its category) is equal to or more than Rs. 1 Crore from the business or Rs. 50 Lakhs from the income from profession then as per The Income Tax Act, 1961 an audit known as Tax Audit by a practicing chartered accountant (CA) is required to be done under section 44AB. The tax audit report must be filed online at the income tax portal before 30th September of the assessment year.

Tax Audit is an independent audit by a chartered accountant in full-time practice concerning the matters related to Taxation only and a report confirming that there is no concealment of income by the taxpayer and that there is no non-payment of tax liability and the same has been paid on due dates. The tax audit is a statutory obligation on the part of the taxpayer and is applicable on all cases where the turnover or the gross receipts during the previous year is more than the limit prescribed under section 44AB for the respective assessment year. The due date for filing the tax audit report is 30th September of the assessment year. In case the audit report is not submitted within its due date then the taxpayer is required to pay a penalty of an amount equal to 1.5% of the gross receipts/turnover, however, subject to a maximum fine of Rs. 1.5 lakhs.

We present the various categories of taxpayers below:

Who can conduct tax audit under section 44AB?

Tax audit can be conducted by a Chartered Accountant who holds the certificate of practice and is in full-time practice. However certain classes have been defined who cannot conduct tax audit under section 44AB.  The tax auditor (CA) carries out a systematical examination of books of account as per the formats prescribed by the department. 

Who has to get tax audit under section 44AB done?

Every person who derives income by way of Business or profession and maintains books of accounts and has not opted for computation of income on presumptive basis under section 44AD, 44ADA or 44AE of the Income-tax Act, 1961 has to get tax audit done provided his income exceeds the prescribed threshold limit. The following person are required to get tax audit done in the given cases.

1. A person carrying on business if the total sales/ turnover exceeds Rs. 1 crore during the previous year relevant to assessment year.

2. A person carrying on profession if the Gross receipts exceeds Rs. 50 lakhs during the previous year relevant to assessment year.

Also, the person who has opted for computing profits and gains of business on presumptive basis under section 44AD earlier and 5 years have not lapsed since then but the assessed has opted out of such presumptive income  and his income exceeds the ceiling for chargeability of income tax, is also required to get tax audit done. 

Further where a person has opted for presumptive scheme under section 44ADA and he claims his income lower than the deemed profits and his income exceeds the ceiling for chargeability of income tax, is also required to get tax audit done.

Tax audit is also mandatory for the assesses opting for presumptive scheme under section 44AE, 44BB and 44BBB and claiming income lower than the deemed profits.

However, if the assessed is liable/ required to get his books of accounts audited under any other law (let’s say Statutory audit as per the provisions of Companies Act, 2013), in such a case, he is also required to get tax audit done because When an Act requires a person to get his accounts audited, it does so with an objective. The audit carried out under any Act (e.g., a statutory audit under Companies Act) does not provide the confirmation if provisions of the Income-tax Act have been properly complied with. The Income-tax Authorities need confirmation whether the tax provisions have been properly applied by an assessed, and it can be done only through a tax audit. 

Objectives of the Tax Audit:-

It is a special of tax audit that it depends on the basis of income tax law provisions more than it depends on accounting standards. The main objective for tax audit, it is to compute the taxable income according to the income tax law, and there are some other objectives:-

1. Tax audit ensures that the books of accounting and other records are properly maintained.
2. Tax audit helps to show the income of the taxpayer correctly.
3. Claims for deduction are correctly made
4. Tax audit indicates and checks fraudulent practices in final accounts.
5. It would facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities, thus, saving time of the assessing officers in carrying out routine verifications like checking total, verifying entries with vouchers.
6. The time saved of the Assessing officers, thus, could be utilized for attending to more important investigation aspects of the work.
7. It checks from the income tax act point of view the allowable and disallowable expenses taxable and exempt income which facilitates the work of the revenue authorities.
8. To ensure the compliance and reliability of various income tax provisions.
9. To encourage taxpayer for voluntary compliance with the law and regulation.
10. To assist both the taxpayer and the tax gatherer to arrive at correct due tax.

