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Complete Analysis of Tax Audit for AY 2018-19

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Complete Analysis of Tax Audit for AY 2018-19
By: Sandeep Rawat
September 11, 2018
  • Contents

As soon as  due date of filing tax audit is coming near, assessee and tax auditor are making effort to comply the tax audit provision.

I have tried to prepare a complete analysis of tax audit for fy 17-18 (AY 18-19), so that the professional can easily complete all the task in time with clear understanding of the tax audit.

OBJECTIVE

  • To ensure the book of account and other records of assessee are properly maintained.
  • Book of account accurately reflect the income of tax payers and deduction are correctly declared.
  • To make the income computation for filing the returns more efficient.
  • Report the requirements of Form No 3CA/3CB and 3CD
  • Facilitate the administration of tax laws by proper presentation of accounts before tax authorities and considerab1ly save the time of assessing officers in carrying out routine verification.

APPLICABILITY

It is obligatory in the following cases for a person carrying on business or profession to get his accounts audited before the “specified date as per section 139(1) ”by a Chartered Accountant in practice:

  1. if the total sales, turnover or gross receipts in business exceeds 100 lakh  in  any previous year;or
  2. if the gross receipts in profession exceeds 50 lakh in any previous year;or
  3. where the assesseeis covered under section 44AE, (44BB  or  44BBB)and claims that  the profits and gains from business are lower than the profits and gains computed on a presumptive basis. In such cases, the normal monetary limits for tax audit in respect of business would notapply.
  4. where the assesseeis carrying on a notified profession under section 44AA, and he  claims that the profits and gains from such  profession are lower than  the profits and  gains computed on a presumptive basis under section 44ADA and his income exceeds  the basic exemptionlimit.
  5. where the assesseeis covered under section 44AD(4) and  his  income  exceeds  the basic exemptionlimit.

NON-APPLICABILITY

The requirement of audit under section 44AB does not apply to a person who declares profits and gains on a  presumptive basis under section 44AD and his  total sales, turnover or gross receipts does not exceed ₹ 2crore.

Further, the requirement of audit under section 44AB does not apply to a person who derives income of the nature referred to in sections 44B and 44BBA.

SPECIFIED DATE:

In relation to the accounts of the previous year or years relevant to any assessment year specified date means the due date for furnishing the return of income under section 139(1). In tax audit due date is 30 September.

PENAL PROVISION

According to section 271B, the assessing officer may impose penalty if assessee is failed to file tax audit report as required under section 44AB. The penalty shall be lower of the following amounts:

  • 5% of total sales, turnover or gross receipts (as the case may be), in business in such years or years
  • 5% of the gross receipts in profession, in such year or years
  • ₹ 1,50,000

*However, according to IT act 1961, section 273B, no penalty shall be imposed if reasonable cause for such failure is proved.

ACCOUNTS AUDITS UNDER OTHER STATUTES ARE CONSIDERED

In cases where the accounts of a person are required to be  auditedby  or  under any other law before the specified date, it will  be sufficient if the person gets his accounts audited under such other law before the specified date and also furnish by the said date the report of audit in  the prescribed form in addition to  the report of audit required under such otherlaw.

Thus, for example, the provision regarding compulsory audit does not imply a second or separate audit of accounts of companies whose accounts are already required to be audited under the Companies Act, 2013. The provision only requires that companies should get their accounts audited under the Companies Act, 2013 before the specified date and in addition to the report required to be given by the auditor under the Companies Act, 2013 furnish a report for tax purposes in the form to be prescribed in this behalf by the CBDT.

TAX AUDIT LIMIT FOR CHARTERED ACCOUNTANTS

A tax audit can be conducted by a Chartered Accountant or a firm of Chartered Accountants. If it is performed by the latter, the name of the signatory who has signed the report on behalf of the firm must be stated in the audit report. The signatory must provide his/her membership number while registering in the e-filing portal.  Tax audits can also be performed by the Statutory Auditor.

It is important to note that, Chartered Accountants have a limit on the number of tax audit reports that can be filed. The maximum number of tax audits that can be undertaken by a Chartered Accountant is limited to 60. In case of a firm the restriction on tax audit limit will be applicable for each of the partners.

REVISION OF AUDIT REPORT UNDER SECTION 44AB

In general it is not possible to conduct a revision of a tax audit report that has already been filed under this section. However, a revision can only take place if an amendment in the income tax law allows it. The audit report can then be revised by an authorised auditor, and a reason for the revision of the same must be stated.

AUDIT REPORT:

The person mentioned above would have to furnish by the specified date a  reportof the audit in the prescribed forms. For this purpose, the Board has prescribed under Rule 6G, Form No 3CA/3CB/3CD containing forms of audit report  and  particulars  to  be furnishedtherewith.

