INCOME TAX AUDIT :SCOPE AND

LIMITATIONS

As per SA 200 Audit is an independent examination of financial information of any entity whether profit oriented or not irrespective of size or legal form which such examination is conducted to express opinion there on.

As per Companies Act 2013 only a Chartered accountant or firm of Chartered account holding a certificate of practice (COP )is professionally qualified for the account of companies

Introduction of Income Tax Audit

The Tax Audit is conducted under Sec.44AB, 44AD, 44AE.

The time limit for tax audit is 30th Sept. of Assessment Year.

Tax Audit is conducted to check the true and fair view of Financial Statements.

Audit is conduct of official and financial inspection of a company or its accounts.

Audit process

Pre- Audit

1. Engagement Letter 2. Knowledge 3. Verification of IC (Internal Control) 4. Audit Plan

During Audit

1. Arithmetical Accuracy 2. Documentary Evidences

3. Validity of transactions 4. Scrutiny of accounts 5. Accounting Ratios 6. Disclosure as per Sch. III

Post-Audit

1. Forming an Opinion 2. Audit Report

Section 44AB :

Tax Audit Under Section:

For Business

For Profession

Sales/ Gross Turnover Exceeds Rs.1 Crore in p.y.

Gross Receipts Exceeds Rs.25 Lakhs in p.y.

Section 44AD:

Includes Income of any business presumed to be 8% & turnover does not exeed 1cr. In p.y.

Except business covered u/s 44AE/ Agency/ Commission/ Brokerage.

Tax Audit Under Section:

Section 44AE

A tax payer who owns not more than 10 Goods Carriage and is engaged in the business of playing, hiring or leasing of Goods Carriage, his income would be deemed to be Rs.7500 per Goods Carriage per month.

Tax Audit Under Section:

Nature of Business TDS as per 26 AS 269SS & 269T (Loan Repayment) Cash payment above Rs.20,000 Relative Party Payment [40A(2)(b)] Financial Ratio Depreciation Stock

Reporting in Form 3CB-3CD

Tax audit shall comprise of verification of all records, documents, books of account including electronic records.

It includes physical verification of stock in trade , collection of sample of goods and examination of such other records and documents.

Scope of income tax audit

It includes the computation of input tax credit ,admissible calculation of tax charged and determined the actual tax liability payable by dealer.

It includes the vouching of all the books of accounts .

Role of tax auditor restricted to provide information relating to facts of the matter

Tax auditor will not express an opinion on the issues emanating from difference of opinion between tax department and taxpayer

Audit of withholding tax compliances OUTSIDE the scope of tax audit except to the extent transactions verified on test basis

Limitations of Tax Audit

Role of tax auditor shall stand completed with the submission of final audit report. Tax auditor would not be required to be present in person or furnish any information during adjudication / appeal or any other proceedings subsequent to submission of final audit report

Tax Department shall issue an order either accepting or altering the tax return. Tax Auditor shall not be responsible for the content of the order (except to the extent of audit report)

Tax audit to be performed on test basis hence the tax auditor would not be expected to uncover all cases of tax concealment or evasion

ICAI has no role in selection and appointment of tax auditors.

ICAI has no role in selection of taxpayers for tax audit.

ICAI will provide assistance on technical matters for implementation of Tax Audit Framework.

ICAI will carry out investigation of any misconduct by its member.

Role of ICAI in Tax Audit

Transparency and fairness in selection of tax payer and tax auditor.

Ownership by Stakeholder. Integrity , Independence and

Professionalism in tax audit. Continuity of Process – eg. Change in

leadership. Improvement of TAF Potential Litigation and Training.

Challenges faced by Tax Auditor

Questions??

Thank You !!