Scope of section 44AB:-

The maximum limit in section 44AB has been fixed in the case of every person who is carrying on business and whose total receipts from the business activity, which come under the head Income from the profit and gains from the business, has to be viewed as one integrated whole and not independently. The assessment of a person is on the total income and not on the income derived from the different sources separately.

The three expressions used by the legislation, viz., the ‘total sales’, ‘turnover’ or ‘gross receipts‘ though not defined under the Act, in the ordinary sense, refer to the volume of the business to which it relates and which is/are carried on by the assessed and in making assessment of profits and gains from the business whether such volume is a part of the business concerns trading in commodities or otherwise the business activities where the assessed has to indulge in incurring cost before receiving the amount in relation to that business or he is carrying on other business activities in which the cost factor is excluded by the assessed and what he is receiving as charges for the work done by him, like job work, where the raw material is provided by the other manufacturer, the assessed is merely to relate his receipts to labor charges or procuring cost incurred by him along with part of his profit. It is in that sense that business which is carried on by the assessed has to be taken in totality. The ‘sales‘, ‘turnover‘ and ‘gross receipts ‘ are not words of art used in relation to any individual transaction independently but have been used as ‘sales‘, ‘turnover‘ or ‘gross receipts‘.

The expression ‘total‘ qualifies all the other three expressions, viz., ‘sales‘, ‘turnover‘ and

‘gross receipts‘. Total sales indicate the aggregate price of the sales of commodities carried out by the assessed as a trading business.

Obviously, it would not include such transfer of immovable or movable property by way of investment. Similarly, where the assessed is not merely selling the movable commodities, but relating to other trading activities, e.g., where assessed is a land developer and he is engaged in business of acquiring land, developing it and selling houses or purchasing or is indulged in leasing business or is indulged in stock market so on and so forth, the expression ‘turnover‘ is made out to denote receipts from such activities.

There may be third or residuary category which may not be termed properly a trading activity yet it is carrying on as business activity like job works for others, without himself being the manufacturer and selling such manufactured goods, or running a motor service garage, for the receipts of such business can aptly be termed as receipts of firm. However, integral relation of receipts by a person from business, does indicate that it refers to revenue receipts only and do not include capital receipts and certainly not the receipts which are not relatable to business and may fall under the expression income to be subjected to tax as income from sources other than profits or gains from business, profession or vocation. Thus, on true interpretation of section 44AB(a), the assessed, in the instant case, was required to get his accounts audited as his gross receipts had exceeded Rs. 40 lakhs during the previous year relevant to the assessment year 1994-95.

Who can carry out Tax Audit?

After the applicability of Tax Audit, the next question arises regarding who can conduct Tax Audit. Section 44AB requires that the accounts should be audited by an Accountant. The explanation to Section 44AB states that the word accountant shall have the same meaning as the explanation to Section 288(2). The Explanation to Section 288(2) states that

―’accountant’ means a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949), and includes, in relation to any State, any person who by virtue of the provisions of sub-section (2) of section 226 of the Companies Act, 1956 (1 of 1956), is entitled to be appointed to act as an auditor of companies registered in that State.

Section 226 of the Companies Act, 1956 says that a person holding a certificate issued by a Part B State may also be appointed as an auditor. But this provision has no relevance today. No person is eligible to be appointed as an auditor by virtue of this provision today. Hence effectively only a Chartered Accountant holding a valid Certificate of Practice can carry out Tax Audit under section 44AB. This proves the level of trust that has been entrusted. It will be in the duty of us all future Chartered Accountants to uphold this trust. After all C and A are the Alphabets of trust.

Books of Accounts – need to be maintained for audit:-

In this sub-section we will explain Books of accounts that should be maintained, Sec 2(12A) of the Income Tax Act, 1961 defines, the Book of account-books or books of account includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device.

