What is Tax Audit?

• A tax audit is an investigation into the background of tax returns submitted by an individual or business to a tax agency.

• I other words, A ta audit is a e a i atio of a organization's or individual's tax return

• A tax audit is when the IRS (Indian revenue service) decides to examine your tax return a little more closely and verify that your income and deductions are accurate. Typically, your tax return is chosen for audit when something you have entered on your return is out of the ordinary.

Eligibility criteria of tax auditor

• A person who is compulsory a chartered accountant, can only do a tax audit of a firm.

• How ever Section 44AB does not states that the statutory auditor has to be compulsorily be the tax auditor of the company.

• Hence tax audit can either be performed by the statutory auditor or by any other person eligible for doing it.

• If the tax audit is done by the done by a firm of chartered accountants then it is compulsory for them to mention the names of the partners and their membership N.o

• The tax auditor should communicate with the old auditor appointed in pervious years as per the specification of chartered accountants Act

• As per section 44AB the auditor must receive the letter of appointment for conducting the audit from the assessee

• The appointment letter should be signed by the person who signs the return of income

• The auditor should also get a statement of authentication by the assessee before starting the audit

• The tax auditor will submits his reports to the assessee

Section 44AB

Section 44AB provides for the

compulsory audit of accounts of certain person carrying on

business or profession as follows:

If total sales or gross receipts of a person

doing business exceeds 40,00,000 rupees in

previous year

If gross receipts of a person carrying

profession exceeds 10,00,000 in any previous years

If the profits and gains of a business are deemed to be the

profits and gains of such person and he has claimed his

income to be lower than profits or gains so deemed in

previous year.

“ ope of Auditor’s role u der i o e tax Act

• The role of the auditor is under income tax Act is summarized into the following:

–Conduct tax audit under section 44AB

–Certification of claiming various deductions under income tax Act

–Conducting selective audit under Section 142 (2A)

–Giving tax advice and tax planning consultancy

Tax audit procedures

1. True and fair view

2. True and correct

3. Audit test

4. Procedures

5. Materiality

6. SA

7. Concurrent statutory and tax audits

8. Information and records

9. Working papers

10. No need for Re-audit

11. Test check

12. E- filling

Certificate for claiming exemption /

deductions

• What is the basic difference between exemption and deductions?

– Exemption is those incomes which are beyond the purview of tax, they are not considered for tax

– Those claims that demand for reduction in the taxable income either at the stage of calculation of income under each head or at the stage of calculation of total taxable income

– Deductions are allowed only when some conditions are fulfilled.

• Thus the Act requires audit of accounts and

submission of certificate from chartered

accountant to avail such deductions and

exemptions

• However it is to be noted that submission

of certificates and tax audit report is not

compulsory

• But if not submitted the assessee is

forfeited from right to claim such

deductions and exemptions

Selective tax audit

• The A.O (assessing officer) with the prior

permission of the income tax commissioner of

income tax may direct the assessee to get the

accounts audited

• As per section 44AB the assessee can be

ordered to do additional audit

• The assessee has to submit his reports to the

assessing officer within a maximum period not

exceeding 180 days from the date of receipt of

such order.

What is the objective of tax audit?

• 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 aspe ts of a ase.

Is it compulsory to get the accounts

audited again if done one as per the

requirements of any other law? • Persons like company or co-operative society are required to get their accounts audited under their respective law. “ection 44AB provides that, if a person is required by or under any other law to get his accounts audited, then he is not need again to get his accounts audited to comply with the requirement of section 44AB. In such a case, it shall be sufficient if such person gets the accounts of such business or profession audited under such law and obtains the report of the audit as required under such other law and also a report by the chartered accountant in the form prescribed under section 44AB, i.e., Form No. 3CA and Form 3CDs

Due date by which the taxpayer should

get his accounts audited

• A person covered by section 44AB should get his accounts audited and should obtain the audit report on or before the due date of filing of the return of income, i.e., on or before 30th September (*) of the relevant assessment year, e.g., Tax audit report for the financial year 2013-14 corresponding to the assessment year 2014-15 should be obtained on or before 30th September, 2014.

• (*) In case of a taxpayer who is required to furnish a report in Form No. 3CEB under section 92 i respe t of any international transaction or specified domestic transaction, the due date of filing the return of income is 30th November of the relevant assessment year.

• However, due date for filing of Income tax return and tax audit report for assessment year 2014-15 in case of an assessee (not having any international or specified domestic transaction) who is required to get his account audited under section 44AB or a working partner of a firm whose accounts are required to be audited has been extended to 30th Nov 2014 vide ORDER [F.No. 153/53/2014-TPL], Dated 26-09-2014 and ORDER [F.No. 133/24/2014-TPL], Dated 20-08-2014 respectively.

• The tax audit report is to be electronically filed by the chartered accountant to the Income-tax Department. After filing of report by the chartered accountant, the taxpayer has to approve the report from his e-fling account with Income-tax Department (i.e., at www.incometaxindiaefiling.gov.in).

Penalty for not getting the accounts

audited as per section 44AB • According to section 271B, if any person who is required to

comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB, the Assessing Officer may impose a 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 273B, o pe alt shall e imposed if reasonable cause for such failure is proved.

Smoking is injurious to health

Audit of hospital

Audit of hospital

Stocks donations expenses Trust deed

Minutes Register of

patients Cash

collections Investment

income

legacies Grants Depreciation Physical

verification

Audit of hotels

Audit of hotels

• Internal control

• Cash collection

• Stocks

• Fixed assets

• Casual labour

• Compliance with statutory provisions

• Travel agents

• Vouching and verifications

Audit of school / college

Audit of school / college

Trust deeds Minutes Student register

Fees received

Advance / arrears

Admission fees Scholarship Fines

Hostel dues and caution

money Rent received

Legacies, interest

Grants

Audit of school / college

Arrears Deposits by

students Endowment investments

PF

Donations Capital

expenditure Establishments

expenses Salary

increases

Controls Inventories Taxes Funds

PF Deposits by

students Donations

Capital expenditure

Establishment expenses

Salary increases

Inventories Taxes Funds

Audit of cinema

System of cash collection

Advance booking

Daily returns

Tickets issued Libraries and

agents Receipts of sale

of programs

Receipts of sale of

advertisements

Bank statement

Expenses

System of wage payment

Cost of renting films

Travelling expenses

Audit of club

Legal status

Minutes books

List of books of accunts

Previous report

Entrance fees

Purchases

Bills raised

Donations

Stock

Powers of secretary

subscriptions

Audit of partnership firm

• Legality

• Appointment letter

• Engagement

• Partnership deed

• Decision taken

• Minutes

• Authority for business

• Books of accounts

• Certified statements

• Statutory payments

• Provision for tax

• Division of profit

Audit of sole trader

• Legal provisions

• Audit

• Scope of audit

• Appointment

• Check on employee

• Internal control

• Benefits

• Format

• Tax provisions

Audit of small company

• Scope of audit

• Letter of engagement

• Internal control

• Management representation

• Evaluation of evidence

• Audit planning

• Analytical review

• Audit sampling

• Reporting