Tax Audit 4Ws (Who ,What, Why and When)
What is tax audit?
As the name itself suggests, Tax audit is an examination/review of accounts of the business /profession from income tax viewpoint such as income, deductions, compliance with income tax law etc. Tax audit makes the income computation for filing the return easy.
Objectives of tax audit
Tax audit is conducted to achieve the following:
Ensure proper maintenance and correctness of books of accounts and certification of the same by tax auditor
Reporting of observations/discrepancies noted by tax auditor after a methodical examination of books of account
Reporting prescribed information such as tax depreciation, compliance of various provisions of income tax law etc. This in turn enables and also saves time of tax authorities in verifying the correctness of income tax return filed by the taxpayer such as total income, claim for deductions etc.
Who is subject to tax audit?
What does the above mentioned provisions say?
Section 44BB: Special provision for computing, profits and gains in connection with the business of exploration, etc., of mineral oils.
(1) Notwithstanding, anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten percent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and gains of business or profession":
Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.
(2) The amounts referred to in sub-section (1) shall be the following, namely:—
(a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services, and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and
(b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services facilities connection with, or supply of plant and machinery on hire Used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India.
Explanation,—For the purposes of this section—
(i) "plant" includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said Business;
(ii) "mineral oil" includes petroleum and natural gas.'.
44BBB: Special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects.
Notwithstanding anything to the contrary contained in sections 28 to 44AA, in the case of an assessee, being a foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government in this behalf and financed under any international aid programme, a sum equal to ten per cent, of the amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".
44AD : Special provision for computing profits and gains of business on presumptive basis.
(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee engaged in the business of civil construction or supply of labour for civil construction, a sum equal to eight per cent of the gross receipts paid or payable to the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum as declared by the assessee in his return of income, shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and gains of business or profession:
Provided that nothing contained in this sub-section shall apply in case the aforesaid gross receipts paid or payable exceed an amount of forty lakh rupees.
(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.
Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.
(3) The written down value of any asset used for the purpose of the business referred to in sub-section (1) shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
(4) The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.
(5) Nothing contained in the foregoing provisions of this section shall apply, where the assessee claims and produces evidence to prove that the profits and gains from the aforesaid business during the previous year relevant to the assessment year commencing on the 1st day of April, 1997 or any earlier assessment year, are lower than the profits and gains specified in subsection (1), and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee and determine the sum payable by the assessee on the basis of assessment made under subsection (3) of section 143.
(6) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in sub-section (1), if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.
Explanation: For the purposes of this section, the expression civil construction includes -
(a) the construction or repair of any building, bridge, dam or other structure or of any canal or road;
(b) the execution of any works contract.]
44AE: Special provision for computing profits and gains of business of plying, hiring or leasing goods carriages.
(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee, who owns not more than ten goods carriages at any time during the previous year and who is engaged in the business of plying, hiring or leasing such goods carriages, the income of such business chargeable to tax under the head "Profits and gains of business or profession" shall be deemed to be the aggregate of the profits and gains, from all the goods carriages owned by him in the previous year, computed in accordance with the provisions of sub-section (2).
(2) For the purpose of sub-section (1), the profits and gains from each goods carriage shall be an amount equal to seven thousand five hundred rupees for every month or part of a month during which the goods carriage is owned by the assessee in the previous year or an amount claimed to have been actually earned from the vehicle, whichever is higher.
Following sub-section (2) shall be substituted for the existing sub-section (2) of section 44AE by the Finance Act, 2018, w.e.f. 1-4-2019:
(2) For the purposes of sub-section (1), the profits and gains from each goods carriage,—
(i) being a heavy goods vehicle, shall be an amount equal to one thousand rupees per ton of gross vehicle weight or unladen weight, as the case may be, for every month or part of a month during which the heavy goods vehicle is owned by the assessee in the previous year or an amount claimed to have been actually earned from such vehicle, whichever is higher;
(ii) Other than heavy goods vehicle, shall be an amount equal to seven thousand five hundred rupees for every month or part of a month during which the goods carriage is owned by the assessee in the previous year or an amount claimed to have been actually earned from such goods carriage, whichever is higher.
(3) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed:
Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.
(4) The written down value of any asset used for the purpose of the business referred to in sub-section (1) shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.
(5) The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.
(6) Nothing contained in the foregoing provisions of this section shall apply, where the assessee claims and produces evidence to prove that the profits and gains from the aforesaid business during the previous year relevant to the assessment year commencing on the 1st day of April, 1997 or any earlier assessment year, are lower than the profits and gains specified in sub-sections (1) and (2), and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee and determine the sum payable by the assessee on the basis of assessment made under sub-section (3) of section 143.
(7) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in sub-sections (1) and (2), if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.
Explanation.—For the purposes of this section,—
(a) the expression "goods carriage" shall have 1the meaning assigned to it in section 2 of the Motor Vehicles Act, 1988 (59 of 1988);
Following clauses (a) and (aa) shall be substituted for the existing clause (a) of Explanation to section 44AE by the Finance Act, 2018, w.e.f. 1-4-2019 :
(a) the expressions "goods carriage", "gross vehicle weight" and "unladen weight" shall have the respective meanings assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988);
(aa) the expression "heavy goods vehicle" means any goods carriage, the gross vehicle weight of which exceeds 12000 kilograms;
(b) an assessee, who is in possession of a goods carriage, whether taken on hire purchase or on instalments and for which the whole or part of the amount payable is still due, shall be deemed to be the owner of such goods carriage.
Why:
What happens if a person is required to get his accounts audited under any other law for eg. 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.
What constitutes Audit report?
Tax auditor shall furnish his report in a prescribed form which could be either Form 3CA or Form 3CB where:
Form No. 3CA is furnished when a person carrying on business or profession is already mandated to get his accounts audited under any other law.
Form No. 3CB is furnished when a person carrying on business or profession is not required to get his accounts audited under any other law
In case of either of the audit report mentioned above, tax auditor is also required to furnish the prescribed particulars in Form No. 3CD which forms part of audit report.
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.
Consequences of non-compliance.
If any taxpayer who is required to get tax audit done but fails to do so, lower of 0.5% of total sales, turnover or gross receipts or Rs 150,000 may be levied as penalty. However, if reasonable cause is established for non-compliance, no penalty would be imposed.
When:
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.
P.S: In case of any assistance feel free to contact me. Details already provided.
