AUDIT OF DIRECT TAXESAUDIT OF DIRECT TAXES

DAY 1

Session 2

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Audit TechniquesAudit Techniques

  Assessment audit   Assessment u/s 143 (1) (summary)   Assessment u/s 143 (3) (scrutiny)   Assessment u/s 144(exparte)  Rectifications, appellate effect etc.

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Audit TechniquesAudit Techniques

  Systems Review/Appraisal Analysis of the provisions of various

sections, degree of compliance and how far the objectives of a particular provision of law have been achieved

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Audit CycleAudit Cycle

  Audit cycle is the year in which audit is conducted

  We are in the 42nd cycle (i.e. 2003-04) and the audit of the assessments completed during the financial year 2002-03 will be taken up for audit

 The number of the audit cycle coincides with the number of years after the enactment of the I.T Act, 1961 (i.e. 2003 - 1961)

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Objection CycleObjection Cycle   Audit Query/Audit memo/Half Margin  It is a medium whereby an observation is first

communicated to the department.   It is only in the form of a query and not an objection   Three days are given to the Assessing officer to

confirm the facts stated in the Audit query and offer his comments

 A prompt reply to the audit query is very important as it would save on avoidable correspondence between the department and audit in future

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Objection CycleObjection Cycle

  Para of Local Audit Report  A query becomes a Para of the Local Audit Report

in the following circumstancesIf the Audit Query is not replied before

finalization of the Local Audit Report If the Audit Query is accepted by the department If the Audit Query is not accepted by the

department and the department’s reply is not acceptable to audit

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Objection CycleObjection Cycle

Statement of Facts High money value objections are later on pursued

with the department by issue of Statement of Facts Draft Para The high money value objections are later on

proposed as Draft Para for inclusion in C & A G’s Audit Report

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Objection CycleObjection Cycle

• The Draft Para is then sent by C & A G’s office to the Ministry of Finance (CBDT) for their comments

 The Draft Audit Paras are the printed in the Audit Report in the following cases:

      Where Ministry’s reply is not received       Where Ministry has accepted the objection Where Ministry’s rebuttal to the objection is not

accepted by audit.

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Objection CycleObjection Cycle

  At all these stages, reply from the department is very important as it would help avoiding pursuance of objections which are factually incorrect

  An objection is finally closed in the following manner

  It is settled if department accepts the objection and takes remedial action

  It is withdrawn if the department’s reply is accepted in audit\

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ITRA HEADQUARTERS

Scrutiny of Paragraphs/LAR by the Sr. A.O. in Para processing

section

ITRA Party

Verification Report

IT DEPARTMENT Approval of Paragraphs and LAR by the Group Officer

Paragraph dropped

IT DEPARTMENT

DP Section SoF/Non SF Case

SofPARAGRAPH APPROVED Recorded in

the objection book- Para processing section & position monitored

Reply to the paragraph

Verification Report

Objection acceptedD.P. Settlement of

the Paragraph

ITRA Party

Draft Paragraph for the Audit Report

Whether reply accepted DROPPING/Settlement of the

Paragraph

Reconsider D.P.

F2: A Simplified flow diagram showing the route of processing of a paragraph and the Local Audit Report (LAR) in the ITRA Headquarters

Reply to the Paragraph

YES

YES

NON Sof

NO

NOT

Not

Approved

Yes