Tax Audit – The dictionary meaning of the term “audit” is check, review, inspection, etc. There are various types of audits prescribed under different laws like company law requires a company audit, cost accounting law requires a cost audit, etc. The Income-tax Law requires the taxpayer to get the audit of the accounts of his business/profession from the view point of Income-tax Law.
Following assessee are required to get their accounts audited by a chartered accountant and to furnish (electronically) the audit report in a specified form on or before due date of furnishing return:]
1. An assessee carrying on business
Condition: Total sales, turnover or gross-receipts of business for the previous year exceeds Rs 1 crore.
Exception: Where a person:
- Declares profits and gains for the previous year u/s 44AD; and
- His total sales / turnover / gross receipts in business does not exceed Rs 2 crore in the previous year,
- then, the provision of tax audit is not applicable.
2. An assessee carrying on profession Condition: Gross receipts of profession for the previous year exceeds Rs 50 lacs.
3. An assessee covered u/s 44AE, 44BB or 44BBB Condition: Assessee has claimed that his income from such business is lower than the deemed income computed in accordance with the respective section.
4. An assessee covered u/s 44ADA Condition: Assessee has claimed that: a. his income is lower than the presumptive income (computed u/s 44ADA); and b. his income exceeds the maximum amount which is not chargeable to income-tax (i.e. basic exemption limit)
5. An assessee covered u/s 44AD(4) and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year
Penalty: If any assessee does not furnish such audit report on or before specified date (i.e. 30th September of assessment year1 ) then he is liable to pay penalty being lower of the following:
- ½ percent of turnover or gross receipt; or
- Rs 1,50,000.
Section 44AB gives the provisions relating to the class of taxpayers who are required to get their accounts audited from a chartered accountant. The audit under section 44AB aims to ascertain the compliance of various provisions of the Income-tax Law and the fulfillment of other requirements of the Income-tax Law. The audit conducted by the chartered accountant of the accounts of the taxpayer in pursuance of the requirement of section 44AB is called tax audit.
The chartered accountant conducting the tax audit is required to give his findings, observation, etc., in the form of audit report. The report of tax audit is to be given by the chartered accountant in Form Nos. 3CA/3CB and 3CD.
One of the objectives of tax audit is to ascertain/derive/report the requirements of Form Nos. 3CA/3CB and 3CD. Apart from reporting requirements of Form Nos. 3CA/3CB and 3CD, a proper audit for tax purposes would ensure that the books of account and other records are properly maintained, that they faithfully reflect the income of the taxpayer and claims for deduction are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of accounts before the tax authorities and considerably save the time of Assessing Officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched for or not. The time of the Assessing Officers saved could be utilised for attending to more important and investigational aspects of a case.