Tax Audit
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About Tax Audit
Types of audits
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 viewpoint of the Income-tax Law.
Section 44AB gives the provisions relating to the class of taxpayers who are required to get their accounts audited by 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 a tax audit.
The chartered accountant conducting the tax audit is required to give his findings, observations, etc., in the form of an audit report. The report of the tax audit is to be given by the chartered accountant in Form Nos. 3CA/3CB and 3CD.
One of the objectives of the tax audit is to ascertain, derive, and report the requirements of Form Nos. 3CA/3CB and 3CD. Apart from the reporting requirements of these forms, a proper audit for tax purposes would ensure that the books of account and other records are properly maintained, that they truly reflect the income of the taxpayer, and that claims for deductions are correctly made. Such an audit would also help in detecting fraudulent practices. It can also facilitate the administration of tax laws by ensuring a proper presentation of accounts before the tax authorities and can significantly save the time of Assessing Officers in carrying out routine verifications, such as checking the correctness of totals and verifying whether purchases and sales are properly vouched. The time saved can be used by Assessing Officers to focus on more important and investigational aspects of a case.
As per section 44AB, the following persons are compulsorily required to get their accounts audited :
A person carrying on business, if his total sales, turnover or gross receipts (as the case may be) in business for the year exceed or exceeds Rs. 1 crore. This provision is not applicable to the person, who opts for presumptive taxation scheme under section 44AD and his total sales or turnover doesn’t exceed Rs. 2 crores.
Note:
- A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 50 lakhs.
- An assessee who declare profit for any previous year under section 44AD and he decreases profit for any of one 5 assessment year relevant to the previous year succeeding such previous year lower than the profit computed as per section 44AD and his income exceeds the amount which is not chargeable to tax.
- If an eligible assessee opts out of the presumptive taxation scheme, within the aforesaid period, he cannot choose to revert to the presumptive taxation scheme for a period of five assessment years thereafter.
(*) For provisions of section 44AD refer tutorial on “Tax on presumptive basis in case of certain eligible business”.
- A person who is eligible to opt for the presumptive taxation scheme of section 44ADA (*) but he claims the profits or gains for such profession to be lower than the profit and gains computed as per the presumptive taxation scheme and his income exceeds the amount which is not chargeable to tax.
Penalty
The penalty shall be lower of the following amounts:
- (a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years.
- (b) Rs. 1,50,000.
However, according to section 271B, no penalty shall be imposed if reasonable cause for such failure is proved.
