Introduction of Tax Audit:
The Finance Act, 1984 inserted section 44AB to introduce provisions related to tax audit in Income Tax Act, 1961 w.e.f 1st April 1985. As per this section, it is the obligation of every assessee having income / loss from business or profession to get his books of accounts audited by a CA in practice.
Applicability of Tax Audit:
Tax Audit may be applicable to an assessee who is carrying on any business or profession. However, it is not necessarily applicable to all such assessees. Please refer to below table:
| Type of Assessee | Applicability of Tax Audit |
| Assessee covered under section 44AE, 44BB or 44BBB | Applicable if profit or gain from business are lower than profit and gain computed under the said sections. |
| Assessee covered under section 44AD | Applicable where profit or gain declared by assessee is less than minimum profit percentage of annual turnover as prescribed in this section if such profit or gain exceeds minimum amount of income not charitable to tax.
OR Total turnover exceeds Rs. 2 crore |
| Assessee covered under section 44ADA | Applicable where profit or gain declared by assessee is less than minimum profit percentage of annual turnover as prescribed in this section if such profit or gain exceeds minimum amount of income not charitable to tax.
OR Total turnover exceeds Rs. 50 lakh |
| All other Assessee | In case of business : If turnover during previous year exceeds 1 crore. In case of Profession : If gross receipts during previous year exceeds Rs. 50 lakh. |
Relevant Forms for Tax Audit:
| Nature of Person | Audit Report | Form |
| In 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 | Form 3CA | Form 3CD |
| In case of person who carries on business or profession but not being a person referred to above. | Form 3CB | Form 3CD |
| In case of a company, when previous year and accounting year are different the tax auditor would have to carry out the tax audit in respect of the period covered by the relevant financial year and submit his report in Form 3CB only | Circular No. 561/22.5.1990 | |
Note: Form No. 3CD is been recently revised vide notification No. 33/2018 dated 17th July 2018 with effect from 20th August 2018.
Due Date for Filing Income Tax Return:
The Due date for filing the Return of Income for persons liable to Tax Audit is 30th September of the year succeeding the relevant financial year. For the financial year ending on 31.03.2018 the due date is 30.09.2018.
Tax Audit report Submission:-
If the assessee gets his account audited u/s 44AB and furnish the said report as required, than penalty u/s 271B shall not be levied even if the return of income is filed after the due date specified u/s 139(1).
Signature on Auditors’ report:
- Tax Audit Report should be signed by the CA in Practice with following details mentioned:
- Name of firm
- Name of the member signing
- Membership No
- Registration Number
Penalty in case of Non Compliance:-
If any person fails to get his accounts audited as required under the provisions of section 44AB before the due date u/s 139(1), the AO may impose penalty which may be a sum equal to one-half percent of the total sales, turnover or gross receipts subject to a maximum of Rs. 1.5 Lakh.
Auditors Responsibility:-
It is the professional duty of the CA to ensure that the audit accepted by him gets completed on or before the due date. If there is any unreasonable delay on his part, he is answerable to ICAI, if the complaint is made by the client. However, if the delay in the completion of audit is attributable to his client, the tax auditor cannot be held responsible.
Communication with Previous Auditor: –
A CA in practice shall be deemed to be guilty of professional misconduct, if he accepts a position as auditor previously held by another CA without first communicating with him in writing.
Assessee not bound to accept Tax Auditors View: –
The opinion expressed by the tax auditor is not binding on the assessee.
If the tax auditor has qualified his report and expressed an opinion on a particular item, the assessee may take a different view while preparing his return of income. In such cases, it is advisable for the assessee to state his viewpoint and support the same by any judicial pronouncements on which he wants to rely.
FAQs:-
1. Who can appoint Tax Auditors and who should sign their appointment letter?
The assessee himself can appoint Tax Auditor for conducting the audit as mentioned in section 44AB. It is advisable that such an appointment letter should be signed by the person competent to sign the Return of Income.
2. Is it necessary to appoint statutory auditors as tax auditors?
Section 44AB does not specify that only the statutory auditor appointed under the Companies Act should perform the tax audit. Therefore the tax audit can, be conducted either by the statutory auditor or by any other CA in practice.
3. Whether more than one CA firms can be appointed as Tax Auditor?
It is possible for the assessee to appoint two or more CAs as joint auditors for carrying out the tax audit, in which case, the audit report will have to be signed by all the CAs.
4. In case where multiple auditors are appointed, can they issued separate audit reports?
Yes, each tax auditor may issue separate audit report.
5. Can a relative of the director be appointed as Tax Auditor?
Yes, however, the provisions of section 188 of the Companies Act, 2013 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 in the aforesaid section. The necessary formalities will be required to be complied with as required under section 188.