(1) Cash Book

(2) Bank Book

(3) Journal

(4) All Ledgers

(5) Purchase Register

(6) Sales Register

(7) Stock Registers Need to maintain supporting documents & vouchers for above accounts

List of documents/papers required for Tax audit purpose:-

All above books of accounts with supporting, Bank Passbook, Balance Sheet, Profit & loss account, previous year Balance Sheet, PY Profit & Loss account & PY Tax Audit Report Forms needed for comparison study & reporting purpose.

Failure to keep, maintain or retain books of account, documents, etc:-

According to section 271A Income tax Act, 1961, If any person fails to keep and maintain any such books of account and other documents as required by section 44AA or the rules made there under, in respect of any previous year or to retain such books of account and other documents for the period specified in the said rules, the Assessing Officer or the Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum of twenty-five thousand rupees.

Failure to get accounts audited:-

Under Section 271B, If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred thousand rupees, whichever is less. Further penalty on non compliance of audit provisions u/s 271B has also been increased to Rs 1,50,000/- from Rs 1,00,000 earlier These amendments are proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years

Penalty not to be imposed in certain cases:-

Section 273B, no penalty is imposable under section 271B on the assessed for the above failure if he proves that there was reasonable cause for the said failure. The onus of proving reasonable cause is on the assessed. A few instances where Tribunals/Courts have accepted as reasonable cause are illustrated below.

1. Resignation of the tax auditor and consequent delay.
2. Death or physical inability of the partner in charge of the accounts.
3. Labor problems such as strike , lock out for a long period, etc.
4. Loss of accounts because of fire, theft, etc. beyond the control of the assessed.
5. Non-availability of accounts on account of seizure.
6. Natural calamities, commotion, etc.

The auditor aims at checking the following during Audit/Scope of Auditor:-

1. Sufficiency and relevance of information contained in accounts records and source documents to check the sufficiency and relevance of information contained in the accounting and source records, the auditor examines the existence of internal control and accounting system, and tests them to decide the nature, extent and timing of other audit procedures.
2. Proper disclosure of relevant information in financial statements, to determine the proper disclosure of relevant information in financial statements, the auditor compares the transactions, events represented in the source documents and accounting records with the financial statements and checks that they are properly summarized, carried down to the financial statements and adequately disclosed. In other words, the auditor checks that:

1. The trial balance reflects the proper summary of balances and transactions,
2. The financial statements reflect the fair disclosure of events and transactions by proper grouping of balances, events, transactions, Information reflected in the financial statements adequately convey the messages required by narration and notes as may be desired by statute, pronouncements or requirement of the context
3. Judgment of the management is fairly made in matters where they are inherent and implied – For example, estimation involved in making a provision, or selection of a particular accounting policy among available alternative policies (like in depreciation methods)

3.    Reporting

Auditing and report writing are not separate activities but represent a single integrated process. The audit team should begin anticipating and visualizing the report as early as the preliminary planning phase. Finally CA will give audit report in above mentioned forms – Form 3CA/Form 3CB and Form 3CD. Audit report should contain date, seal & sign of CA. Mention CA name, PAN, Firm registration, ICAI membership with audit signed date while filing ITR 4. This needs to be done on or before 30th Sept to file Regular Return.

Tax audit and Compliance with Auditing Standards:-

While discharging their attest functions; it is the duty of the tax auditor to ensure that the auditing standards are followed in the audit of financial information covered by their audit reports. If for any reason the tax audit is unable to perform an audit in accordance with the generally accepted auditing standards (GAAS) his report should draw attention to any material departures there from, failing which he would be held guilty of professional misconduct under clause 9 of Part 1 of the Second Schedule to the Chartered Accountants Act, 1949.The auditing standards are like laws, which are to be followed by the auditor during the course of the audit. If followed properly, it will safeguard the auditor against third party action and regulatory bodies. Technical standards relating to peer review include the Auditing and assurance standards issued by the Institute of Chartered accounting on India. These AASs are a guide for maintaining the quality of the attestation services work they form.(T.H.Gupta,p310)

