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Arjuna (Fictional Character): Krishna, The due date of Income Tax Audit is 30th September, 2019 and all the taxpayers are busy finalizing their Income Tax Report. So, what the taxpayer should do in order to avoid scrutiny risk?

Krishna(Fictional Character): Arjuna, The taxpayer should take due care while filing Income Tax returns. Tax audit is applicable to taxpayers whose turnover exceeds Rs. 1 Crore and for sec 44AD/44ADA presumptive taxation it is Rs. 2 Crore. For professionals it’s Rs. 50 Lakhs. Now, e-assessment is also in process by Income Tax Department, while filing ITR and Tax Audit Report.

Arjuna: Krishna, How to check scrutiny risk in Tax Audit Report?

Krishna: Arjuna, The taxpayers should keep following few points in mind while getting Income Tax Audit done:

How to check scrutiny risk in Tax Audit Report
  • The receipts and TDS as shown in 26AS should exactly match with the receipts and TDS in the books of accounts. The same should be shown in ITR. If there is any mismatch in details furnished in ITR and 26AS, then one may receive notice for such mismatch.
  • In ITR, reporting of GST turnover is required but it case if GST turnover and turnover as per books do not match, one may have to reply to notice. The taxpayers should keep in mind the reconciliation of differences in turnover.
  • While reporting in ITR, taxpayers have to furnish trading and manufacturing account separately. This is a new reporting requirement and thus if Gross Profit/Net Profit ratio of current year deviates significantly from the previous year, one may face notice.
  • If the profit as appearing in the books of accounts and as per ICDS deviates significantly, then proper reporting is to be done. If one fails to provide proper reporting, then one may receive notice.
  • While furnishing amount of other expenses in ITR, if a substantial amount is reported in other expense, Tax Authorities may question such for nature of such expenses. 
  • If the taxpayer has investments in his books of accounts income from which is exempted, then the taxpayer should take care of sec 14(A) of Income Tax Act, 1961.
  • A taxpayer has to furnish the details of payment made to related parties in clause 23 of Income Tax Audit Report. One may face notice if, the amount of payment made to related parties deviates significantly from the previous year.
  • A taxpayer has to furnish the details of unsecured loans in clause 31 of the Income Tax Audit Report. The detail of the amount accepted via modes of receipt is to be reported. So the taxpayer should be careful while furnishing this requirement as one may face notice if amount deviates significantly from the previous year.
  • Business code should be properly mentioned in ITR and should match with incomes as reported in Profit and Loss Account. One has to take due care while reporting business code because if a mismatch occurs one may face notice.
  • The supporting of payments made under various Acts which is reported u/sec 43B should be kept on record. As taxpayer may be asked to furnish details of payments made.
  • As per scrutiny norms released by CBDT, one may also face scrutiny notice if there are large additions made in the previous year, search, inquiry, etc.
  • If the taxpayer takes any deduction u/sec 35, 80 IBA, etc then taxpayers may face notice.

Arjuna: Krishna, what lesson should one learn from this?


Krishna: Arjuna, taxpayers still have time in furnishing Tax Audit Reports, so one has to keep above stated points in mind. As scrutiny is vicious circle, once entered is difficult to escape from. So, due care should be taken.


Published by

CA Umesh Sharma
Category Income Tax   Report

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