Thursday, 6 August 2015

Understanding Tax audit under Income tax act.


An Assessee is liable to get his Tax Audit done by a Chartered Accountant mandatorily, if in the previous year, 


1. The Person is carrying on business and his Total Sales/Turnover exceeds Rs. 1 Crore (Limit increased  wef 1st April 2012) or


2. The Person is carrying on Profession, and his Gross Receipts exceed Rs. 25 Lakhs (Limit increased wef 1st April 2012) or


3. The Person is carrying on business or profession and is covered under the provisions of section 44AD, 44AE, 44AF, 44BB or 44BBB and claims that his income from the said business is lower than the deemed profits and gains computed under the relevant section


The Due Date of filing the Tax Audit Report under Section 44AB is 30th September of the Assessment Year and for assesse required to file Transfer pricing report due date is November 30th. 


For all other assessee’s who are not liable to get their Tax Audit done under Section 44 AB – the Due Date of  filing of Income Tax Return is 31st July.


Several changes in Tax Audit Report have been introduced vide Income Tax (7th Amendment) Rules  2014 are applicable from this AY 2014 – 15  onwards. CBDT has amended Form 3CA, Form 3CB & Form  3CD and the amended Forms now require explicit mention of the observations/qualifications if any, by the  auditor while issuing the true and correct audit report.


With the introduction of these changes, the tax auditor’s responsibilities to report detailed information under the  new/amended clauses has increased significantly.


In case an Assessee is liable to get his Accounts audited by an Accountant under any other Law for the same  accounting period, the assessee is not mandatorily required to get his audit done again and is only required to  submit a report in the form mentioned below. However, if the Accounting Year is different from the Accounting  Year for which the Audit was done under any other Act, the Tax Audit would be required to be conducted again  as per the Income Tax Act (Circular No. 561 dated 22051990  issued by CBDT)


Tax Audit efiling


As per Notification No. 34 dated 1st May 2013, efiling of Tax Audit report is now mandatory from the   assessment year 2013- 14  onwards.


As per Rule 6G, tax audit report is to be furnished in Form 3CA & Form 3CB and the particulars required to be  furnished along with these tax reports should be in Form 3CD.


1. Form 3CA & Form 3CD These  Forms are used in case where the Accounts of the business or profession  of a person have already been audited under any other Law.


2. Form 3CB & Form 3CD– These Forms are used in case where the Accounts of the business or profession  have not been audited earlier.


Computation of Total Turnover for the purpose of Tax Audit


ICAI has through a Guidance Note clarified the following points:


1. Where a person is carrying on 2 Business/2 Professions – the total turnover of both the businesses shall be  clubbed together and tax audit shall be liable to be conducted if the Total Turnover exceeds Rs. 1 Crore/  Rs. 25 Lakhs as the case may be.


2. Where a person is carrying on business as well as profession and the Turnover of the business is Rs. 1.2  Crore and the Gross Receipts of the profession is Rs 22 Lakhs. In such a case, ICAI has clarified through a Guidance Note that the Assessee is liable to get the Tax Audit done of both the business as well as  profession because the Gross Receipts from the business exceed the limit of Rs. 1 Crore. However, if his  Total Turnover was Rs. 95 Lakhs and Gross Receipts from business was Rs. 22 Lakhs, he would not be

required to get his Tax Audit done.


3. In case where a person has a total turnover of Rs. 98 Lakhs and has sold a Car for Rs. 8 Lakhs. In such a  case, the total amount on adding up becomes Rs. 1.06 Lakhs i.e. above Rs. 1 Crore. Confusion arose  whether the person is liable to get an audit done in this case and ICAI has clarified that the turnover will  not include any amount on the sale of the fixed asset as it was held by the person for business use and not  for the purpose of sale. 


ICAI has further clarified that the amount received from the following items shall not be included while  computing the Total Sales/Total Turnover/ Gross Receipts:

Sale Proceeds of Fixed Assets

Sale Proceeds of Assets held as Investments

Rental Income

Income by way of Interest unless assessable as Business Income

Any expense which is reimbursable to the Agent by the Client


Penalty for Non Compliance of Section 44AB


Non Compliance of the provisions of this act shall attract Penalty under section 271B of the Income Tax Act. If  any person required to get his audit done under section 44AB fails to do so before the specified date shall be  liable for penalty of ½% of the turnover/gross receipts subject to a maximum penalty of Rs. 1,50,000


However, Section 273B states that no penalty shall be levied under section 271B if there is a reasonable cause  for such failure. Some instances which have been accepted by the Tribunals/Courts as “Reasonable Cause” are:

1. Resignation of the Tax Auditor and Consequent Delay

2. Death or physical inability of the partner in charge of the Accounts

3. Labour Problems such as strikes, lockouts for a long period

4. Loss of Accounts because of Fire/Theft etc. beyond the control of the Assessee

5. Natural Calamities


Revision of Tax Audit Report


Tax Audit Report efiled cannot be revised under normal circumstances. However, in case the Accounts are  revised in the following circumstances, the Audit Report efiled can also be revised


1. Revision of Accounts of a Company after its adoption in the Annual General Meeting

2. Change in Law with Retrospective effect

3. Change in Interpretation of Law (Eg: CBDT Circular, Notifications, Judgements etc.)


In case the Tax Audit report efiled is revised, the Auditor shall state that it’s a Revised Report and shall also  state the reasons for the same. 


Limitation on CA’s for the number of Tax Audits


The Maximum no. of Tax Audit Assignments under Section 44AB which can be taken by a CA has been  increased from 45 to 60 by the ICAI Council in its 331st meeting held from 10th to 12th Feb 2014. Thus if a firm has 4 partners, the maximum no. of Tax Audits that can be taken by a firm in an assessment year  would be 60*4=240. If the Firm undertakes all the 240 Tax Audit Assignments, the partners would not be in a  position to undertake any tax audit assignment in their personal capacity. Now that tax audit efiling is  mandatory, the chartered accountant conducting the tax audit would also be required to prepare the tax audit report in electronic format.



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