Tax Audit Under Section 44AB

Table of Contents

1. What is a Tax Audit?
2. Different objectives of tax audit
3. Section 44AB of the Income Tax Act, 1961
4. Tax Audit Under Section 44AB
5. Tax Audit Due Date
6. Extension of Due Date for Tax Audit
7. Applicability of tax audit
8. Role of Tax Audit report
9. Accounts audited under any other law

1. What is Tax Audit?

Tax audit is a process of verifying the books of accounts prepared by a taxpayer as per accounting principles and the provisions of the Income-tax Act.

It is intended to ensure that the books of account and other records are properly maintained and correctly compute the taxpayer’s actual income.

The tax audit does not give the assessee immunity from scrutiny assessment or disallowance of expenses. A tax audit can be conducted only by a Chartered Accountant in practice.

2. Different objective of Tax Audit

The Finance Minister’s speech presenting the Union Budget for 1984-85 explains the rationale for introducing the requirement of tax audit as

“intended to ensure that the books of account and other records are properly maintained and faithfully reflect the true income of the taxpayer.

The main objective of a tax audit is as follows:

• • A proper tax audit ensures that the books of account and other records are properly maintained, that they truly reflect the income of the taxpayer, and that claims for deduction are correctly made by him.
  • The purpose of a tax audit is to ensure that the taxpayer has maintained proper books of account and complied with the provisions of the Income-tax Act.
  • Form No. 3CA/3CB is a format of audit report, whereas Form 3CD is a Statement of particulars required to be furnished under Section 44AB
  • One of the objectives of a tax audit is to ascertain and report the requirements of Form Nos. 3CA/3CB and 3CD.

3. Section 44AB of the Income Tax Act, 1961

Section 44AB of the Income-tax Act, 1961 contains the provisions for the tax audit of an entity. As per these provisions, a tax audit shall be conducted by a Chartered Accountant who ensures that the taxpayers have maintained proper books of account and complied with the provisions of the Income-tax Act.

Tax Audit conducted by a Chartered Accountant is reported to the Income-tax department in Form no. 3CA/3CB and Form no. 3CD along with the income tax return.

4. Tax Audit under section 44AB?

While preparing the books of accounts of the business or profession for the purpose of income tax filing, the assessee has to comply with the provisions of Income-tax Act, 1961 particularly from section 28 to section 44DB.

The provisions in these sections deal with the income from business or profession which is chargeable to tax, how much incomes are computed, chargeability, various allowances or disallowances and the rate of depreciation on the various assets held by the assessee, deduction for making investments, deductions for making donations, treatment and tax compliances on borrowed capital, treatment and tax incidence on bad debts, statutory funds, accounting methods etc.

Having regard to these provisions, the process of return processing by the Income-tax department becomes a cumbersome and time-consuming task. So, to help and assist the assessing officer in the computation of assessee’s total income in accordance with the tax laws, an audit under section 44AB of Income-tax Act, 1961 is required. Further, a Tax audit is also required to ensure proper maintenance of books of accounts in accordance with the provisions of tax laws and to ensure that tax liability has been discharged on time and there is no concealment of income by the assessee.

5. Due Date For Tax Audit Under Section 44AB

For the Assessment Year 2022-23, the due date for furnishing of tax audit report would be as under:

6. Extension of Due Date for Tax Audit

There was no extension in the due date for filing of the Income Tax Returns (ITRs) in non-audit cases. The new e-filing portal of the Income-tax Dept., despite heavy loads, refused to crash. The Income-tax Dept. vide Press Release, dated 01-08-2022, also expressed its gratitude to taxpayers and tax professionals for making compliances in the time leading to a surge in filing of ITRs resulting in a new record of ITRs filed on a single day.

The due date for furnishing the tax audit report for the Assessment Year 2022-23 is 30-09-2022 and 31-10-2022 (Transfer Pricing cases). Thus, considering the non-extension of the due date in the non-audit case, there are very less chances that the due date for furnishing of audit report would be extended by Govt.

7. Applicability of Tax audit

Every person who derives income by way of Business or profession and maintains books of accounts and has not opted for computation of income on presumptive basis under section 44AD, 44ADA or 44AE of the Income-tax Act, 1961 has to get tax audit done provided his income exceeds the prescribed threshold limit.The following person are required to get tax audit done in the given cases.

1. 1. A person carrying on business if the total sales/ turnover exceeds Rs. 1 crore during the previous year relevant to assessment year.
   2. A person carrying on profession if the Gross receipts exceeds Rs. 50 lakhs during the previous year relevant to assessment year.

Also, the person who has opted for computing profits and gains of business on presumptive basis under section 44AD earlier and 5 years have not lapsed since then but the assessee has opted out of such presumptive income and his income exceeds the ceiling for chargeability of income tax, is also required to get tax audit done.

Further where a person has opted for presumptive scheme under section 44ADA and he claims his income lower than the deemed profits and his income exceeds the ceiling for chargeability of income tax, is also required to get tax audit done.

Tax audit is also mandatory for the assessees opting for presumptive scheme under section 44AE, 44BB and 44BBB and claiming income lower than the deemed profits.

However, if the assessee is liable/ required to get his books of accounts audited under any other law (let’s say Statutory audit as per the provisions of Companies Act, 2013), in such a case, he is also required to get tax audit done because When an Act requires a person to get his accounts audited, it does so with an objective. The audit carried out under any Act (e.g., a statutory audit under Companies Act) does not provide the confirmation if provisions of the Income-tax Act have been properly complied with. The Income-tax Authorities need confirmation whether the tax provisions have been properly applied by an assessee, and it can be done only through a tax audit.

8. Role of Tax Audit report

Tax audit doesn’t give the assessee any immunity from scrutiny assessment or disallowance of expenses – Goodyear India Ltd. v. CIT [2000] 112 Taxman 419 (Delhi). Tax audit is not an investigation like a special audit under section 142(2A) – Sahara India (Firm) v. CIT [2008] 169 Taxman 328 (SC).

A tax audit is not a substitute for audits under other sections as may be applicable, but such an audit report helps in checking fraudulent practices. It can also facilitate the administration of tax laws by properly presenting accounts before the tax authorities and considerably save the time of Assessing Officers in carrying out routine verifications, like checking the correctness of totals and verifying whether purchases and sales are properly vouched for or not.

9. Accounts audit under other law

Where assessee is required to get his books of accounts audited under any other law, it is sufficient for him to get his accounts audited under that law and furnish a report of such audit and a report in Form 3CA and 3CD by a chartered accountant by the prescribed due date.

The tax auditor is required to enclose a copy of the statutory audit report with Form 3CA. However, where the statutory auditor has not been appointed or the statutory auditor’s report is unavailable, the tax auditor can give his audit report in Form No. 3CB with Form 3CD. In such a case, the tax auditor will have to conduct a financial audit certifying whether the books of account provide a true and fair view of the state of affairs of the assessee.

Dive Deeper:
Tax Audit- Introduction, Applicability and Form 3CD
Introduction & Applicability of Tax Audit | A.Y. 2022-23