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MORE INTERPRETATION OF 2ND PROVISO TO SECTION 44AB OF INCOME-TAX ACT

Account books of State Co-Operative Societies are also audited by co-operative auditors of respective State Govt. Similarly, in Karnataka Value Added Tax Act, 2003, accounts of registered dealers are audited by Cost Accountants. 2nd Proviso to Section 44AB of Income-Tax Act takes care of such situation. To avoid repetitive audit “by an accountant” as defined under Income-Tax Act, the same persons conducting audit under any other law was allowed to sign audit report in Form No.3CA & 3CD [See Note below]. Here, there is deemed presumption that person conducting audit can only furnish information required to be filled-up in Form No.3CD.

In Finance Act, 2001, amendment carried out to 2nd Proviso to Section 44AB of Income-Tax Act & inserted the words “by an accountant”. Now the situation is very typical one, that “accountants” are wrongly signing the audit report in Form No.3CA & 3CD, that too for the opinion of auditor under any other law. Hence, 2nd Proviso to Section 44AB has become redundant on date.

NOTE: Rule 6G(1)(a) prescribes Form No.3CA applicable to the cases covered under 2nd Proviso to Section 44AB of Income-Tax Act. In Form No.3CA, it is clearly mentioned under Note  No.2(iii)  any person who is, by virtue of any other law, entitled to audit the accounts of the assessee for the relevant previous year has to sign Form No.3CA.  Hence, amendment carried out in Finance Act, 2001, inserting the word “by an accountant” in 2nd Proviso to Section 44AB also, is contrary to the original intention of legislature to avoid repetitive audit by an accountant.

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Author  :  B.S.K.RAO, Tax Advocate, E-Mail: raoshimoga@gmail.com

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Extract of 2nd Proviso to Section 44AB of Income-Tax

Provided further that] in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and [furnishes by] that date the report of the audit as required under such other law and a further report [by an accountant] in the form prescribed under this section.

Relevant Extract of sub-section (2) of section 288

Explanation.—In this section, “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.

Extract of Rule 6G(1)(a) of Income Tax Rules

6G. (1) The report of audit of the accounts of a person required to be furnished under section 44AB shall,—

(a)  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;

(b)  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.

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