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Practical Guide to Tax Audit - Rajkumar S. Adukia

 

A study on Section 44AB

Sec. 44 AB: Audit of accounts of certain persons
carrying on business or profession

5.1       Liability to get tax audit done

The following persons are required to get their accounts compulsorily audited by a chartered accountant.

      1.          A person carrying on business, if the total sales, turnover or gross receipt in business for the accounting year or years relevant to the assessment year exceed or exceeds Rs. 40 lakh.

      2.          A person carrying on profession, if his gross receipts in profession for an accounting year or years relevant to any of the assessment year exceeds Rs. 10 lakh.

      3.          An assessee who carries on a business and if  the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD or section 44AE or section 44AF or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year

 

Since the object of audit under section 44AB is to assist the Assessing Officer in computing the total income of an assessee in accordance with different provisions of the Act., even if the income of a person is below the taxable limit laid down in the relevant Finance Act of a particular year, he will have to get his accounts audited and to furnish such report under section 44AB, if his turnover in business exceed Rs.40 lakh.

Section 44AB does not make any distinction between a resident and non-resident. Hence, a non-resident assessee is also required to get his accounts audited and to furnish such report under section 44AB if his turnover exceeds the prescribed limits.

Report of audit of accounts to be furnished under section 44AB

Section 44AB requires the tax auditor to submit the audit report in the prescribed form and setting forth the prescribed particulars.

Rule 6G

      1.          The report of audit of the accounts of a person required to be furnished under section 44AB shall,

a)      in the case of a person who carries on business or profession and who is required by or under any other law to get his accounts audited, be in Form No. 3CA;

b)      in the case of a person who carries on business or profession, but not being a person referred to in clause (a), be in Form No. 3CB.

      2.          The particulars which are required to be furnished under section 44AB shall be in Form No. 3CD.

5.2       Due date for getting books audited

Section 44AB casts an obligation on the aforesaid persons to obtain before the ‘specified date’ a report of the audit in the prescribed form duly signed and verified by the accountant.

In cases where accounts are required to be audited by or under any other law (as in the case of companies and co-operative societies), it will suffice if accounts are audited under such other law before the ‘specified date’ and the assessee obtains before the said date,

a)      a report of the audit as required under such law, AND

b)      further report of audit by accountant in the prescribed form by the Central Board of Direct Taxes. (Form 3CD).

The expression ‘specified date’, in relation to the accounts of the assessee of the previous year relevant to an assessment year, means the 31st day of October of the assessment year.

The position can be summarized as under.

Due date of getting books audited

Different persons

Audit Form No.

Statement Particulars

Due Date

In case of person who carries on business or profession and who is required by or under any law to get his accounts audited.

3CA

3CD

31st October

In case of person who carries on business or profession and not being a person referred above.

3CB

3CD

31st October

 

5.3       Submission of audit report

It is obligatory for a taxpayer covered under section 44AB to not only get his accounts audited by the specified date but also furnish the audit report on or before the ‘specified date’ mentioned above. Tax audit report shall be furnished by the ‘specified date’ irrespective of the fact whether or not return of income is filed by that date.

W.e.f. 1 July 1995 by Finance Act, 1995 the words ‘obtains before’ are substituted by the words ‘furnishes by’. Every person is required not only to obtain report of Audit as required under other laws but also to furnished the same to the Assessing Officer.

If the return of income is submitted after submission of tax audit report, then the following should be submitted along with the return of income:

Ø      A copy of tax audit report; and

Ø      A proof of filing tax audit report before the ‘specified date’.

5.4       Failure to maintain books of accounts, etc.

Sec. 271A: Failure to keep, maintain or retain books of account, documents, etc.

If any person fails to keep and maintain any such books of account and other documents as required by section 44AA or the rules made there under, in respect of any previous year or to retain such books of account and other documents for the period specified in the said rules, the Assessing Officer or the Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum of twenty-five thousand rupees.

5.5       Failure to get accounts audited

Under Section 271B, If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred thousand rupees, whichever is less.

However, in view of the specific provisions contained in section 273B, no penalty is imposable under section 271B on the assessee for the above failure if he proves that there was reasonable cause for the said failure. The onus of proving reasonable cause is on the assessee.

Reasonable cause can be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or want of bona fides—Azadi Bachao Andolan v. Union of India [2001] 116 Taxman 249/252 ITR 471 (Delhi).


 

A few instances where Tribunals/Courts have accepted as ‘reasonable cause’ are illustrated below.

      1.          Resignation of the tax auditor and consequent delay.

      2.          Death or physical inability of the partner in charge of the accounts.

      3.          Labour problems such as strike, lock out for a long period, etc.

      4.          Loss of accounts because of fire, theft, etc. beyond the control of the assessee.

      5.          Non-availability of accounts on account of seizure.

      6.          Natural calamities, commotion, etc.

5.6       Action on incomplete audit reports

The Government has decided that all cases where the information provided in the audit report is incomplete or such non-committal replies are furnished so as to render the remarks or the report meaningless should be reported by the Assessing Officer to the Commissioner of Income-tax. The matter thereafter is taken up by the Commissioner of Income-tax to see if the case reflects any professional negligence on the part of the accountants signing the audit report. Action for initiation of disciplinary proceedings in terms of section 288 of the Income-tax Act should be immediately taken by the Commissioner of Income-tax with the approval of the Chief Commissioner of Income-tax, as the case may be.

The Central Board of Direct Taxes have issued instructions with immediate effect to the field officers to report any professional negligence on the part of the chartered accountants in preparing the tax audit report to the Institute of Chartered Accountants of India in terms of section 288, as the Institute of Chartered Accountants of India is entitled to institute proceedings against its member chartered accountants who submit faulty tax audit reports—PIB Press Release, New Delhi, dated 10-12-1999.

Other Pages from This e-book

Introduction to Tax Audit | Audits Done Under Income Tax Act, 1961 | Maintenance of Accounts by Certain Persons Carrying on Profession or Business-Sec. |  44AA | Sec. 44AB and Related Provisions of the Income Tax Act, 1961 | A study on Section 44AB | Important Terms and Definitions | Appointment as Tax Auditor | Audit Process | General Considerations by Tax Auditor | Specimen Documentation | Guidance on Form 3CD | Accounting Standards Issued by ICAI | FORM NO. 3CA | FORM NO. 3CB | New Form 3CD as amended by Notification no. 208/2006 dated 10-8-2006 | Relevant Income Tax Provisions | Annexure I to Form 3CD | Annexure II to Form 3CD | About the publisher