CA R. Muralidharan, Erode
RECENT CAG REPORT
The Comptroller and Auditor General Report no. 32 of 2014 has taken the list of Chartered Accountants who have signed tax Audit cases under Income tax Act of more than 400 during FY 2012-13 and there are 22 people in the list.
ARBITRARY LIMIT OF 45/60 TAX AUDITS
There exists a limit of 45 Tax Audits (now 60) fixed by CA Institute arbitrarily without any logic is my opinion.
FOR EXAMPLE
| a. No. of CAS Signing = |
66,000 |
| b. No. of Audit Cases permitted for each CA= |
45 |
| Total (a*b) |
29, 70,000 |
So, there should be only 30 Lakh Tax Audit cases all over India for FY 2012-13 or may be 66000 X 60 = 40 Lakh cases for whole of India! But, there are 10 lakh Companies in India to Compulsorily File Tax Audit Report besides other Tax Audit Assessees!
CAG COMMENTS
“The information available with DGIT (Systems) has not been shared by ITD to ICAI nor did ICAI approach ever to ITD to furnish such information.
In view of lack of monitoring of number of Tax Audit assignments either by ITD or ICAI the purpose of maintaining the quality of tax audit have suffered”
How did CAG find out the fall in Quality of CAS ? By checking the Books of Accounts audited by us or scrutiny of returns filed by CAS ? The basic principle in Auditing is evidence, and not guesses and surmises!
MORE THAN 400 LESS THAN 400
According to CAG those who have done less than 400 Tax Audits are Qualitative and more than 400 are not.
Besides the Arbitrary tax audit limit of 60 fixed by ICAI, CAG also fixes another yardstick to check the quality of Tax Audits and CAS!
NO SUCH LIMIT IN SIMILAR PROFESSION
I do not find any limit fixed for any other professionals in practice like, Medicine, Engineering or Legal field. Imagine that IMA says that a Surgeon should perform only 60 surgeries in a year (or) attend only to 60 patients per year.
Bar council does not prescribe any limit for number of cases to be attended by a Lawyer. Nor does the Engineers association.
ALREADY DECIDED ISSUE
In K.Bhagavatheeswarn Vs ICAI (1999) 237 ITR 208 (Mad) Madras High Court has categorically stated that Prescribing limit for Tax Audit cases is Un constitutional, arbitrary and illegal. There is no need to reinvent the Wheel again!
CASE BEFORE SUPREME COURT
The case of Mr. Bhagavatheeswaran was appealed by CA Institute in the Supreme Court Civil Appeal no.7208/7209 of 2005 which was subsequently with drawn by CA Institute that any aggrieved can represent his case before CA Institute and that the Institute will consider his case and pass appropriate order.
The Supreme Court has also stated that any member whether made any representation or not, would have a right to challenge it also.
MORE TAX AUDIT MEANS MORE REVENUE
A Chartered Accountant doing more Tax Audit and filing returns brings in more revenue to Government Exchequer which under any Circumstances cannot be denied or restricted.
LIMIT NOT APPLICABLE
According to CA Institute the limit of 60 Tax Audits (FY 2014-15) is not applicable to
. Sec 44AD (Income tax)
. VAT Audit prescribed by State Governments.
. Sec 44 AE (Goods Carrying Vehicles)
What is the Logic behind this needs to be explained. The Quality check for CAS, is it not applicable in these three audits?
EFFICIENCY AND KNOWLEDGE ISSUE
Auditing is a subjective concept. Efficiency and knowledge play an important role. A Chartered Accountant can do Tax Audit up to any number of cases per day based on these.
SIXTY SIXTY EVER
The limit of 60 Tax Audit cases (FY 2014-15) 30 years in practice, a CA should have only 60 Tax Audit cases, Is it Logical?
INCOME TAX PRACTITIONERS
This is a recognized Qualification as per Income Tax Act. They do not have power to sign Tax Audit cases. When an ITP approaches CA for Tax Audit, the CA will be forced to refuse it because of upper limit?
There is every possibility, ITP may be forced to file below Rs.1 crore which is obviously a loss of revenue to exchequer!
NO LIMIT UNDER INCOME TAX ACT
Income tax Act nowhere prescribes any limit on Tax audit cases filed under Sec 44AB.
WHO WILL SIGN?
If a Chartered Accountant can sign only up to 60 Tax Audits, the points to be noted are
. Number of Corporates
. LLP
. Assessees having turnover above 1 crore all over India
. Societies, Trust, HUF, Firms, AOP, BOI
. Professionals with Gross receipts above 25 Lakhs- how many?
One has to total everything and divide by the number of Chartered Accountants. There may not be sufficient CAs!
CLIENT ‘S CHOICE
Choosing a Chartered Accountant for Tax Audit is the choice of Assessee only. One cannot force him to choose another Auditor because the Auditor has exhausted 60 Tax Audits.
FY 2012-13
For a Chartered Accountant to do 45 Tax Audit the remuneration fixed by the CA Institute will not be sufficient even to cover the expenses of his office.
A Fresh, Chartered Accountant in Employment earns 9 Lakhs to 12 Lakhs per annum at the age of 21 (or) 22.
CONCLUSION
It is time that the limit on Tax Audit cases is abolished by the apex Institute on Audit and Taxation!
K.Das, B.L.,CA Final says that
Explanation to Section 37(1)of the Income Tax Act 1961
Section 37(1) provides for deduction of any revenue expenditure ( other than those falling under sections 30 to section36)from the business income if such expense is laid out or expended wholly exclusively for the purpose of business or profession . However the explanation in section 37(1) denies claim of any such expenses, if the same has been incurred for a purpose which is either an offence or prohibited by law. The CBDT, considering the fact that the claim of any expense incurred in providing freebees to Medical Practitioner is in violation of the provisions of Indian Medical Council (Professional conduct,Etiquette and Ethics) Regulations 2002 has clarified that the expenditure so incurred shall be inadmissible under Sec.37(1) of the Income Tax Act 1961, being an expense prohibited by the law.
Now what is CBDT doing for violations in Chartered Accountant Act 1949 and Professional Ethics.
In the list published by CAG there is a name R.Muralidharan M.No. 024060 who signed 796 TARs. Is it you or some one?
The Tax audit limit fixed by the ICAI may be revised on the basis of some criteria such as
1. Experiences/seniority of chartered accountants as in the case of training of articled clerks by CA’s. The fellow members with more years of experience can train more Articled clerks.
2. Turnover of the auditee, at present the limit fixed without considering the volume of work. If the assessee has more turnover naturally the volume of work will increase. Frame a formula in such a way that the No of cases a CA can audit increases if he conducts audit of low turnover cases & vice versa.
3.Fix the audit limit on the basis of trained staff and articled clerks employed by the CA’s
As per the latest information provided by Directorate of Income-Tax (Systems), New Delhi against application filed U/s 6(1) of RTI Act, it is evident that only 65,570 CAs are practicing, who are unevenly spread throughout India. India is highly populated country, existing number of practicing CAs does not meet the requirement of our economy. Due to ceiling on number of tax audit, Non-CA Tax Professionals handling tax audit cases have to roam around in search of empty slots of CAs to give compliance in case of their clients during due dates. This has also resulted in high cost of compliance, due to high demand & extra payment made for reservation of empty slots of CAs. CA Certificates in Income-Tax Act are causing strict hurdle for voluntary compliance not only in Income-Tax Act, but also in other Central & State Govt. taxation laws. In another 10 years, Non-CA’s who entered the Tax Practice in 1980’s will all eliminate & Govt. has to relay on only CA’s for seeking compliance under all Indian taxation laws. Therefore, I am of the strong view that there should not be any CAP for tax audit, which is causing strict hurdle for voluntary compliance from Non-CA Tax Professionals. I am also fighting this matter with CBDT since 2001, explaining the strenuous efforts of ICAI to expand demand supply gap of CAs with the motto of providing full employment to existing practicing Chartered Accountants.
Already Jurisdictional High Court has called the restriction Unconstitutional, Discussing this again,
will it amount to Contempt of Court ?
Not only for Tax Audit but also for other Non Audit cases quality is needed.
Can a restriction be placed by the apex body on number of files a
Tax Professional should have in his office.
Indranil Sir,
In how many cases, Deptt. took action U/s 277, 277A & 278 of Income-Tax or ICAI took action wherein additions made by AO not reported by CA in TAR and also sustained in Appeal. Could you please give at least one case.
BASELESS ARGUMENT BY THE AUTHOR. JUST BECAUSE HE CAME 3RD PLACE (796 TARs) IN THE CAG REPORT HE SEEKS TO JUSTIFY HIS ACT. WHAT HE HAS BEEN DOING EARLIER? WHETHER OR NOT THE LIMIT IS SUFFICIENT HE HAS TO ADHERE TO THE REGULATIONS OF THE INSTITUTE; OTHERWISE HE IS NOT RESTRICTED ANYWAY TO CARRY ON UNLIMITED NUMBERS OF ASSIGNMENTS IN ‘Medicine, Engineering or Legal field’
I fully agree with the article. It is quality which should be the monitoring factor. Every professional, in whichever field he is, is ultimately responsible to his quality of work just for his existence and survival. So, if a few professionals are errant then the sin can not be attributed to others. There are innumerable good firms with sufficiently expert support system who can carry out Tax audits to best of professional expertise. In other fields also, like medical, a knowledgeable surgeon can do any no of surgeries, it solely depends upon how he has handled each and every case. We, CAs are professionals and not some underage persons who do not know his limitations or who needs a guardian with a rod to constantly remind him that he is being watched. Even if we do 1 tax audit and something wrong is there which evaded our scrutiny then also I am liable to disciplinary action or can I say that I have done tax audit within the limit prescribed so I should not be reprimanded? The number fixed is also arbitrary and no one puts any light what is the logic in setting this number…..why not 75 or 100 or even 50? I am really eager to know the basis of such limit…hope this is based on some scientific sampling technique rather than the whim of any bureaucrat.
Having cleared CA Examination (with a pass percentage of l% to 5%), it is not justified by limiting the Tax Audit Assignments in mere numbers. “The Volume of Tax Audit” depends on one’s individual Knowledge & Capacity.
Dear sir,
i feel your write up is not correct. First of all ICAI should gather information regarding the number of tax audit done by each CA per year and the CA experience in practice should be analysed
. Further the number of tax audit cases available should be analysed then only we can say whether ICAI fixing cap on audit is reasonble or not.
Moreover i have not noted any instance of non availability of CA for tax audit.
ICAI by puting cap is taking care of new entrants with reasonable oppertunity.
If any professional undertake more volume of work, it does not mean
the quality will be low. It depends of the Professionals confidence and
the Audit team he has, and the stratagies he follows.
I think all understood, the professional, he alone auditing each books and
each entries individually. what is the use of having audit team, and experts
working in Professionals Office, also restricting a professional from doing
or undertaking a work is not good. No ones legal right to be deprived.
Muralidharn Sir, your article unearth everything related to Tax Audit.
Dear Muralidharan ji,
How can a CA verify 700 + tax audits in short span of time?
Time has come to change or remove people llik you from the profession
Thanks CAG for your report
The author analyzed all the informations are true and logically right. so it should be increase and also maintain the quality
In my opinion, the views of the Author is correct, he analysed everything
involved in the other side of the Tax Audit Limit.
The verdict of Madras High Court in K.Bhagavatheeswarn Vs ICAI (1999) 237 ITR 208 (Mad) Madras High Court very clear about this issue.
Thanks to CA Sri. Sandeep Kanoi for compilation, in his post – Tax Audit is
Arbitrary & Unconstitutional – HC
The verdict of Madras High Court in K. Bhagavatheeswaran VS ICAI, is very clear. (Article of CA Sandeep Kanoi – Tax Audit Limit is Arbitrary & Unconstitutional – HC – is very helpful to come to the conclusion.)
In my opinion, the view of the author is correct, he analised everything
involved in the other side of Tax audit
WHEN A ITO CAN ASSESS 200-300 SCRUTINY CASES U/S. 143(3), HOW THE CA COULD NOT DO TAX AUDITS 200-300 YEARLY.