The AASs apply whenever an independent financial audit is carried out; that is the independent examination of financial information of the entity, whether profit oriented or not, and irrespective of its size, or legal form when such an examination is conducted with a view to departures from ASSs in their audit report, along with the reasons for such departures, So far the ICAI has issued 32 Auditing standards. Auditor will have to follow AAS from AAS-1 to AAS-30 in tax audits involving expression of opinion on accounts. AAS-31 and AAS-32 do not apply to audit. They apply to compilation engagements. (T.H.Gupta, p 310,2008)

We will describe as possible as the tax process with the auditing standards as following during tax audit, there are four steps of tax audit process : Pre-commencement., Understanding the entity, Audit planning, Substantive procedures Reporting

1-Pre-commencement

AAS 1 -Basic Principles Governing an Audit , Auditor should comply with certain basic principles whenever an audit is carried out

AAS 26- Terms of Audit Engagement, The auditor and the client should agree on the terms of engagement. The engagement letter could include arrangement regarding the planning of the audit and the auditor's expectation from the management regarding representations and written confirmations. Engagement letters should be obtained and acceptance letters should be sent to the client

2-Understanding the entity

AAS 6- Risk Assessments and Internal control

Auditor should understand the internal control system and use professional judgment to assess audit risk and to design audit procedures. He should ascertain whether there is a control procedure and major weaknesses in internal control are corrected effectively. Written statements in questionnaire form or flow chart form should be prepared regarding internal control system. Tax auditor could apply International internal audit (IIA) for test internal control system.

AAS- 20-Knowledge of the business

The auditor should have knowledge of the business to identify the events that may have an impact on the financial statements

AAS 21-Consideration of Laws and Regulations in an audit of financial statement

Non- compliance of applicable laws and regulations may materially affect the financial statements. When the auditor believes that there is non-compliance, he should document the same and report it.

AAS 22 Initial engagements-opening balances

The auditor should obtain evidence that the closing balances of the preceding period have been correctly brought forward and the opening balances do not contain misstatements that materially affect the financial statements for the current period

AAS 23- Related parties

The auditor should obtain sufficient audit evidence regarding the transactions of related parties that are material to the financial statements

AAS 24- Audit considerations relating to entities using service organizations

The auditor should consider how a service organization affects the accounting and internal control system of the borrower.

AAS 29- Auditing in CIS environment

The auditor should consider the effect of a CIS environment on the audit. He should have sufficient knowledge of the CIS to proceed with the audit. Scope and nature of the terms of assignment and extent of responsibility should be specified.

3-Audit planning

AAS 2- Objective and Scope of the audit of financial statements

The scope of an audit will be based on the terms of engagement, relevant laws and the pronouncements of the Institute. He should plan the audit so as to cover all aspects that are relevant to the financial statements being audited.

AAS 8 -Audit Planning

Auditor should plan his work based on the client's business to enable him to conduct an effective audit in an efficient and timely manner. He could discuss elements of his overall plan and certain audit procedures with the client to improve the efficiency of the audit. Wherever necessary he could intimate his requirements as to records and information required from the company. Audit program should be clearly documented AAS 12 Responsibility of joint auditors The division of work should be adequately documented and matters of relevance may be communicated to the joint auditors in writing

AAS 15 -Audit Sampling

The auditor should design and select an audit sample, perform audit procedures thereon, and evaluate sample results so as to provide sufficient appropriate audit evidence. While determining the sample size, the auditor should consider the sampling risk, the tolerable error, and the expected error

AAS 16- Going concern

The auditor should consider the appropriateness of the going concern assumption underlying the preparation of the financial statements. If, the auditor opines that there exists an indication of risk that the going concern assumption is inappropriate, he should obtain sufficient evidence to satisfy himself that the company will continue its operations for the foreseeable future

AAS 17- Quality control for Audit work

The audit firm should implement quality control policies and procedures designed to ensure that all audits are conducted in accordance with Auditing and Assurance standards. The progress of the engagement should be clearly monitored and documented.

