Tax Audit under Section 44ab of Income Tax Act

Hello, in this post we will talk about the Tax Audit under Section 44AB of the Income Tax Act.

So, here we will cover the following topics:

What is a Tax Audit?

The meaning of the term “Audit” is check, review, inspect etc. So, there are various kinds of audits conducted under different laws like company audit, cost audit, stock audit, statutory audit, etc.

In the same way, Income Tax law requires an audit called Tax Audit. So, the Income Tax law requires the taxpayer to get their business or profession accounts audited from the viewpoint of Income Tax law.

Objective of the Tax Audit

  • A proper audit for tax purposes would ensure that the books of account and other records are properly maintained.
  • Such an audit would also help in checking fraudulent practices.
  • It can also facilitate the administration of tax laws by a proper presentation of accounts before the tax authorities.
  • It can save the time of Assessing Officers in carrying out routine verifications, like checking the correctness of totals and verification of sales and purchase, etc.

Introduction to Section-44AB

Section 44AB contains the provisions for the Tax Audit of a tax-paying entity. However, tax audit shall be conducted as per these provisions by a Chartered Accountant who ensures that the taxpayers has maintained proper books of account and complied with the provisions of the Income-tax Act.

The report of Tax Audit is to be given by the CA in Form 3CA / 3CB and Form 3CD.

In the case of Tax Audit being done on Non-resident or Foreign company then the report is given in Form 3CE.

If any charitable or religious trust is being audited, then the report of such audit is submitted in Form 10B.

Applicability of Section 44AB

The following taxpayers are mandatorily applicable to perform a Tax Audit with the assistance of a Chartered Accountant:

  • A person or an individual carrying business if the annual gross turnover or gross receipts (as the case may be) in business for the year exceeds Rs. 1 crore.
  • A person carrying on profession, if his / her gross receipts in profession exceed Rs. 50 lakhs during the previous year relevant to the assessment year
  • A person carrying on the business/profession eligible for presumptive taxation u/s 44AD, 44ADA, or 44AE and claims profits or gains lower than the prescribed limit under the presumptive taxation scheme and has income exceeding the maximum amount not chargeable to tax.
  • If the income exceeds the maximum amount not chargeable to tax during the period of assessee becomes ineligible to opt for presumptive taxation scheme u/s 44AD due to opting for presumptive taxation in one tax year and not opting for presumptive tax for any of the subsequent 5 consecutive years.

Who can conduct a Tax Audit u/s 44AB?

A Tax Audit can be conducted by Chartered Accountants who holds a certificate of practice and is in full-time practice. The Tax auditor (CA) carries out a systematic examination of books of account as per the prescribed formats by the department.

What constitutes the Tax Audit Report?

The tax auditor shall furnish the report in a prescribed form which could be Form 3CA, 3CB or 3CE where:

  • Form 3CA is furnished when a person carrying on business or profession is already mandated to get his accounts audited under any other law. This will be applicable for entities like a company where it is also required to be audited under the Companies Act.
  • Form 3CB is furnished when a person carrying on business or profession is not necessary to get his accounts audited under any other law. This will be applicable for entities like individuals where they are not required to be audited under any other act.
  • Form 3CE is furnished where a person is a non-resident or foreign company who receive royalty or technical service fees from the Indian government or any Indian concern.

Also, in case of either of the above-mentioned audit reports, tax auditor must furnish the prescribed particulars in Form 3CD, which forms part of an audit report.

Due date for Tax Audit

Any person covered u/s 44AB should get the accounts audited before the due date of filing the return of income. The due is on or before 30th September of the relevant assessment year.

Penalty u/s 44AB

If a taxpayer falling u/s 44AB fails to get their audit done on or before the due date specified, then they will be liable for a penalty of which may be a sum equal to 0.5% of the turnover or the gross receipts subject to a maximum of Rs. 150,000.

This penalty is applicable under Section 271B of the Income Tax Act.

However, this penalty can be relaxed if there is a reasonable cause for such failure, as per Section 273B. So, the instances have been accepted as “Reasonable Cause” are as below:-

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

This ends the post on Tax Audit u/s 44AB. Also, let us know your opinion by commenting below.