Practical Guide to Tax Audit - Rajkumar S. Adukia

Appointment as Tax Auditor

7.1       Who can be appointed?

Though the Act refers to the accounts being audited by an accountant who means a chartered accountant as defined above, the audit can also be done by a firm of chartered accountants. This has been a recognised practice under the Act. In such a case, it would be necessary to state the name of the partner who has signed the audit report on behalf of the firm. The member signing the report as a partner of a firm or in his individual capacity should give his membership number below his name.

7.2       Tax audit by an auditor other than Statutory Auditor

Section 44AB does not stipulate that only the statutory auditor appointed under the Companies Act or other similar statute should perform the tax audit. The tax audit can, therefore, be conducted either by the statutory auditor or by any other chartered accountant in practice.

7.3       Office of profit

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 314 of the Companies Act, 1956 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. The necessary formalities will be required to be complied with as required under section 314.

7.4       Who can appoint a tax auditor?

The appointment of the auditor for tax audit in the case of a company need not be made at the general meeting of the members. It can be made by the Board of Directors or even by any officer, if so authorized by the Board in this behalf.

The appointment in the case of a firm or a proprietary concern can be made by a partner or the proprietor or a person authorized by the assessee.

7.5       Appointment of joint auditors for tax audit

It is possible for the assessee to appoint two or more chartered accountants as joint auditors for carrying out the tax audit, in which case, the audit report will have to be signed by all the chartered accountants. In case of disagreement, they can give their reports separately.

7.6       Removal of tax auditor appointed under Sec. 44AB

There is no specific procedure for removal of a tax auditor appointed under section 44AB. It is, however, possible for the management to remove a tax auditor where there are any valid grounds for such removal.

This may arise where the tax auditor has delayed the submission of audit report under section 44AB for an unreasonable period and if it is found that there is no possibility of getting the audit report before the specified date. In such cases, the assessee may be justified in removing the tax auditor.

However, the tax auditor cannot be removed on the ground that he has given an adverse audit report or the assessee has an apprehension that the tax auditor is likely to give an adverse audit report.

7.7       Ceiling on tax audit assignments

Before accepting a tax audit, the chartered accountant should take into consideration the ceiling on tax audit assignments fixed under the Notification dated 13 January 1989, issued by the ICAI.

In view of the said Notification, a member of the Institute in practice, shall be deemed to be guilty of professional misconduct if he accepts in a financial year more than 30 tax audit assignments or such other limit as may be prescribed by ICAI from time to time under section 44AB.

Further, as per a Council decision, audits of accounts of persons carrying on business covered by sections 44AD, 44AE or 44AF is not included in the aforesaid limit.

In case the member is a partner of a firm of chartered accountants in practice, the ceiling of 30 tax audit assignments shall be computed with reference to each of the partners in the said firm.

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