4-Substantive procedures

AAS 3 –Documentation

Auditor should have proper working papers that will enable him to substantiate his results. The working papers are very necessary for the following reasons. It serves as an evidence that the work performed by him is based on an examination made by him. It serves as evidence that his opinion is not arbitrary but is based on the information and explanations given to him by the company. It serves as an evidence to show that the auditor has called for information before framing an opinion. It shows the various tests applied by the auditor to verify the accuracy and completeness of the information.

AAS 4- The Auditors responsibility to consider Fraud and Error in an audit of financial statements

The auditor should consider the risk of material misstatements in the financial statements resulting from fraud or error. He should approach the audit with a perspective, which enables him in the process of preventing and in the process, taking corrective measures, for the probable frauds and errors that exist.

AAS 5- Audit Evidence

The auditor should evaluate whether he has obtained sufficient appropriate evidence before he draws his conclusions

AAS 7- Relying upon the work of an Internal Auditor

The auditor should evaluate the internal audit function and accordingly adopt less extensive procedures than otherwise required. Reliance placed on work of internal auditor should be clearly documented AAS 9- Using the work of an expert When the auditor plans to use the services of an expert he should satisfy himself as to the experts skill and competence. He should satisfy himself that the substance of the experts findings is properly reflected in the financial statement. If, in exceptional cases the work of an expert does not support the representations of the management, the auditor should arrange for discussions with the client and the expert and try to resolve the inconsistencies.

AAS 10- Using the work of another auditor

The principal auditor should discuss with the other auditor the audit procedures applied. There should be proper co-ordination between the two auditors. When the principal auditor bases his opinion on the financial information of the entity as a whole and relies on the reports of the other auditors, he should clearly state in his report the extent to which he has relied on such information

AAS 11- Representations by management

The auditor should use his professional judgment in determining matters on which he wishes to obtain Representations by management. Written representation from the management must be obtained on matters material to financial information.

AAS 13 - Audit materiality

The auditor should consider materiality and its relationship with audit risk when conducting the audit. He should use his professional judgment in assessing what is material.

AAS 14 - Analytical procedures

The auditor should apply analytical procedures at the planning and overall review stages of the audit.

AAS 18- Audit of Accounting estimates

The auditor should obtain sufficient appropriate evidence   on   the   accounting   estimates   contained   in   the    financial    statements

AAS 19- Subsequent events

The auditor should consider the effect of subsequent events on the audit report.

AAS 30- External confirmations

The auditor should determine whether the external confirmations are  necessary  to  support  certain  assertions  in   financial   statements

AAS 34- Audit evidence Additional considerations for specific items

The auditor should perform audit procedures designed to obtain appropriate audit evidence during his presence in physical inventory counting.

5-Reporting

AAS 27- Communication of Audit matters.

The auditor should communicate matters of governance    interest    with    those    charged    with    governance    of    the     entity.

AAS 28 -Auditors report on financial statements.

The auditor should review and assess the conclusions drawn from the audit evidence obtained as the basis for the expression of an opinion on the financial statements. He should express an unqualified opinion if he opines that the financial statements give a true and fair view. The basis of confirmation from outside parties should be placed on record.

Conclusion: Tax auditor commitment with auditing standards is inevitable and cannot perform tax audit without application of these standards, the auditing standards are like laws, which are to be followed by the auditor during the course of the audit. If followed properly, it will safeguard the auditor against third party action and regulatory bodies.

Responsibility of taxpayer:-

Taxpayer is responsible for the preparation of accounting books and records and fair presentation information accordance with the requirements of tax auditor and Income Tax act,1961 as well , management is responsible includes: designing, implementing and maintaining an adequate accounting system incorporate various internal control relevant to the preparation accounting books and records and fair presentation of details information about all transactions in side accounting books and accounting policies are following . Taxpayer is responsible also about any information or any ambiguity make obstacle front of performance tax audit.

Appointment of tax auditor:-

The appointment of the auditor for tax audit in the case of a company need not be made at the general meeting of the members. It can be made by the Board of Directors or even by any officer, if so authorized by the Board in this behalf. The appointment in the case of a firm or a proprietary concern can be made by a partner or the proprietor or a person authorized by the assessed.

