Basic things to take care while doing Tax Audit

Individuals must verify certain aspects after completing an income tax audit to ensure the accuracy of the audit report. This verification is critical in order to avoid potential penalties imposed by the income tax department due to errors in the report. Furthermore, rehiring an auditor for a reevaluation may be required to correct any errors.

The following are the key points to check after your tax auditor has submitted the income-tax audit report.

Checking for Correct ITR Forms

Taxpayers who are subject to mandatory tax audits should confirm that their auditor has submitted all required forms. For income tax audit purposes, auditors are required to provide a report using Form 3CB, as well as comprehensive details comprised of 44 clauses in Form 3CD.

If the taxpayer’s books are required to be audited under another law (such as the Companies Act, 2013), the auditor will provide a report in Form 3CA, as well as detailed particulars in Form 3CD.

Form 3CD, in essence, serves as a universal form for all individuals required to comply with income tax audits, with Form 3CA or Form 3CB used depending on the taxpayer’s category.

As a result, a person should ensure that the tax auditor has provided the necessary audit forms.

The chartered accountant who performed the audit will sign the audit report with a digital signature certificate (DSC) and provide information about the audit company, such as its name, registration number, PAN, and UDIN.

The UDIN number must be generated using the Institute of Chartered Accountants of India (ICAI) website and then entered into the audit report. Using the UDIN number, an individual can confirm the legitimacy and veracity of the CA who performed the tax audit.

This reduces the possibility of individuals impersonating CA forging signatures on documents in order to deceive authorities.

Timeline for Submitting Income Tax Audit Report

The tax auditor must finish uploading the audit report by September 30. Failure to do so will result in a monetary penalty. This penalty is equal to 0.5% of total sales, turnover, or gross receipts (whichever is applicable) or a maximum of Rs 1,50,000, depending on which is lower.

This penalty will be imposed on the person who was in charge of the tax audit. To facilitate this process, the income tax auditor will use their account on the ITR portal, which will be linked to the individual requiring the audit’s Permanent Account Number (PAN).

Individuals must include the tax auditor as their Chartered Accountant (CA) in their ITR profile on the tax department’s e-filing portal to achieve this. Once this step is completed, the tax auditor will be able to upload the audit report.

Following the upload, the individual can choose to accept or reject the report. It should be noted that the tax audit must be accepted by the individual on or before September 30, prior to the expiration of the due date.

The tax audit report will be available for preview through the individual’s ITR portal account once it has been uploaded. Individuals will typically receive SMS and email notifications informing them that their tax audit report has been submitted.

It is recommended that the individual access their e-filing ITR portal on a regular basis or, at the very least, monitor their SMS and email inbox for notifications regarding the uploaded audit report linked to their PAN.

Comprehensive Document Verification and Disclosure

Individuals should carefully examine the key components of the tax audit report. These details reveal whether the auditor discovered any troubling issues with business operations and income generation.

A tax expert can advise on some of the important elements of the tax audit report that individuals should be aware of:

Verify the auditor’s assessment of the financial statements‘ fairness, as well as a list of any observations they may have made.

Confirm that the auditor examined all relevant records and ledgers, such as vouchers, cash ledgers, buy and sales ledgers, and so on.

Examine whether the auditor has disclosed all relevant information, such as related party transactions, depreciation, prior period revenue and expense, and so on.

Check to see if the auditor provided concise justifications or justifications for any key findings, inconsistencies, exclusions, or other items.

Correct Data in the Income Tax Audit Report

The tax auditor bears primary responsibility for ensuring the accuracy of information in the tax audit report. It has no direct impact on the individual if the tax auditor includes any incorrect details in the tax audit report.

Income tax laws impose a penalty on tax auditors who provide inaccurate information in reports or certificates. Section 271J of the Income Tax Act imposes a penalty of Rs 10,000 for each report or certificate containing incorrect information. Importantly, the individual bears the burden of proof regarding the auditor’s error. Failure to demonstrate the auditor’s error will result in the individual being penalised.