Tax audit Questions and Answers

By | September 16, 2015

Tax Audit

[As amended upto Finance Act, 2015]​

Tax Audit

What is Tax Audit ?

 The Income-tax Law requires the taxpayer to get the audit of the accounts of his business/profession from the view point of Income-tax Law.

​What is the objective of tax audit?

One of the objectives of tax audit is to ascertain/derive/report the requirements of Form Nos. 3CA/3CB and 3CD. Apart from reporting requirements of Form Nos. 3CA/3CB and 3CD, a proper audit for tax purposes would ensure that the books of account and other records are properly maintained, that they faithfully reflect the income of the taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of accounts before the tax authorities and considerably save the time of Assessing Officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched for or not. The time of the Assessing Officers saved could be utilised for attending to more important and investigational aspects of a case.​

Who can Conduct the Tax Audit ?

The audit conducted by the chartered accountant of the accounts of the taxpayer in pursuance of the requirement of section 44AB​ of the Income Tax Act 1961 is called tax audit.

Section 44AB of the Income Tax Act 1961 gives the provisions relating to the class of taxpayers who are required to get their accounts audited from a chartered accountant. The audit under section 44AB aims to ascertain the compliance of various provisions of the Income-tax Law and the fulfillment of other requirements of the Income-tax Law.

Who is Covered by Tax Audit ?

As per section 44AB, following persons are compulsorily required to get their accounts audited :
• A person carrying on business, if his total sales, turnover or gross receipts (as the case may be) in business for the year exceed or exceeds Rs. 1 crore.
• A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 25 lakhs.
• A person who is eligible to opt for the presumptive taxation scheme of section 44AD (*) but he does not opt for the same and claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of section 44AD and his income exceeds the amount which is not chargeable to tax.
(*) For provisions of section 44AD​ refer tutorial on “Tax on presumptive basis in case of certain eligible business”.
• A person who is eligible to opt for the presumptive taxation scheme of sections 44AE (*) but he does not opt for the same and claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme ofsections 44AEE.
(*) For provisions of sections 44AE refer tutorial on “Tax on presumptive basis in case of certain eligible business”.
• A person who is eligible to opt for the taxation scheme prescribed under section 44BB (*) or section
44BBB (*) but he does not opt for the same and claims the profits or gains for such business to be lower than the profits and gains computed as per the taxation scheme of these sections.
(*) section 44BB is applicable to non-resident taxpayers engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire basis to be used in exploration of mineral oils. section 44BBB​ is applicable to foreign companies engaged in the business of civil construction or erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project.

What is the penalty for not getting the accounts audited as required by section 44AB (Tax Audit) ?

 According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB, the Assessing Officer may impose a penalty. The penalty shall be lower of the following amounts:
(a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years.
(b) Rs. 1,50,000.
However, according to section 273B​, no penalty shall be imposed if reasonable cause for such failure is proved.

What is the format of report for Tax Audit ?

The chartered accountant conducting the tax audit is required to give his findings, observation, etc., in the form of audit report. The report of tax audit is to be given by the chartered accountant in Form Nos. 3CA/3CB and 3CD. ​

What is the Form 3CA, 3 CB, 3CD ?

Form No. 3CA  and Form No 3CD :In case of persons  who are required to get their accounts audited by or under any other law (like company or co-operative society are required to get their accounts audited under their respective law), the form prescribed for audit report is Form No. 3CA and the prescribed particulars are to be reported in Form No. 3CD.​

Form No. 3CB and Form NO 3CD: The report of the tax audit conducted by the chartered accountant is to be furnished in the prescribed form. The form prescribed for audit report in respect of audit conducted under section 44AB​ is Form No. 3CB and the prescribed particulars are to be reported in Form No. 3CD.

If a person is required by or under any other law to get his accounts audited, then is it compulsory for him to once again get his accounts audited to comply with the requirement of section 44AB for Tax Audit?

Persons like company or co-operative society are required to get their accounts audited under their respective law. S​ection 44AB provides that, if a person is required by or under any other law to get his accounts audited, then he need not again get his accounts audited to comply with the requirement of section 44AB. Is such a case, it shall be sufficient if such person gets the accounts of such business or profession audited under such law and obtains the report of the audit as required under such other law and also a report by the chartered accountant in the form prescribed under section 44AB, i.e., Form No. 3CA and Form 3CD.

​What is the due date by which a taxpayer should get his accounts audited for the purposes of Tax Audit u/s 44AB?

 A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before the due date of filing of the return of income, i.e., on or before 30th September (*) of the relevant assessment year, e.g., Tax audit report for the financial year 2014-2015( Assessment year 2015-16) should be obtained on or before 30th September, 2015.
(*) In case of a taxpayer who is required to furnish a report in Form No. 3CEB under section 92​ in respect of any international transaction or specified domestic transaction, the due date of filing the return of income is 30th November of the relevant assessment year.
However, due date for filing of Income tax return and tax audit report for assessment year 2014-15 in case of an assessee (not having any international or specified domestic transaction) who is required to get his account audited under section 44AB or a working partner of a firm whose accounts are required to be audited has been extended to 30th Nov 2014 vide ORDER [F.No. 153/53/2014-TPL], Dated 26-09-2014 and ORDER [F.No. 133/24/2014-TPL], Dated 20-08-2014 respectively.

How Tax Audit report should be Filed with Income tax Department ?

The tax audit report is to be electronically filed by the chartered accountant to the Income-tax Department. After filing of report by the chartered accountant, the taxpayer has to approve the report from his e-fling account with Income-tax Department (i.e., at www.incometaxindiaefiling.gov.in).

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