Removal of tax auditor appointed under Sec. 44AB:-

There is no specific procedure for removal of a tax auditor appointed under section 44AB. It is, however, possible for the management to remove a tax auditor where there are any valid grounds for such removal. This may arise where the tax auditor has delayed the submission of audit report under section 44AB for an unreasonable period and if it is found that there is no possibility of getting the audit report before the specified date. In such cases, the assessed may be justified in removing the tax auditor. However, the tax auditor cannot be removed on the ground that he has given an adverse audit report or the assessee has an apprehension that the tax auditor is likely to give an adverse audit report.

Powers and duties of tax auditor:-

The powers of statutory audit have been defined in the Indian Laws. Section 227 of the Companies Act, 2013 deals extensively on this topic, Subsection 1 of Section 227 of the Act states that "every auditor of a company shall have a right of access at all times to the books and accounts and vouchers of the company, whether kept at the head office of the company or elsewhere, and shall be entitled to require from the officers of the company such information and explanations as the auditor may think necessary for the performance of his duties as auditor" auditors have a legal duty to assess the adequacy and reliability of the client's internal control systems and must report weaknesses to management.

Section 227 of the companies Act given certain power to the statutory auditors to call the books of account, information, documents, explanation, etc. and to have access to all books and records. No such power are given to the auditor appointed under section 44AB.(advanced auditing, volume-1, IACA ,2006, 13.11).But we have objection on this point for these justifications

Firstly: - from the viewpoint of the researcher, as long as the law had been given certain powers, in order to statutory auditors, does not mean that, that powers are forbidden to tax auditors.

Secondly: - not merely text in the law is prohibit tax auditor from his powers, and impossible conducted tax audit without practicing these powers, but the same power should be exercised.

Thirdly: - tax audit is compulsory audit, so the powers of tax auditor become compulsory like tax audit.

Tax audit under section 44AB should obtain from the assessed a letter of appointment for conducting the tax audit, this letter should be signed by the person competent to sign the return of income in terms of the provisions of section 140, the letter should also specify the remuneration of the tax auditor, engagement letter should be there for the interest of both client and auditor, tax auditor should communicate with the member who had done tax audit in the earlier year as provided in the chartered accountants Act, the tax auditor should get the statement of particulars, as required in the annexure to the audit report .The auditor for tax purposes will ensure the tax department that the accounts and other record are being properly maintained by the assessed, it will also help the assessing officer in completing the assessment depending on the auditor‘s report covering many matters and the save time in carrying out routine mattes and devote his time to more important investigation aspects of case.

Auditor will have to follow AASs from AAS-1 to AAS-30vin tax audits involving expression of opinion on accounts. The tax audit is required to verify that no items have been omitted in the information furnished to him and reasonable test checks would reveal whether or not the information furnished is correct, Tax auditor should be versed in some of knowledge and skills, like Extensive knowledge of tax law, Extensive knowledge of legal research principles and techniques, Extensive knowledge of tax return structure and classifications, General knowledge of applications for personal computers. And some of skills like, Skill analyzing financial statements and accounting records used in preparing tax returns, Skill writing, developing, testing and teaching training units about tax law changes, Skill using various investigative tools and techniques to solve problems Skill adapting and changing audit programs when unexpected developments and nonstandard circumstances warrant, Skill evaluating and understanding various computerized accounting systems.

Conclusion:- tax auditor is the stone corner in tax audit under section 44AB of Income tax Act,1961, and he is as engine for detected tax evasion committed by taxpayer. An tax audit should enjoy same statutory auditor power, Tax auditor should be versed in some of knowledge and skills, like Extensive knowledge of tax law, Extensive knowledge of legal research principles and techniques, Extensive knowledge of tax return structure and classifications, And some of skills like, Skill analyzing financial statements and accounting records used in preparing tax returns

Tax audit report:

Section 44AB read with rule 6G of the Income Tax rules,1961 requires the tax auditor to submit the audit report before the specified date and furnish by that the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

Rule 6G provides that:-

1. The report of audit of accounts of a person required to be furnished u/s 44AB shall

1. In the case of a person who carries on business or profession and who is required by or under any other law to get his accounts audited, be in form No.3CA.
2. In the case of a person who carries on business or profession, but not being a person referred to in clause(a), be in form No. 3CB.