CONSIDERING THE GOVT HOLIDAYS ITO’s WORKING IS FOR MAXIMUM 250 DAYS YEARLY AND TIMING IS 9.30 TO 6 WHERE’S CA’s WORKING IS FOR 365 DAYS WITH 9 TO 9
There should be signing/auditing limit for each & every audits/reports, which is going to efect to general public, goverment and bankers.If this will be possible, then only the purpose behind doing audit and giving reliable date to third party will be resolved.
Disagree with Author. Article is written without proper knowledge of facts and without logic.
Quality of audit is really question, Even you audit 1 entity or more than one. Dare to self analyze.
CA R.Muralidharan, Erode Sir,
(1) I appreciate your views in this article Sir. In fact, when the Income-Tax Deptt. mandated to upload TAR, real problem of Non-CA Tax Professional to roam around in search of empty slots of CAs for giving compliance in their tax audit case started.
(2) CBDT has retained outdated mandatory tax audit clause U/s 44AB of Income-Tax Act for Non-Corporate assesses since almost three decades, that too in this computer era, without evaluating its utility & also not providing the ways or mechanism to search out empty slots of CA Signature to assesses/Non-CA Tax Professionals, which is causing strict hurdle for giving voluntary compliance, due to 45 No’s of Tax Audit ceiling fixed for each Chartered Accountant by ICAI, without considering demographic spread of practicing Chartered Accountants.
In my opinion the author is correct. It is already decided by the Madras high court. No one can restrict another one’s practice and earnings. If any Rule is restricting the earning of one profession it is against fundamental right as per Indian constitutional Law.
Sundar-Advocate-Erode
Unless u have a limit for any thing there will be chaos and uneven distribution of work.Hence limit is required.
It is totally unacceptable and unreasonable that the approched Taxpractitoner may forced to file below for Rs.1 crore if the approached CA refued due to upper limit.
Otherwise, it is a chance, if the CA may him self got a more than his upper limit, it is a possiblelity that to foceibly him to file the return for below Rs. 1 crore.
That is why no need to drag the other community into the field.kindly above writer should not blame the other community for his mistake when he is writing to the nation and internation site.
The art is half cooked & whithout proper knowledge.There are too many loophole in the art. Like this limit is not applicable to other audits except for the tax audit And co audit. In my 23 yr of practice I had not found a single person not getting auditor but there are so many CA not having enough audits.
The art is half cooked & whithout proper knowledge
It is submitted that the IMA (Indian Medical Association) is not a statutory body; their views does not have any legal sanction. The appropriate body in this context would be the Indian Medical Council, if at all.
The Institute should take up the matter as soon as possible .
WHY TO MAKE LAWS TO PROTECT WRONG DOERS.JUST TO PROTECT FEW PEOPLE.THE WHOLE INDIAN ECONOMY WILL SUFFER. TOTALLY WRONG ARTICLE.
Dear Muralidharan JI,
You have mentioned that a fresh CA at the age of 21 or 22 earns Rs. 9 lac to 12 lac. My friends who have cleared CA and some of them cleared both CA and CMA can earn 3 to 4 lac in kolkata. So you have use word ” EARNS” not may be earned.
You have compared Employment with independent practice. Please note that it can not be compared. I do not know that whether you are in practice or nor? It depends on individual. Please further note that there is no limit of income in practice. You can earn Rs. 10,000/- in a day and even Rs. 1/- in a day in practice. In employment you have to say ” YES BOSS” and every time oiling your boss to get increment and promotion. In employment you are simply a CHAMCHA/ Servant in a company. I prefer to suggest young professionals to be a good practitioner rather than a good servant.
Happy new year in advance and best of luck.
Regards,
CMA Utpal K Saha
May be the ceiling limit should be further increased to 100 or so on.
but there should be a limit. The whole purpose of limit is to maintain the quality.
May be a good option can be to exclude Individuals or Pvt co. for counting Audits..
or the other way could be to further increase the amount of 1cr/25lac liable for Tax Audits..
CA Nishant
time has come to improve quality of audit with no monitoring of limits reliability of audit opinion suffers it is high time the institute take initiative and act against errant member