Tax Audit under Section 44AB of the Income Tax Act

A tax audit is an examination of an organization’s or individual’s tax return to verify that financial information is being reported correctly. Tax Audit is attracted on an Individual or an organisation on fulfilling the required conditions of the Income Tax act.

What are the mandatory conditions to get accounts audited under Income Tax Act

• Business concern (Not opting for Presumptive taxation): If the total sales, turnover or Gross receipts of the previous year relevant to the concerned assessment year exceeds the amount of Rs. 1 Crore.
• Business concern (Opting for Presumptive Taxation u/s 44AD): If the total sales, turnover or Gross receipts of the previous year relevant to the concerned assessment year exceeds the amount of Rs. 2 Crore.
• Business concern (Opting for Presumptive Taxation u/s 44AD): The business concern is required to get its books of account compulsorily audited u/s 44AB if such person claims that the profits and gains from the business are lower than the profits and gains computed in accordance with the provisions of section 44AD(1) and the income exceeds the maximum amount which is not chargeable to tax (i.e basic exemption limit).

For Example: Gross receipts: Rs 1.5 Crore

Profit: Rs. 10,00,000

Profit @8% : Rs 12,00,000

Here, we observe that profit is more than the maximum limit not chargeable to tax and below the profit and gains computed in accordance with the provision of section 44AD. Therefore, in the case of business concern opting to pay tax on Profit of Rs. 10,00,000; it is compulsory to conduct tax Audit.

• Business concern (Opting for Presumptive Taxation u/s 44AE, 44BB, 44BBB): The business concern is required to get its books of account compulsorily audited u/s 44AB if such person claims that the profits and gains from the business are lower than the profits and gains computed in accordance with the provisions of section 44AE, 44BB, 44BBB and the income exceeds the maximum amount which is not changeable to tax (i.e basic exemption limit).
• Carrying Profession: If the Gross receipts exceed 50 Lakhs.
• Carrying Profession (Opting for Presumptive taxation): The concern is required to get its books of account compulsorily audited u/s 44AB if such person claims that the profits and gains from the business are lower than the profits and gains computed in accordance with the provisions of section 44AD (1) and the income exceeds the maximum amount which is not changeable to tax (i.e. basic exemption limit).

Who is eligible to conduct Tax audit

Chartered Accountants are eligible to conduct tax audit

Forms for Income tax Audit

Form No. 3CA, Form No. 3CD: For person who carry business or profession and who are required by or under any law to get their accounts audited.

Form No. 3CB and 3CD: For person who carries on business or profession but not being a person referred above.

When a person is required to get his accounts audited under any other law (for ex. Statutory audit of companies under company law provisions)

It may be noted that in such cases taxpayer need not get his accounts audited again for income tax law purpose. It is sufficient if accounts are audited under such other law before the due date of filing the return and prescribed audit report is furnished.

How and when tax audit report shall be furnished

Tax auditor shall furnish tax audit report online by using his login details in the capacity of chartered accountant. Taxpayer shall also add CA details in their login portal. Once audit report is uploaded by tax auditor, same should either be accepted/rejected by taxpayer in their login portal. If rejected for any reason, all the procedures need to be followed again till the audit report is accepted by the taxpayer.

Tax audit report shall be filed on or before the due date of filing the return of income i.e., 30 November of the subsequent year in case taxpayer has entered into an international transaction and 30 September of the subsequent year in case of other taxpayers.

Revision of Audit Report under Section 44AB

In general it is not possible to conduct a revision of a tax audit report that has already been filed under this section. However, a revision can only take place if an amendment in the income tax law allows it. The audit report can then be revised by an authorised auditor, and a reason for the revision of the same must be stated.

Penalty under section 271B

If any person fails to get his accounts audited as required under the provisions of section 44AB before the due date u/s 139(1), then AO may impose penalty which may be a sum equal to one-half percent of the total sales, turnover or gross receipts subject to a maximum of Rs. 1.5 Lakh.
If the assessee gets his accounts audited u/s 44AB and furnish the said report as required, then penalty u/s 271B shall not be levied if though the return of income is filed after the due date specified u/s 139(1).

However there is no penalty if there is reasonable cause for such failure. Some of the accepted causes are:

• Resignation of tax auditor
• Death of partner in charge of accounts
• Strikes, lockouts for a long period
• Loss of accounts on cause of fire or theft
• Other Natural calamities