2.      The particulars which are required to be furnished u/s 44AB shall be in form No.3CD. Under form No. 3CD, particulars are to be given under 32 clauses, In some clauses, the requirement in the form id different from the corresponding section under the Income tax Act. In the form 3CA and 3CB auditor is required to certify ‗true and fair‘ view of balance sheet and profit and loss account and true and correct position of details mentioned in form 3CD and the annexure thereto.

The report should be signed by auditor and also name the specific location, where the audit report is signed along with date of report

4.3 Certificate for claiming exemptions

Central Board of Direct Tax(CBDT) should make it mandatory to obtain the CA certificate in case of exemption or deduction claim by the assesses is in excess of certain amount for other than audit and salaried assesses for verifying the correctness and genuineness of claim.

Due to large numbers of taxpayer and relaxation given by CBDT not to scrutinize the cases of small taxpayer unless valuable information is available with department, it is not possible for department to assess the correctness and genuineness of exemptions or deductions claimed by the small tax payer in each & every cases. This leads to increases the chances of claiming bogus & wrong deductions or exemptions in income tax return resulting in huge amount of loss of taxes of the department.

To stop this leakage of taxes, CBDT should it mandate for other than audit and salaried assesses to obtain the certificate from the Chartered Accountants and uploading the same certificate with income tax return that the claim is correct and genuine by clearly showing the section and the amount of deduction or exemption under that section. CBDT should fixed the certain limit and prescribe the format in which certificate should be issued by the CA.

This will help the –

• Department in savings the leakage of taxes as well as,
• Also taxpayer those who are unaware about conditions mention under that respective section for claiming the exemptions or deductions and claimed the deduction or exemption on the advice of wrong person which result in huge amount of penalty in case of scrutiny of cases if it is found that assesses has claimed the wrong deduction or exemption.

This certificate should be mandate only for non audit and non salaried assesses because in case of audit correctness and genuineness is checked by auditor and in case of salaried assesses it is the responsibility of the employer.

If the return is filed without certificate by the assessed then deduction or exemption claimed in the  return should be allow subject to compulsory scrutiny by the assessing officer.

4.4 Selective Tax Audit

The Provisions of Section 142(2A), Section 142(2B), Section 142(2C), Section 142(2D) of Income Tax Act, 1961 are discussed below:

1. As per sec 142(2A), whenever assessing officer having regard to the nature and complexity of the accounts and in interest of the revenue deems fit, he may with the prior approval of the Chief Commissioner or Commissioner direct the assessed to get his accounts audited by an accountant nominated by Chief Commissioner or Commissioner of Income tax.
2. Sec 142(2B)- The provision of sub section (2A) shall have effect not withstanding that the account of the assessed have been audit under any other law for the time being in force or otherwise.
3. Sec 142(2C)- Every report under sub section (2A) shall have to be furnished by the assessed to the Assessing Officer, within such period as may be specified by the assessing officer.
4. Sec 142(2D)- The expenses of and incidental to, any audit under sub section (2A)(including the remuneration of the accountant) shall be determined by the Chief Commissioner which shall be final and paid by the assessed and any default of such payment shall be recoverable from the assessed, as recovery of arrears of tax.

Summary:

Section 142(2A) of the Income tax Act, 1961 (the Act) contains the provisions regarding powers of the Assessing Officers (AO) to order special audit aka “Special Tax Audit” of an assessed by a chartered accountant. The sub-section 2A provides that where AO doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessed, and the interests of the revenue, and finds its necessary,  he may, with the proper approval direct the assessed to get the accounts audited by a chartered accountant, nominated by the Commissioner and to furnish a report of such audit in the prescribed form 6B.

However the proviso provides that the no special audit shall be directed by the AO unless the assessed has been given a reasonable opportunity of being heard.