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.

• In other words, “A tax audit is an examination of an 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

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

• 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.

Scope of Auditor’s role under income 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

–

• 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

of a case.

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. Section 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 in respect 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 , no penalty shall be 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