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Tax Audit – 2nd Proviso to Section 44AB become redundant?

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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.


16 Responses to “Tax Audit – 2nd Proviso to Section 44AB become redundant?”

  1. B S K RAO says:

    Account books of State Co-Operative Societies are audited by co-operative auditors of respective State Government. Similarly, in Karnataka Value Added Tax Act, 2003 accounts of registered dealers are audited by Cost Accountants & Sales Tax Practitioners. 2nd Proviso to Section 44AB of Income-Tax Act which reads as under, authorizes auditor under any other law to sign audit report Form No.3CA & 3CD (See Note Below) & hence it takes care of such situation to avoid repetitive audit. Central Board of Direct Taxes issued Circular bearing F.No.225/168/200/ITA.II Dt.16.10.200 in this regard:-

    “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 furnish 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”

    The main intention of legislature here is to avoid repetitive audit “by an accountant” as defined under Income-Tax Act & the same person 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 be able to furnish information required to be filled-up in Form No.3CD, part of attachment to Form No.3CA.

    *In Finance Act, 2001, amendment carried out in 2nd Proviso to Section 44AB of Income-Tax Act & inserted the words “by an accountant” in 2nd Proviso also. 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 &
    =>without actually conducting audit of accounts of assesses

    Therefore, 2nd Proviso to Section 44AB of Income-Tax Act 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 and accountant is signing audit report without practically conducting audit.

    LAWYERS WANT A SHARE IN TAX AUDIT PIE
    A Subramani, TNN | Jan 1, 2014, 05.45AM IST

    CHENNAI: Opening up a money-spinning career proposition for lawyers in the country, the Bar Council of India (BCI) has written to the Union ministry of finance and tax authorities such as Central Board of Direct Taxes (CBDT) that lawyers must be authorised to sign and furnish tax audit certificates/reports, which has been hitherto the bastion of chartered accountants.

    “The BCI has accepted a report submitted by a two-member committee comprising S Prabakaran and Rameshchandra G Shah, and has written to tax authorities informing them that a combined reading of the Income Tax Law and the Advocates Act made it clear that such audit reports/certificates could be signed only by advocates,” Prabakaran, who is now co-chairman of the Bar Council of India, told TOI.

    Noting that as of now CAs can sign and furnish tax audit reports in Form No. 3CD under Section 44AB of the Income Tax Act without actually conducting an audit, the report said that as audit meant mere verification it was not the domain of CAs alone.

  2. Pulkit says:

    The entire interpretation derived by the author is a big blunder.

  3. Ganesh says:

    If you people feel that it is the influence of few persons, then go fight with those few persons and the persons who support them to get what you want.

    Even with lot of members throughout the Country, you are unable to do so means your fraternity itself is aware of the special expertise of the CAs.

  4. Ganesh says:

    BSK sir,

    Issuing notification and withdrawing them are not new in our Country. Every aspects undergo a change. Even the Cost Accountants whose apex body was called as ICWAI was changed into ICAI.

    Just because you couldnt prevail in the earlier issue, you are showing your animosity in this article. If you are capable, you are welcome to discuss the issues with the relevant Ministry/Dept. 

    Keep in mind that the evry notification / amendment is released after consulting so many experts only and not by mere thoughts.

  5. B.S.K.RAO says:

    S PRAKASH Sir,

    Notification/Circular F.No.225/168/2000.ITA.II Dt.16.10.2000 issued by
    CBDT not withdrawn. It was made redundant by amending 2nd Proviso to
    Section 44AB of Income-Tax Act in Finance Act, 2001. Whether such act
    of CBDT justifiable ? will it not amounts CBDT falling under disrepute ?

  6. K.MUKAMBIKA says:

    When ICAI claim that it is their prerogative to Audit with the limitation to Financial Accounts only in their statute book, why can’t Legal Practitioners claim that it is the prerogative to practice Income-Tax law with the backing of latest SC & HC verdict and Advocates Act, 1961

  7. U.D.VENKATESH says:

    TO BAR COUNCIL OF INDIA/CBDT/MINISTRY OF FINANCE

    LEGISLATURE PROVIDED SPECIAL CLASS OF PERSONS IN ADVOCATES ACT TO PRACTICE LAW AND HENCE APPEARANCE CLAUSE U/S 288(2) NOT REQUIRED IN INCOME-TAX ACT.

    Even holding Section 288(2) appearance clause required in statute book of Income-Tax Act, following points should be considered by CBDT to authorize Legal Practitioners to sign off Certificates/Reports in Income-Tax Act:-

    1. Legal Practitioners are also authorized to prepare return of income & represent assesses U/s.288(2) of Income-Tax Act read with Rule 12A. Rule 12A inserted by Notification No.2029 Dt.13.6.1962, require Legal Practitioner covered U/s 288(2) to furnish report on the examination of assesses account books & documents in the assessment proceedings.

    2. When Legal Practitioners are authorized to prepare return under 12A of Income-Tax Rules, it is presumed that such persons possess knowledge of Income-Tax law read with accounting principle prescribed U/s 145 of Income-Tax Act. Information to be furnished in Certificates/Reports under Income-Tax Act amounts to practice of law as it require interpretation of law more & basic accounting knowledge sufficient.

    3. Audit means verification, depending on the purpose they are classified as Energy Audit, Environment Audit, Product Audit, Process Audit, Pollution Audit, Legal Audit in USA & Tax Audit in Indian Income-Tax Act. Here, person conducting audit should be specialized in that subject. Hence the word “Audit” is not the domain of Chartered Accountants. Assessing authorities in Income-Tax Deptt. who conduct audit in assessment proceedings are not Chartered Accountants. In conclusion, person specialized in Income-Tax law should issue Certificates/Report under Income-Tax Act.

    When Legal Practitioners are the only class of persons entitled to practice law U/s 29 of Advocates Act, 1961 there is no justification for prohibiting them to issue certificate or Reports in Income-Tax Act

  8. MANDEEP SINGH says:

    CBDT & MINISTRY OF FINANCE DOING BIAS WITH NON CA’S. IT NOT RELIES ON FACTS BUT EVERY TIME THINKS ABOUT ONLY CA’S INTEREST.

  9. S PRAKASH says:

    sir,
    CBDT knows it very well that the “audit report signed by the Sales Tax Practioners in Karnataka in pursuance to Section 26A of karnataka Sales Tax Act and the Notification dated 20th April 2000,issued by the Government of Karnataka,appears to be sufficiet compliance of the Provisions of Section 44AB”- refer to F. NO. 224/168/2000/ITA-11, GOVERNMENT OF INDIA, MINISTRY OF FINANCE, DEPARTMENT OF REVENUE,CENTRAL BOARD OF DIRECT TAXES- DATED 16TH OCTOBER 2000.How the opinion of the CBDT changes? why? who has infuluenced the CBDT to with draw the said notifiction?The said notification was issued under the directions of the Ministry of Law and Justice.Is the law to be allowed to change because of infuluence of few persons?

  10. CA BHAVESH SAVLA says:

    Your personal agenda and interests are very much apparent to be denied. You want.some of the tax audit reports to come to you and that is why you are writing these sort of articles.

  11. MANDEEP SINGH says:

    BOTH ARTICLE OF MR. BSK RAO JI ON ACTUAL FACTS.
    WHICH EXPOSE TRUTH BEHIND REPORTS AS I ALREADY SAID THAT THESE ARE INSERTED TO GIVE FINANCIAL ADVANTAGE & IDENTITY TO CA’S EXCEPT THIS NOTHING ELSE.
    WE CAN ONLY EXPOSE THE TRUTH.IT IS BASED ON FINANCE MINISTRY TO TAKE DECISION TO DELETE SUCH REPORTS. I ALSO WANT ASK FROM MINISTRY OF FINANCE UP TO HOW MANY TIME WILL COVERED ITS OWN EYES WITH CLOTH OF THESE REPORTS.

  12. Tekumalla Venkatappaiah says:

    The author presumption may be wrong. Accountant means “Chartered Accountant” (Refer Explanation to Section 288 of the I.T.Act,1961) – In this Section Accountant means a Chartered Accountant with in the meaning of the Chartered Accountants Act, 1949.

    Once the accounts are audited under companies Act, the same should not be again audited u/s 44AB by the other auditor. Hence, the same auditor will sign on the 3 CD and 3CA Reports.

    Further, the Section 288 clearly says and referred Section 226 of the Companies Act also.

    Section 226 in The Companies Act, 1956

    226. Qualifications and disqualifications of auditors.
    (1) A person shall not be qualified for appointment as auditor of a company unless he is a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (48 of 1949 ): Provided that a firm whereof all the partners practising in India are qualified for appointment as aforesaid may be appointed by its firm name to be auditor of a company, in which case any partner so practising may act in the name of the firm.

    So inview of the same.. if the accounts are audited by Chartered Accountants, the same auditor can conduct Section 44 AB Audit. If the Accounts are audited by any other accountant (not being Chartered Accountant), the same must be audited by Chartered Accountat u/s 44 AB of the IT ACT.

    If any difference of opinion kindly let me know please.

  13. B.S.K.RAO says:

    CA Bhavesh Savla Sab,

    There is no personal agenda on Chartered Accountants Bhavesh Sir, just I interpreting laws, based on my 32 years of experience as Tax Advocate

  14. CA Bhavesh Savla says:

    The entire premise of the author is wrong. He assumes that the accountant who signs the report Form 3CA, 3CB or 3CD is signing the reports which are conducted by someone else. He forgets that the Accountant actually means a CA who actually does a thorough audit of the books of accounts before signing the tax audit reports.

    One note to the Author. It is not merely a ‘Accountant’ but the ‘Auditor’ who signs the Tax Audit report. Nowhere does any statue or law in India says that a books of accounts can not be audited by two different persons or Auditors under two different laws.

    The author is no doubt prejudiced against Chartered Accountants and has a personal agenda behind these articles as was evident by his previous article.

  15. U.D.VENKATESH says:

    This is how CBDT falling under disrepute by following the suggestions
    of vested interest. At least from now onwards, CBDT should stop renting
    out its mind to third party, who work for the interest of their members only.

  16. K.MUKAMBIKA says:

    TO CBDT/MINISTRY OF FINANCE

    OH……… Blunder ?

    Name the persons behind the amendment carried out in Finance Act, 2001

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