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Tax Audit Under Income tax

Tax Audit Under Income Tax Act

There are various kinds of audit being conducted under different laws such as company audit/statutory audit conducted under company law provisions, cost audit, stock audit etc. Similarly, Income tax law also mandates an audit called ‘Tax Audit’.

Tax audit is an Examination, inspection, verification and review of accounts of the business /profession from Income tax viewpoint such as income, deductions, compliance with income tax law.

Section 44AB states that any person carrying out business / Profession is required to get his accounts audited as per provisions of the Income Tax Act, 1961.

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.This is applicable if the taxpayer’s gross receipts from bossiness or profession exceeds prescribed limit.

As per section 44AB of Income Tax act 1961, every person shall get his books audited by a chartered accountant if his gross receipts in the previous year exceeds

1. In case of person carrying on business – Turnover exceeds Rs 1 crore

2. In case of person carrying on profession – Gross receipts exceeds Rs 50 lakhs

3. Person carrying on business or profession under section 44AD, 44ADA, 44AE claims income lower than limits specified under respective sections.

As per rule 6G, tax audit report shall be furnished by  Practicing chartered accountant in form 3CA and form 3CB. Other particulars to be disclosed in form 3CD.

1. Form 3CA and Form 3CD – These form are used when books of accounts are audited under any other law

2. Form 3CB and form 3CD – These form are used when books of accounts are not audited under any other law.

The auditing of accounts, as well as the submission of reports must be completed on or before the 30th of September of the particular year.

Non-Compliance with the provisions of the above act shall attract Penalty under section 271B of the Income Tax Act.

If any taxpayer who is required to get his accounts audited under Income Tax Act, 1961 fails to do so before the due date of furnishing of Tax Audit report, lower of 0.5% of total sales, turnover or gross receipts up to a maximum of Rs 150,000/-  may be levied as penalty.

However, the penalty shall be relaxed if there is a reasonable cause for such failure, as per Section 273B. The examples of instances which have been accepted as “Reasonable Cause” are:-

  1. Resignation of the Tax Auditor and Consequent Delay
  2. Death or physical inability of the partner in charge of the Accounts
  3. Labor Problems such as strikes, lock-outs for a long period
  4. Loss of Accounts because of Fire/Theft etc. beyond the control of the Assesses
  5. Natural Calamities