AUDIT MANUAL 2019

Message

I am happy that the committee under the chairmanship of Shri Rajnish Kumar, Pr. CCIT, Bengaluru constituted by CBDT submitted the revised Audit Manual incorporating all the changes in the new Manual. This Audit Manual is revised to elaborate the Instructions so that there is no ambiguity in understanding the procedural aspects of Audit. Also, the revised Audit Manual elaborates the process and work flow in ITBA Audit Module. The Audit Check Sheet has been made much more comprehensive. All members of the Committee have put their best efforts in drafting this Check Sheet, so that it covers various aspects of Income Tax assessments and Auditing. This Audit Check Sheet has been incorporated in the Audit Manual to avoid the repetitive errors during the assessment and the Audit Objections. This Check Sheet is a bundle of rich experience of senior officers of the Department and in words of Justice Sandra Day O’Connor of USA “Each of us brings to our job, whatever it is, our lifetime of experience and our values”

I appreciate the efforts made by the Committee for putting in hard work in updating the Audit Manual. I also congratulate the Editorial Team of Shri Krishna Mohan Prasad, Pr. DGIT (L & R), Shri Ravindra Singh Rawal, ADG(Audit & Inspections) and Shri Govind Singhal, Addl.DIT(Audit) for reviewing and updating the Manual in the present form.

I am sure that the manual will be of enormous help in improving the efforts of the Department in revenue mobilization.

(P. K. Dash)
Special Secretary & Member (A&,J), CBDT
New Delhi
Date: 23.9.2019

Introduction

Audit is a significant mechanism to protect the interest of revenue. For effective audit, the CBDT issues Instructions and guidelines from time to time, Audit Instructions were also revised by the Instruction No. 6 and Instruction No. 7 of 2017 and the work related to assessment is now being done on ITBA module, and the Audit work has also been shifted to ITBA Audit module.

2. The committee under the chairmanship of Shri Rajnish Kumar, Pr. CCIT, Bengaluru, now retired, and its Members Shri Ravindra S. Rawal, ADG (Audit & Inspections); Shri Sanjay Kumar Jain, CIT (Audit)-2; Shri Sandip Garg, CIT (Judicial), Pune; Shri Rajesh Kumar, CIT (Judicial), Mumbai; Shri P. R. Ghosh, CIT (Audit)-2, Mumbai and Shri S. K. Jha, CIT (DRP-2), Mumbai, has done excellent work in revising the Audit Manual of 2011 and has authored a very comprehensive and innovative manual. Shri Govind Singhal, Addl. DIT(Audit) has very meticulously read the report of the committee, consulted large number of stake holders and has made enormous improvement to come up with this beautiful Audit Manual. Shri Rajesh Kumar, DDIT(Audit) and Smt. R Pramila, AADIT(Audit) and Shri Nitesh Singhal, Inspector (Audit) have very ably supported the endeavor.

3. Shri Prasanna Kumar Dash, Member (A&J) has taken keen interest all through and guided all of us in making significant improvement in the manual.

4. New Audit Instructions 6 and 7 of 2017 are concise and brief. In this Audit Manual, these Instructions have been elaborated, simplified and clarified. Functions and responsibilities of various offices with regard to audit have been elaborated right from the Assessing Officer to the Pr. CCIT.

5. Audit of Registration Process of Charitable Trust and Institutions, modification of targets of ‘number of cases’ instead of ‘points’ has been incorporated and re-checking of Audited Cases where Audit Parties could not raise any objections are new features of the manual.

6. The highlight of new Audit Manual is the elaborate and exhaustive Audit Check Sheet drafted by the Audit Manual Committee. This check sheet has been devised on each issues of Income Tax Act. For the convenience of Audit Officers, the Check Sheet has been segregated according to the general aspects of assessment, various heads of income, deductions and exemptions, Income not forming part of total income, Charitable Trust and Institutions, Book Profit, MAT/AMT, Unexplained Cash Credits, Clubbing of Income and Set off of Losses, International Taxation, Transfer Pricing and TDS aspects. Check Sheets have been devised in such a way that it can be looked into from various viewpoints like heads of income, section-wise and specific issue wise.

7. As the entire work of audit is required to be done on ITBA Audit Module, detailed procedure for carrying out the audit work on ITBA Audit Module has been elaborated.

8. I am confident that the Audit Manual will be of great assistance to the Audit Officers in their audit work and would also guide the Assessing Officers of the Department, in making quality and error free assessment and improve the process of augmentation of revenue.

(KRISHNA MOHAN PRASAD)
Principal Director General of Income Tax (Legal & Research),
New Delhi
Date: 23.9.2019

Table of Contents

Contents
Scope of Manual
CHAPTER-I: INTERNAL AUDIT
1 Background and Audit Set up
2 Auditable Cases: Norms and Targets
3 Broad Outline of Procedure and ITBA workflow
4 Settlement of Internal Audit Objections
5 Internal Audit Records and Reports
6 Internal Audit of Registration Process of Charitable Trust And Institutions
CHAPTER-II: RECEIPT AUDIT
7 Background and Audit Set-up of C & AG
8 Broad Outline of Procedure and ITBA workflow
9 Remedial Action
10 Receipt Audit Records and Reports
CHAPTER-III: AUDIT CHECK SHEET
11 Preliminary Check
12 Income which does not form part of Total Income
13 Charitable Trusts and Institutions
14 Firm
15 Salary
16 House Property
17 Profits and Gains from Business or Profession
18 Book Profit, Adjusted Total Income and MAT/AMT Credit
19 Capital Gains
20 Other Sources
21 Unexplained Cash Credit, Investment, Money & Expenses and Amount Borrowed on Hundi
22 Clubbing of Income
23 Set Off/Carry Forward & Set Off of Losses
24 Deductions under Chapter-VIA
25 International Taxation
26 Transfer Pricing (AO)
27 Transfer Pricing (TPO)
28 TDS Cases
29 Annexures – 1 to 8
30 CBDT Instructions on Audit
31 Glossary

Scope of Manual

Auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operation. It helps an organization accomplish its objective by bringing a systemic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance process.

Purpose of this manual is to outline broadly, the principles, policies, methodologies and modalities of audits to be conducted by Audit Parties with reference to the Income Tax Act, 1961 (Act), Rules made thereunder and the Circulars and Instructions issued by the CBDT. Guidelines provided herein are intended to ensure that the audit is carried out in an objective, uniform, efficient and comprehensive manner adhering to stipulated principles and policies.

The manual covers subjects that are related to principles, policies and issues that pertain to conduct of audit with reference to the Act, but it does not deal with legal interpretations and judicial rulings.

The manual does not contain solutions to all the issues that may arise in the day to day audit work. The Audit Party has to apply its mind keeping the spirit of the principles, policies outlined in the manual and facts of each case.

The manual has incorporated the workflow related to audit on ITBA.

Subsequent changes in the Act and the Rules made there under, administrative policies and procedures have to be kept in mind while conducting audit.

Download Revised Audit Manual 2019- Direct Link

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