Article on Tax audit ||Objective of tax audit ||Tax audit applicability (As per section 44AB) || If a person/taxpayer is required by or under any other law to get his accounts audited|| Forms for tax audit|| Late fees/penalty

​​​Article on Tax audit

Tax audit Meaning The dictionary meaning of the term “audit” is check, review, inspection, examination etc. There are various types of audits prescribed under different laws like company act requires a company audit, cost accounting law requires a cost audit, GST act required a GST audit etc. The Income tax law requires the taxpayer to get the audit of the books of accounts of his business/profession from the view point of Income tax Law.

Section 44AB of 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 of income tax act aims to ascertain the compliance of various provisions of the Income-tax Law and the fulfilment of other requirements of the Income-tax Law. The tax audit conducted by the chartered accountant of the book of accounts of the taxpayer in pursuance of the requirement of section 44AB​ of income tax act is called tax audit.

The chartered accountant conducting the tax audit is required to give his findings, observation, comment etc., in the form of tax audit report. The report of tax audit is to be given by the chartered accountant in Form No- 3CA/3CB and Form 3CD. ​

Objective of tax audit

​The most important objectives of tax audit is to ascertain/derive/report the requirements of Form No. 3CA/3CB and Form no 3CD. Apart from reporting requirements of Form No. 3CA/3CB and Form No 3CD, a proper tax audit for tax purposes would ensure that the books of account and other records are properly maintained, that they truly reflect the income of the taxpayer/assess and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices and mistake in book of account. It can also facilitate the administration of t  ax laws by a proper presentation of accounts before the tax authorities and considerably save the time of Income tax Assessing Officers in carrying out routine verifications, like checking correctness of totals and verifying whether Purchases, Sales are properly vouched for or not. The time of the Income tax Assessing Officers saved could be utilised for attending to more important and investigational aspects of a case. ​

Tax audit applicability (As per section 44AB)

As per section 44AB of Income tax act, following persons are compulsorily required to get their accounts audited :

1. carrying on business- 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 1 crore rupees. This provision is​ not applicable to the person, who opts for presumptive taxation scheme under section 44AD of income tax act ​ and his total sales or turnover doesnot excceeds 2 crores. and
2. Profession-A person carrying on profession (Architectural, Accountancy, Authorised representative, Engineering,  Film Artist etc., if his gross receipts in profession for the year exceed. 50 lakhs rupees.

2. An assessee who declaus profit for any previous year in accordance with section 44AD of income tax act and he decreases profit for any of one 5 assessment year rufuant to the previous year succeding such previous year lower than the profit compused as per section 44AD and his income exceeds the amount which is not chargeable to tax.
3. ​If an eligible assessee opts out of the presumptive taxation scheme, within the oforesaid period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years thereafter.
4. (*) For provisions of section 44AD​ refer tutorial on “Tax on presumptive basis in case of certain eligible business”.
5. ​A person who is eligible to opt for the presumptive taxation scheme of section 44ADA (*) but he claims the profits or gains for such profession to be lower than the profit and gains computed as per the Income tax presumptive taxation scheme and his income exceeds the amount which is not chargeable to tax.

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6. ​ Tax Audit provision is not applicable to the person, who opts for presumptive taxation scheme under section 44AD​ of income tax act and his total sales or turnover does not exceeds 2 crores rupees.

For provision of section 44ADA​, refer tutorial on “Tax on presumptive basis in case of certain eligible business”

7. A person who is eligible to opt for the presumptive taxation scheme of sections 44AE (*) but he claims the profits or gains for such business to be lower than the profits and gains computed as per the Income tax presumptive taxation scheme of sections 44AE.

For provisions of sections 44AE of income tax act refer tutorial on “Tax on presumptive basis in case of certain eligible business”.

8. A person who is eligible to opt for the taxation scheme prescribed under section 44BB of income tax act or section 44BBB of income tax act but he claims the profits for such business to be lower than the profits and gains computed as per the taxation scheme of these sections.
9. Section 44BB of income tax act 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.

Professional Mean:- Architectural, Accountancy, Authorised representative, Engineering,  Film Artist, Interior Decoration, Legal, Medical, Technical Consultancy.

If a person/taxpayer is required by or under any other law to get his accounts audited

​​​​​​Persons like company or co-operative society are required to get their accounts audited under their respective law. S​ection 44AB of income tax act 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 of income tax act. Is such a case, it shall be sufficient if such person/taxpayer 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 of income tax act in  Form No. 3CA and Form 3CD.

​Forms for tax audit

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

In case of persons covered under previous FAQ, i.e., who are required to get their accounts audited by or under any other law, the form prescribed for audit report is Form No. 3CA/3CB and the prescribed particulars are to be reported in Form No. 3CD.​

Tax Audit Report submitted due date

​​​​​​​​​A person covered by section 44AB of income tax act 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 2017-18 corresponding to the assessment year 2018-19 should be obtained on or before 30th September, 2018 The due date for filing of audit report under section 44AB​ has been extended from September 30, 2018 to October 31, 2018 vide F.No. 225/358/2018/ITA.II dated October 08, 2018.

In case of a taxpayer/person 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.

​The tax audit report is to be electronically filed by the chartered accountant to the Income-tax Department website.  After filing of report by the chartered accountant, the taxpayer has to approve the report from his e-fling account with Income-tax Department website

Late fees/penalty for not getting the accounts audited as required by section 44AB

​​​​​According to section 271B of income tax act, 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 or furnish such report as required under  section 44AB​, the Assessing Officer may impose a penalty. The penalty/late fees shall be lower of the following amounts:

(a) 0.5% of the total 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 271B​, no penalty shall be imposed if reasonable cause for such failure is proved.

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