CBDT notifies SOP on Handling Internal Audit Objections [Read Instructions]

The Central Board of Direct Taxes (CBDT) has notified a new Standard Operating Procedure (SOP) for handling internal audit objections via issuing Instruction No. 2/2024 dated 9th September 2024.

The internal audit mechanism has been established to prevent errors, ensure timely remedy and for enhancing the quality of assessments. The evolving landscape of operations and responsibilities in the Department, especially in the faceless environment, has necessitated that the internal audit procedures be updated to ensure its efficiency while enhancing accountability and promoting compliance with tax laws.

The new SOP replaces earlier instructions, including Instruction No. 6/2017, and is effective immediately, covering both new and pending internal audit objections.

Key Highlights from the Standard Operating Procedures:

Audit Set Up

Internal Audit set-up is under the direct supervision and control of the PCCIT. It comprises PCIT/CIT (Audit), Addi. CIT/ Jt. CIT (Audit), DCIT/ ACIT (Audit), ITO (Audit) or any other officer authorized by the PCCIT or the PCIT /CIT (Audit).

For charges such as International Taxation, Transfer Pricing, Central Charges and the Exemption Wing, the responsibility for Internal Audit will lie with the PCIT /CIT (Audit) reporting to the PCCIT in whose territorial jurisdiction the Auditee Office is located.

Objectives and Scope of Internal Audit

The audit scope includes all items that should have been properly carried out in compliance with applicable legal rules, instructions, circulars, established procedures, and guidelines. It seeks to uncover flaws or omissions and file an ‘objection’ via an Audit Memo. The scope includes ensuring arithmetic accuracy, adhering to judicial pronouncements and precedents, and other pertinent matters. The objection should be well-founded and justified.

The practice of raising an ‘Audit Observation’ is discontinued. Any significant issue noticed, other than audit objection, should be communicated by the auditor to the jurisdictional PCIT /CIT through the PCIT /CIT (Audit).

Target of Auditors

The target of auditors shall be to mandatorily complete the audit of all cases allocated during a financial year by the end of that financial year. The target for rechecking by the PCIT /CIT (Audit) and Addl. CIT/ Jt. CIT (Audit) shall be as mentioned in para 5.1.

Rechecking

The SOP requires that the PCIT and Addl. CIT re-checks audited cases to verify that all potential objections are raised. If any errors are discovered during the re-checking, the cases are returned to the appropriate auditor for additional examination.

Resolution and Remedial Actions

Within 15 days, the PCIT or CIT will review audit objections and determine if they are acceptable. If the concerns are approved, corrective measures, such as changes under Section 263 of the Income Tax Act, must be taken. The SOP specifies timetables for initiating and reporting remedial activities.

Focus on Timeliness and Reporting

The SOP sets rigorous deadlines for considering objections and reporting progress. Monthly reports on pending and resolved audit objections are needed, and the Chief Commissioners of Income Tax (CCIT) conduct quarterly reviews to ensure progress toward audit targets.

Introduction to Ledger Cards

To increase accountability, officers responsible for assessment errors will be assigned ledger cards, ensuring that corrective steps are implemented in response to audit findings.

Use of Technology

The Internal Audit Module of the Income Tax Business Application (ITBA) is used for all audit-related tasks, such as raising, processing, and closing objections. Where ITBA functionality is limited, communication will occur via official designation-based emails.

For Official Instructions Download PDF Given Below: