Auditing – Tax Audit

Tax audit is done by an Auditor on behalf of the Government to make sure that every provisions of Income Tax has been compiled by the assesse or not. Practically it is not possible for the Income Tax department to verify each and every detail of the assesse.

Tax audit can be conducted by a Chartered Accountant or any other person who can be appointed as an Auditor u/s 141 of the Companies Act, 2013.

Mandatory Tax Audit

According to Section(44 AB), provisions relating to Compulsory Tax Audit are as follows −

  • If the total sales or gross receipts of a business during the previous year exceeds Rupees One Crore.
  • If the gross receipt of a profession exceeds Rs. 25 lacs in previous year.
  • If the business or profession of a person is covered under section 44AD, 44AE, 44B, 44BB, 44BBA and 44BBB and assesse claims that his income from said business is less than as computed under above said sections.

In all the above cases, audit of accounts is compulsory.

Section 44(AD)

The main features of Section 44AD are as follows −

  • This section is applicable to profit from any business whether it is retail trading or civil construction business or any other business.
  • The Assesse should be a resident individual of Resident Hindu Undivided Family or Resident Partnership Firm.
  • According to Section 44AD income of assesse deemed to be 8% of total turnover or gross receipt.
  • If the assesse claims that his income is below 8%, audit of his account is compulsory.
  • This section is applicable only in case where gross receipts or turnover of the business is less than one Crore.
  • This section does not cover income coming out of any profession.
  • Total turnover of all business will be taken into one account where assesse carrying more than one business.
  • If the assesse is carrying both business and profession, this section will be applicable to his business income only.
  • Turnover of business or gross receipt will cover VAT, Excise duty, Cess and other levy, packing sale and freight if not shown separately in sale invoice.
  • Turnover or gross receipt of business will be computed excluding sale of fixed assets, sale of investments and cash or other discounts, packing sale or freight charges if shown separately in invoices.

Section 44(AE)

The main features of Section 44(AE) are as follows −

  • This section is applicable to any person engaged in playing, leasing or hiring truck.
  • He should not own more than 10 trucks any time during the previous year including taken on hire-purchase or Installment basis.
  • This section is not applicable to those who operate trucks on hire without owning them.
  • His deemed income will be Rs. 5,000/- per month or part of the month in case of heavy vehicle and Rs. 4,500/- per month or part of the month in case of other than heavy vehicle or income as declared by the assesse whichever is higher.
  • If the assesse does not opt for the scheme, he shall get his accounts audited.

Section 44(B)

The main features of Section 44(B) are as follows −

  • This section is applicable to profits and gains of a non-resident from shipping business.
  • His deemed income will be equal to 7.5% of the aggregate amount receipt in India.
  • If the assesse does not opt for this scheme he will have to get his account audited.

Section 44(BB)

The main features of Section 44(BB) are as follows −

  • This section is applicable to non-residents whose profits and gains of business of oil-exploration.
  • His deemed profit will be equal to 10% of amount payable to him in India or outside India.
  • If the assesse does not opt for this scheme he will have to get his account audited.

Section 44(BBA)

The main features of Section 44(BBA) are as follows −

  • This section is applicable to non-resident assesse for profit and gains of business of operation of air-craft.
  • His deemed profit will be 5% of amount paid or payable to him in India or outside India.
  • If the assesse does not opt for this scheme, he will have to get his account audited.

Section 44(BBB)

The main features of Section 44BBB are as follows −

  • This section is applicable to profit of foreign company engaged in business of civil construction or erection of plant and machinery or and commission thereof.
  • His deemed profit will be equal to 10% of amount payable to him in India or outside India.
  • If the assesse does not opt for this scheme, he will have to get his account audited.

Last Date of Filing of Tax Audit Report

Every assesse is bound to file his Tax Audit Report till 30th September.

Penalty for Non-filling of Tax Audit Report

If any person is required to get his account audited under Section 44AB but fails to do so before the specified date, he is liable to pay a penalty equal to 1/2% of Turnover/Gross receipt subject to maximum Rupees 1,50,000/-.

However, Section 273(B) states that no penalty shall be levied under section 271(B) if there is a reasonable cause for such failure.

Appointment of Tax Auditor

Any practicing Chartered Accountant or firm of Chartered Accountants can conduct Tax Audit. The Board of Directors in case of Company, Partner of a firm and proprietor of the business can appoint Tax Auditor.

Removal Tax Auditor

Assesse can remove Tax Auditor on some valid ground only. In normal case, an Auditor cannot be removed during specified period.

Ceiling of Tax Audit Assignments

Under Section 44(AB), an Auditor cannot accept more than 60 Tax audit assignment; otherwise, he will be guilty of professional misconduct. In case of firm of chartered accountants, the limit of 60 will be applicable for each individual.

Audit Report

An Auditor gives his opinions through Audit Reports; opinions such as the following −

  • whether financial statements give true and fair view of profit or loss and state of affairs.
  • whether the prescribed particular of statement submitted with the report are true and correct.

According to Rule 64 of Income Tax Rule −

  • If accounts of the business are required to be audited under any law, then the Auditor has to submit his report in form 3(CA) first, but for the statement, it has to be in a particular form 3(CD).
  • If accounts of business are not required to be audited under any law, then the Auditor has to submit his report in form 3(CB) first, but for the statement, it has to be in a particular form 3(CD).
  • If person is occupied in some profession, form 3(CC) is to be used for audit report and form 3(CE) for statement of particulars.