             FORM 3CA

The audit of the accounts under section 44AB, in case of a person who carries on business or profession and who is required under any other law to get his accounts the audited shall file such audit report in Form 3CA.

             Major Components of Form 3CA

  • Details of the Assessee i.e. Name, Address and Permanent Account Number (PAN).
  • Date of the audit report.
  • Annexure details (Balance sheet, Profit & Loss A/c, other documents and Form 3CD).
  • A declaration by the auditor that all the filled details and the Annexure are true and correct subject to qualifications/observations if any.
  • Auditor’s name, address, membership number, FRN no. and signature with stamp/seal.

 

FORM NO. 3CA

[See rule 6G(1)(a)]

*I / we report that the statutory audit of M/s. _________________ ( Name and address of the asseessee with Permanent Account Number) was conducted by *me / us / M/s. ____________________________________________________in pursuance of the provisions of the___________________________Act, and*I/we annex hereto a copy of *my / our / their audit report dated _______________________along with a copy of each of :-

(a) the audited *profit and loss account / income and expenditure account for the period beginning from ----------------------to ending on -----------------------------.

(b) the audited balance sheet as at, _____; and

(c) documents declared by the said Act to be part of, or annexed to, the *profit and loss account / income and expenditure account and balance sheet.

2. The statement of particulars required to be furnished under section 44AB is annexed herewith in Form No. 3CD.

3. In *my / our opinion and to the best of *my / our information and according to examination of books of account including other relevant documents and explanations given to *me / us, the particulars given in the said Form No.3 CD are true and correct subject to the following observations/qualifications, if any:

a.

b.

……………...................................................
**(Signature and stamp/Seal of the signatory)

Place : ______________             Name of the signatory ………………………

Date : ______________              Full address ………………………………….

 

 

FORM 3CB

The audit of the accounts under section 44AB, in case of a person who carries on business or profession and who is not required under any other law to get his accounts the audited shall file such audit report in Form 3CB.

MAJOR COMPONENTS OF FORM 3CB

  • Details of the Assessee i.e. Name, Address and Permanent Account Number (PAN).
  • Date of the audit report.
  • Annexure details (Balance sheet, Profit & Loss A/c, other documents and Form 3CD).
  • A declaration by the auditor that they have obtained all information and explanations which were necessary for the purpose of the audit.
  • Reporting of the detailed observations, comments, discrepancies, and inconsistencies (if any).
  • The Form includes the declaration made by the auditor that proper books of accounts are being maintained at the branch and head offices.
  • A declaration by the Chartered Accountant that all the filled details and the Annexure are true and correct subject to qualifications/observations if any.
  • In the end, the Form specifies the name, address, membership number, FRN no and signature of the auditor with stamp/seal.

FORM NO. 3CB

[See rule 6G(1)(b)]

1. *I / we have examined the balance sheet as on, ____, and the *profit and loss account / income and expenditure account for the period beginning from ----------------------to ending on -----------------., attached herewith, of ______________________________( Name ), _______________(Address), ____________(Permanent Account Number).

2. *I / we certify that the balance sheet and the *profit and loss / income and expenditure account are in agreement with the books of account maintained at the head office at _____________ and ** ___________ branches.

3.(a) *I / we report the following observations / comments / discrepancies / inconsistencies; if any:

(b) Subject to above, -

(A) *I / we have obtained all the information and explanations which, to the best of *my / our knowledge and belief, were necessary for the purpose of the audit.

(B) In *my / our opinion, proper books of account have been kept by the head office and branches of the assesseeso far as appears from*my / our examination of the books.

(C) In *my / our opinion and to the best of *my / our information and according to the explanations given to *me / us, the said accounts, read with notes thereon, if any, give a true and fair view :-

(i) in the case of the balance sheet, of the state of the affairs of the assessee as at 31st March, ;and

(ii) in the case of the *profit and loss account / income and expenditure account of the *profit / loss or *surplus / deficit of the assessee for the year ended on that date.

4. The statement of particulars required to be furnished under section 44AB is annexed herewith in Form No.3CD.

5. In *my/our opinion and to the best of *my / our information and according to explanations given to *me / us, the particulars given in the said Form No.3 CD are true and correct subject to following observations/qualifications, if any:

a.

b.

c.

……………...................................................
(Signature and stamp/seal of the signatory)

Place : ______________         Name of the signatory ………………………

Date : ______________         Full address ………………………………….

(To Be Continued in II part)

For further clarification and professional assistance, feel free to contact at sandeeprawatca@gmail.com

(Mr Sandeep Rawat has vast experience in direct and indirect taxation. He is Cofounder and Managing Partner of SRT Consultancy & Company.He can be reached at sandeeprawatca@gmail.com)

 

By: Sandeep Rawat - September 11, 2018

 

 

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