Auditing Tax Audit – tryspring

By | July 2, 2019

Auditing – Tax Audit

Tax audit is done by an Auditor on behalf of the Government to
make sure that every provisions of Income Tax has been compiled
by the assesse or not. Practically it is not possible for the
Income Tax department to verify each and every detail of the
assesse.

Tax audit can be conducted by a Chartered Accountant or
any other person who can be appointed as an Auditor u/s 141 of
the Companies Act, 2013.

Mandatory Tax Audit

According to Section(44 AB), provisions relating to Compulsory
Tax Audit are as follows −

  • If the total sales or gross receipts of a business during the
    previous year exceeds Rupees One Crore.

  • If the gross receipt of a profession exceeds Rs. 25 lacs in
    previous year.

  • If the business or profession of a person is covered under
    section 44AD, 44AE, 44B, 44BB, 44BBA and 44BBB and assesse
    claims that his income from said business is less than as
    computed under above said sections.

In all the above cases, audit of accounts is compulsory.

Section 44(AD)

The main features of Section 44AD are as follows −

  • This section is applicable to profit from any business
    whether it is retail trading or civil construction business
    or any other business.

  • The Assesse should be a resident individual of Resident Hindu
    Undivided Family or Resident Partnership Firm.

  • According to Section 44AD income of assesse deemed to be 8%
    of total turnover or gross receipt.

  • If the assesse claims that his income is below 8%, audit of
    his account is compulsory.

  • This section is applicable only in case where gross receipts
    or turnover of the business is less than one Crore.

  • This section does not cover income coming out of any
    profession.

  • Total turnover of all business will be taken into one account
    where assesse carrying more than one business.

  • If the assesse is carrying both business and profession, this
    section will be applicable to his business income only.

  • Turnover of business or gross receipt will cover VAT, Excise
    duty, Cess and other levy, packing sale and freight if not
    shown separately in sale invoice.

  • Turnover or gross receipt of business will be computed
    excluding sale of fixed assets, sale of investments and cash
    or other discounts, packing sale or freight charges if shown
    separately in invoices.

Section 44(AE)

The main features of Section 44(AE) are as follows −

  • This section is applicable to any person engaged in playing,
    leasing or hiring truck.

  • He should not own more than 10 trucks any time during the
    previous year including taken on hire-purchase or Installment
    basis.

  • This section is not applicable to those who operate trucks on
    hire without owning them.

  • His deemed income will be Rs. 5,000/- per month or part of
    the month in case of heavy vehicle and Rs. 4,500/- per month
    or part of the month in case of other than heavy vehicle or
    income as declared by the assesse whichever is higher.

  • If the assesse does not opt for the scheme, he shall get his
    accounts audited.

Section 44(B)

The main features of Section 44(B) are as follows −

  • This section is applicable to profits and gains of a
    non-resident from shipping business.

  • His deemed income will be equal to 7.5% of the aggregate
    amount receipt in India.

  • If the assesse does not opt for this scheme he will have to
    get his account audited.

Section 44(BB)

The main features of Section 44(BB) are as follows −

  • This section is applicable to non-residents whose profits and
    gains of business of oil-exploration.

  • His deemed profit will be equal to 10% of amount payable to
    him in India or outside India.

  • If the assesse does not opt for this scheme he will have to
    get his account audited.

Section 44(BBA)

The main features of Section 44(BBA) are as follows −

  • This section is applicable to non-resident assesse for profit
    and gains of business of operation of air-craft.

  • His deemed profit will be 5% of amount paid or payable to him
    in India or outside India.

  • If the assesse does not opt for this scheme, he will have to
    get his account audited.

Section 44(BBB)

The main features of Section 44BBB are as follows −

  • This section is applicable to profit of foreign company
    engaged in business of civil construction or erection of
    plant and machinery or and commission thereof.

  • His deemed profit will be equal to 10% of amount payable to
    him in India or outside India.

  • If the assesse does not opt for this scheme, he will have to
    get his account audited.

Last Date of Filing of Tax Audit Report

Every assesse is bound to file his Tax Audit Report till
30th September.

Penalty for Non-filling of Tax Audit Report

If any person is required to get his account audited under
Section 44AB but fails to do so before the specified date, he is
liable to pay a penalty equal to 1/2% of Turnover/Gross receipt
subject to maximum Rupees 1,50,000/-.

However, Section 273(B) states that no penalty shall be levied
under section 271(B) if there is a reasonable cause for such
failure.

Appointment of Tax Auditor

Any practicing Chartered Accountant or firm of Chartered
Accountants can conduct Tax Audit. The Board of Directors in case
of Company, Partner of a firm and proprietor of the business can
appoint Tax Auditor.

Removal Tax Auditor

Assesse can remove Tax Auditor on some valid ground only. In
normal case, an Auditor cannot be removed during specified
period.

Ceiling of Tax Audit Assignments

Under Section 44(AB), an Auditor cannot accept more than 60 Tax
audit assignment; otherwise, he will be guilty of professional
misconduct. In case of firm of chartered accountants, the limit
of 60 will be applicable for each individual.

Audit Report

An Auditor gives his opinions through Audit Reports; opinions
such as the following −

  • whether financial statements give true and fair view of
    profit or loss and state of affairs.

  • whether the prescribed particular of statement submitted with
    the report are true and correct.

According to Rule 64 of Income Tax Rule −

  • If accounts of the business are required to be audited under
    any law, then the Auditor has to submit his report in form
    3(CA) first, but for the statement, it has to be in a
    particular form 3(CD).

  • If accounts of business are not required to be audited under
    any law, then the Auditor has to submit his report in form
    3(CB) first, but for the statement, it has to be in a
    particular form 3(CD).

  • If person is occupied in some profession, form 3(CC) is to be
    used for audit report and form 3(CE) for statement of
    particulars.

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