Tax Audit

Tax audits are conducted with a few predetermined objectives which are as follows:

• To ensure total maintenance and correctness of records of tax accounts of the party along with the approval on the same by the auditor.
• To report important information such as tax shrinkage, agreement of various provisions of income tax law, and so on.
• To report the observations or discrepancies caught by tax auditor after a methodical examination of the records of account
• To enable tax officials ensure the accuracy of income tax returns filed by the firm or business.
• To estimate and verify the total income and ease the claim for deductions.

The Chartered Accountant who has been selected to conduct a tax audit of an individual or a firm has to report online for tax audit, using his/her valid login credentials.

The taxpayer also has to specify the details about the Chartered Accountant, appointed by him/her, in their login platform.

Once the tax audit report is uploaded by the auditor i.e. the CA, it has to be either received or declined by the taxpayer on their login portal. If the taxpayer declines the tax audit papers, the complete process has to be revised until the tax audit report is confirmed by him/her.

The tax audit record has to be filed on or before the pre-stated date of filing income return i.e. 30th November of the subsequent evaluation year for taxpayers who have engaged in international business and 30th September of the subsequent evaluation year for other taxpayers.

The following points should be noted by the taxpayers while tax audit:

• If the taxpayer is engaged in more than one business and the total turnover of all the businesses is more than 1 crore, he/she is liable to get his/her accounts audited.
• If the taxpayer is engaged in practicing more than one profession and the gross receipts from all the professions surpasses the limit of 50 lakhs, he/she is liable to get his/her accounts audited.
• If the taxpayer is engaged in carrying out a business as well as practicing a profession, then tax audit does not rely on the summed up turnover from both. If the business turnover is more than one crore then an audit is mandatory for the business accounts and if the gross receipts from the profession are above 50 lakhs then an audit of the profession accounts is mandatory. However, if the business turnover is 90 lakhs and gross receipt from profession is 40 lakhs, no audit of either of the accounts is mandatory.
• If the turnover of a business or profession is less than one crore or 50 lakhs, but there is a sale of fixed assets like vehicles or immovable property, the gain from the sale of assets will not be treated as business or professional gain and will remain excluded from total turnover or gross receipts of business or profession.
• Tax audit reports are irreversible. However, in case the accounts have been revised after due acceptance at the AGM due to amendment in law or interpretation of law, the filed audit report can be changed.

Forms Required for Tax audit:

Form 3CB: For tax audit reports prescribed u/s 44AB of the IT Act, 1961,
Form 3CD: To report Form 3CB and the specified details
Form 3CA and Form 3CD: Form 3CA is the appropriate form when a taxpayer wants to get the accounts audited under any law except u/s 44AB, the prescribed information needs to be reported in the Form 3CD.

Penalty for non-adherence to Tax audit:

In the next step, the auditor will verify the Financial Statements of auditee and verify it on sample basis. The important thing under any audit is to make sample, it is called sample audit.If any taxpayer who is required to get the tax audit performed but fails to do so, the least of the following may be levied as a punishment:

1. 5% of the total sales
2. 5% of the turnover
3. 5% of gross receipts
4. Rs 1,50,000

Waiver in Penalty for non-adherence to Tax audit

A penalty is waived only when a taxpayer is capable of showing a reasonable cause for non-compliance.

• Delay caused due to the withdrawal by the tax auditor
• Delay caused due to loss or physical disability of the partner liable for accounts
• Delay caused out of labor concerns such as sit-ins or lock-outs
• Delay caused due to loss of accounts because of robbery or attack, or events that are not under the assesses control
• Natural disasters