Comprehensive Analysis of Tax Audit

16 Feb 2022 0 Admin Tax4wealth 6474

Comprehensive Analysis of Tax Audit

Introduction:-

The rules of income tax provided that a few taxpayers should get their books of account audited under the provisions of Section 44AB of the Income Tax Act, 1961. From the financial year 2021-22, the threshold limit for a tax audit has been increased from Rs. 1 crore to Rs. 5 crores. Further, with effect from the assessment year 2022-23 the threshold limited again increased to Rs. 10 crores. In case a taxpayer has cash receipts that are limited to 5% of the gross turnover and the cash payments are limited to 5% of the aggregate payment.

What is Tax Audit ?

Tax audit refers to cross-examination of the books of account of a taxpayer in a particular financial year by a Certified Charted Accountant under the provisions of the Income Tax Act, 1961. Section 44AB of the Income Tax Act, 1961 provides the conditions under which tax audit has become compulsory for the taxpayers. The main objective of the tax audit is to verify the authenticity and accuracy of the books of accounts and financial records of the taxpayer in order to avoid any sort of tax evasion and fraud.

Tax Audit Report :-

A Tax Audit Report refers to the document containing the details of findings of the audit conducted in a prescribed audit form as laid by the Income-tax department. A person who is engaged in conducting a tax audit has to provide the tax audit report. Section 44AB of the Income Tax Act, 1961 provides the forms 3CA and 3CB. Apart from these forms, the auditor is also required to provide form 3CD.

Audit Forms:-

The following are the types of forms either of which has to be furnished by the auditor;
(i) Form 3CA
(ii) Form 3CB

Form 3CA:-

With regard to the taxpayer carrying on a profession or business and is already compulsorily required to get his books of accounts audited under any law other than the Income Tax Act, 1961. For example, a company is needed to get its books of account audited mandatorily under the provisions of the Companies Act, 2013 and thus it will furnish Form 3CA accordingly.

Form 3CB:-

With regard to the taxpayer carrying on a profession or business and is already compulsorily not required to get his books of accounts audited under any law other than the Income Tax Act, 1961.

In case of a partnership firm or a sole proprietorship having an annual turnover exceeding Rs. 1 crore and has not opted for a presumptive income scheme, then it is required to get its books of accounts audited under any law other than income tax law. Thus, it will furnish form 3CB.

Particulars of Form 3CA:-

The following are some of the particulars of the Form 3CA:-

Step 1:-

✅ Address and name of the taxpayer along with PAN
✅ Auditor Name ( firm or individual as the case may be)
✅ Name of the law under which books of accounts have been audited (for example Companies Act).
✅ Audit Report Date
✅ Income & Expenditure Account or Period of Profit & Loss Account with starting and ending date
✅ Balance Sheet Date

Step 2:-

✅ A Declaration as attached to Form 3CD and Audit report.

Step 3:-

✅Qualifications and Audit Observations must be provided in the detail related to Form 3CD.

Step 4:-

✅ Date and Place of signing the audit report
✅ Auditor's Name, Address, and Membership Number must be mentioned
✅ Auditor's Stamp or Seal

Particulars of Form 3CB:-

The following are some of the particulars of the Form 3CB;

Step 1:-

✅ Balance Sheet Date
✅ Address and name of the taxpayer along with Permanent Account Number
✅ Income & Expenditure Account or Period of Profit & Loss Account with starting and ending date

Step 2:-

✅ Address of the books of accounts of where it is kept
✅ Branch offices Addresses (in case the books of accounts are also kept in branch offices).

Step 3(a):-

✅ Qualification or Comments or Audit Observations or Discrepancies.

Step 3(b):-

✅ Declaration must be provided by the auditor regarding–
✅ All the information obtained and the explanation provided is necessary for the audit.
✅ Assuring that the company including its branch offices has been maintaining proper books of accounts.
✅ Assuring that the Profit and Loss Account and Balance Sheet are giving a fair and true view.

Step 4:-

✅ A Declaration of attached with Form 3CD and the audit report.

Step 5:-

✅ Audit discrepancies and audit observations noticed or found in details provided in Form 3CD.

Step 6:-

✅ Date and Place of signing the audit report
✅ Auditor's Name, Address, and Membership Number must be mentioned
✅ Auditor's Stamp or Seal

Particulars of Form 3CD:-

Form 3CD is referred to as a detailed statement of particulars having 41 points or steps. All of the details related to the different aspects of the business and its transactions must be filled in the required place. Detailed analysis and explanation in each section or step of Form 3CD can be seen.

Particulars of Form 3CE:-

This form is meant for non-resident taxpayers. The following are some of the particulars of the Form 3CE;

Step 1:-

✅ Address and name of the non-resident taxpayer along with PAN (Permanent Account Number)
✅ Mention the Financial year for which the audit has been conducted

Step 2:-

✅ Declaration regarding the information and explanation obtained during an audit is necessary,

Step 3:-

✅ Certification regarding the aspect of permanent establishment and mentioning the fact that the business fixed place of business in India.

Step 4:-

✅ Declaration of the income earned in the form of royalty or fees for technical services provided under Section 44DA of the Income Tax Act, 1961 for the particular assessment year.

Step 5:-

✅ Name and Signature of the Auditor along with stamp or seal