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To,
The Chairperson
Central Board of Direct Taxes
New Delhi
Kindly explore the mechanism to use MEF data of ICAI to monitor and regulate Tax audits as per section 44AB through you Nation Wide field offices under Principal CCIT.
Respected Madam,
Recently our prime minister called for “Strengthening merit based employment eco-system by doing away of interviews, inculcating a sense of confidence and empowerment for all citizens”. In spirit with the Prime Minister approach to resolve the issues in a fair and simple manner, I request you to take up the cause of Monitoring Tax Audit Allotments through your department under strict guidelines to enhance the qualitative reporting for Tax Audits and achieved the objective of tax audit in contributing to the national exchequer.
Your attention is drawn towards a need of the hour that Tax Audits allotment be monitored through the department. It is certain that the tax audit reports shall be more qualitative and certainly result in achieving the objective of the Tax Audits. The said allotment may be monitored through your field offices under the 40 Principal CIT spread over to throughout the country. There are approx 35000 Chartered accountants firms which have been segregated into categories based on the working partners of the firm. Our regulator creates a yearly empanelment of firms through MEF. The empanelments are available with the Institute and you only have to link with the Turnover of the assessee. At year end the assessee must submit its details before the PCIT to seek the name of auditor. PCIT should allot the Tax audits from the empanelment list maintained by their office obtained from the PDC of ICAI. A uniform fee structure may also be prescribed.
Section 44AB gives the provisions relating to the class of taxpayers who are required to get their accounts audited by a chartered accountant; such audits are popularly called TAX AUDITS. It’s a wonderful provision because it ensures that the books of account and other records are properly maintained and such books of accounts reflect the income of the taxpayer and claims for deduction correctly. It is also to check fraudulent practices if any and such provision facilitates authorities to see the ready-made information and ultimately save the considerable time of Assessing Officers in carrying out routine verifications. The report of tax audit is to be given by the chartered accountant in Form Nos. 3CA/3CB and 3CD as prescribed.
This pattern of Tax audits is going on from day one. But with the digitalization of the data for filing the tax audit reports, the close analysis of the conduct of tax audits reveals that it is marked by many deficiencies because of faulty submissions. In 2010, it was found that the reports were uploaded in the name of dead members or unauthorized filing by feeding the membership number of CA. The CBDT was informed about it and CBDT mended the filing pattern to ensure its correctness. Again in 2013, C & AG pointed out the discrepancies in thousands of the cases. C & AG has pointed out the discrepancy in uploading the Tax Audit returns etc and publishes the data that thousands of Tax Audit reports are still being carried over in member’s name.
In addition to the discrepancies in the system, the objective of the Tax Audit has been forfeited. The Performa is not up to the mark. The tax audit format be included a provisional assessment order of the assessee keeping in view of all provisions of the Income Tax Act. At present, the assessee themselves approach the Chartered accountants for conducting the Tax Audit. The regulator of the Chartered Accountants I.e. the Institute of Chartered accountants of India and ICAI has prescribed the limit of Tax Audit per member to make it uniform and to ensure the quality of Tax Audits. The CBDT as well as the regulator has failed to monitor the abuse of the system for filling the Tax Audit reports.
Your attention is drawn that your department is already maintaining the empanelment of auditors under Section 142(2A) of the Income Tax Act, 1961 in regard to Special Audit which could be initiated during the proceedings as an Assessing Officer in regard to the nature and complexity of the accounts of the assessee and the interests of the revenue. The combo of both the provisions shall be an effective tool in the hand of the revenue authorities. Your attention is drawn that through this MEF empanelment the PSU banks are being audited at year end and thousands of crores of NPA are being identified by this audit pattern. It has become possible because RBI appoints the auditors and look towards us with confidence to present them the true and fair view of the advances. Banking Industry and RBI are relying on the data of MEF to appoint the auditors why CBDT can’t initiate on such direction.
CA AMRESH VASHISHT, Meerut
(About the Author– Author was Member of ICAI- Regional Research Committee 2013-14 and ICAI- Committee For Direct Taxes 2011-12 and can be reached at email amresh_vashisht@yahoo.com or on phone Phone: 0 1 2 1-2 6 6 1 9 4 6. Cell: 9 8 3 7 5 1 5 4 3 2 having office at 1 1 5, Chappel Street, Meerut Cantt, UP, INDIA)
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The article is very good & praise worthy for implementation by the Hon”ble Finance Minister/August ICAI. Further my humble suggestions concerning the interests of small proprietory CA firms are as under:
In past ,(Earlier practices up to 2016-16, now for in respect of 2016-17 we have to wait & see how transparently Bank Branch Audits will be allotted to em-panelled firms of ICAI ) even highly experienced managers(CAs) of the cadre “General Manager” in PSU or Bank with 35 years of post professional experience (after retirement) , though satisfied eligibility norms of RBI proprietary concerns & apply in some cases for Bank Branch Audit empanelment ,their experiences are ignored & not considered in many cases for empanelment out rightly because it is at the sole discretion of Bank”s Managements .This is nothing but arbitrary practice., rejection of CA firm for audit appoitment without assigning any reason or whatso ever.
There fore we request the Institute to kindly represent effectively to RBI as well as Finance Ministry to give categorization of Firms which themselves are multipurpose empanelment nature , need not necessarily for Bank Branch Audits alone, into Category I,II,III &IV purely based on the standing of the firm & excepting “Bank Audit Experience” criteria since that factor(provision of Bank audit experience) is neither within the purview of ICAI or Individual CA Member, but purely at the discretion of Individual Banker, the denial of which by the Banker, individual CA should not suffer, for no fault of his/theirs.This will help a lot ,to sole proprietary firms lot of encouragement while passing on the benefit of passing on economical fees structure to clients vis-a-vis Big CA firms” fees, whose professional fees charges tend to be substantially higher exceeding some times even approved norms of ICAI , considering fact of heavy overheads, taxes etc while in many cases the quality of services may be superior in small proprietary firms for the fact that very senior & experienced members (FCA with 30 + yrs experience ) possessing rich experience unlike a number of Big CA firms where the criteria could be head count of CAs ,pomp & show in the name/garb of infrastructure is the criteria. The ICAI ,Govt of India/Finance Ministry are earnestly requested to encourage small CA firms which deliver quality services & with economic fees structure to clients while availing expertise of senior most members of ICAI gainfully in the interest of Nation”s economic development.
Great article Sir, It will definitely increase govt.revenue and improving quality of audit.Presently auditors are appointed by clients and fee paid by clients resulting in poor audit quality and national loss of revenue.
The proposed system will encourage new members entry into practice area and ultimately it will boost image of CAs in society.
CBDT has retained outdated mandatory Tax Audit Certificate Section 44AB from only Chartered Accountants in Income-Tax Act since past three decades, that too in this computer era, without evaluating its utility to the Deptt. & also not providing ways or mechanism to search out empty slots of CA Signature to Assesses/Non-CA Tax Professionals. This is causing strict hurdle for voluntary compliance from Assesses/Non-CA Tax Professionals. This is also reflected in Tax Admission Data provided by CPC. I think the above suggestion of the author may work in the interest of revenue. Let CA Audit Accounts issue report & other tax professionals report section wise wrong claims & amount involved in violation of provisions of Income-Tax law. If any body question this point, person questioning should look at present 2nd Proviso to Section 44AB of Income-Tax Act, wherein CA can issue Form No.CD in case the accounts are audited under any other law by third person.