General Provisions of Tax Audit U/s. 44AB

The Tax Audit season has started and it’s the time when the Assessees rush to their Chartered Accountants (CA) to get their Tax Audit done in time and CA’s work overnight to get the audits of their clients done in time. In this article we have summarized some of the general provisions related to the Tax Audit U/s 44AB.

Background:- The Tax audit was introduced by section 11 of the Finance act, 1984 by insertion of a new section 44AB to the Income Tax Act, 1961 w.e.f. 1st April, 1985.

Applicability:- Tax Audit is an obligation on a person carrying on business or profession to get his accounts audited by a CA (CA) –

1. In case of business if his total sales, turnover or gross receipts in a financial year exceed or exceeds Rs. 1 crore. In case of Profession if the gross receipts exceeds Rs.50 lakhs (increased from 25 lakhs wef A.y 2017-18) .

2. A person covered u/s 44AE, 44BB or 44BBB is required to get his books of account compulsorily audited u/s 44AB if such person claims that the profits and gains from the business are lower than the profits and gains computed under these sections (irrespective of the turnover)

3. A person covered under Section 44AD is required to get his books of account compulsorily audited u/s 44AB if such person claims that the profits and gains from the business are lower than the profits and gains computed in accordance with the provisions of section 44AD(1) and if his income exceeds the maximum amount which is not changeable to tax (i.e basic exemption limit). However if the total turnover exceeds Rs 2 crore in any previous year, in case of the assessee declaring income u/s 44AD ,the assessee is required to get his accounts Audited U/s 44AB (wef A.Y 2017-18).

4. A person covered under Section 44ADA is required to get his books of account compulsorily audited u/s 44AB if such person claims that the profits and gains from the Profession are lower than the profits and gains computed in accordance with the provisions of section 44ADA(1) and if his income exceeds the maximum amount which is not changeable to tax (i.e basic exemption limit).

Purpose of tax audit:- Tax audit was introduced with the motive to ease the burden of Income Tax department official by shifting the burden of verifying the accuracy and correctness of the books of accounts of the taxpayer to Independent Accountants on their behalf.

Form: –Forms No. 3CA, Form No. 3CD in case of person who carries on business or profession and who is required by or under any law to get his accounts audited and Form No. 3CB and 3CD, in case of a person who carries on business or profession but not being a person referred to above. Form No. 3CD is been recently revised vide notification No. 33/2018 dated 17th July 2018 with effect from 20th August 2018.

Signature on Auditors’ report: Tax Audit Report should be signed by the CA in Practice mentioning the name of firm, name of the member signing, Member ship No. and Registration Number of the firm (Applicable from 01.04.2010) as allotted to them by the Institute of CAs of India.

Due Date:-The Due date for filing the Return of Income for persons liable to Tax Audit is 30th September of the year succeeding the relevant financial year. For the financial year ending on 31.03.2018 the due date is 30.09.2018.

Tax Audit report Submission:- If the assessee gets his account audited u/s 44AB and furnish the said report as required,than penalty u/s 271B shall not be levied even if the return of income is filed after the due date specified u/s 139(1).

Non Compliance:- If any person fails to get his accounts audited as required under the provisions of section 44AB before the due date u/s 139(1), the AO may impose penalty which may be a sum equal to one-half percent of the total sales, turnover or gross receipts subject to a maximum of Rs. 1.5 Lakh.

Auditors Responsibility:- It is the professional duty of the CA to ensure that the audit accepted by him gets completed on or before the due date. If there is any unreasonable delay on his part, he is answerable to ICAI, if the complaint is made by the client. However, if the delay in the completion of audit is attributable to his client, the tax auditor cannot be held responsible.

Communication with Previous Auditor: – A CA in practice shall be deemed to be guilty of professional misconduct, if he accepts a position as auditor previously held by another CA without first communicating with him in writing.

Assessee not bound to accept Tax Auditors View: – The opinion expressed by the tax auditor is not binding on the assessee.

If the tax auditor has qualified his report and expressed an opinion on a particular item, the assessee may take a different view while preparing his return of income. In such cases, it is advisable for the assessee to state his viewpoint and support the same by any judicial pronouncements on which he wants to rely.

FAQs:-

1. Whether tax audit may be undertaken without statutory audit required as per law?

It may be noted that Form No. 3CA requires the tax auditor to enclose a copy of the Statutory Audit report. Where a statutory auditor has not been appointed by the authorities concerned or where the report of the statutory auditor is not available for whatever reasons, it will be possible for the tax auditor to give his report in Form No. 3CB and to certify the relevant particulars in Form No.3CD.

Similar approach can also be adopted in case of assessees following accounting year other than the financial year more particularly in the case of foreign companies or subsidiary of foreign companies who have to follow the English calendar year as its accounting year.

2. Who can appoint Tax Auditors and who should sign their appointment letter?

The assessee himself can appoint Tax Auditor for conducting the audit as mentioned in section 44AB. It is advisable that such an appointment letter should be signed by the person competent to sign the Return of Income.

3. Is it necessary to appoint statutory auditors as tax auditors?

Section 44AB does not specify that only the statutory auditor appointed under the Companies Act should perform the tax audit. Therefore the tax audit can, be conducted either by the statutory auditor or by any other CA in practice.

4. I am working in a public limited company having businesses in more then one state, Can we appoint more than one CA firms as Tax Auditor?

It is possible for the assessee to appoint two or more CAs as joint auditors for carrying out the tax audit, in which case, the audit report will have to be signed by all the CAs.

5. I am working in Tax department of a Multinational Company and our Tax audit is jointly conducted by two CA firms. On some issues our auditors differ from each others and want to issue separate Tax Audit reports, can they do so?

In case of difference in the opinion of joint tax auditors, each tax auditor may issue separate audit report.

6. My relative is A CA in practice since last 10 Years and I want to appoint him as Tax Auditor of my Company. Can I appoint my relative as the Tax Auditor?

The position of a tax auditor for conducting audit under section 44AB will be considered as an office of profit. Therefore, the provisions of section 188 of the Companies Act, 2013 will be attracted when a relative of a director is appointed as a tax auditor of the company, if the remuneration thereof exceeds the limits prescribed in the aforesaid section. The necessary formalities will be required to be complied with as required under section 188.

(Republished With amendments)

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