Income Tax Audit under Section 44AB – Criteria, Audit Report, Penalty

Before understanding what a tax audit is, let’s talk about the meaning of the term “audit“. The term “audit” means an official examination of the institution’s accounts and the production of the report, usually by an independent body/review or systematic evaluation of something.

Objectives of the tax audit

Tax audits are carried out to:

• Ensure proper maintenance and correctness of the books of accounts and certificates by the tax auditor
• Report the observations/inconsistencies noted by the tax auditor after systematic examination of the books of account
• Reporting specific information such as tax depreciation, compliance with various provisions of the Income Tax Law and others. This, in turn, can also provide tax authorities time to verify the income tax return provided by the taxpayer such as gross income and claim. For deductions etc

Who is subject to tax review?

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What is the audit report?

The tax assessor must submit his report in a specific form which can be either Form 3CA or Form 3CB where:

• Form 3CA is eligible when a person engaged in a business or profession has already been charged with auditing his accounts under any other law.
• Form 3CB is submitted when the person conducting a profession or profession is not required to audit under any other law

In the case of any of the above audit report, the tax auditor is also required to provide the details specified in Form 3CD which forms part of the audit report.

How and when is the tax audit report submitted?

The tax assessor must submit an online tax audit report using his / her login details as a “Chartered Accountant”. The taxpayer must add CA details in their login portal. Once the audit report is downloaded by the tax assessor, the same amount must be accepted or rejected by the taxpayers in their login portal. If it is rejected for any reason, all procedures must be followed again until the audit report is accepted by the taxpayer.

A tax audit report must be submitted on or before the due date of the income return on November 30 of the following year if the taxpayer enters into an international transaction and 30 September of the following year in the case of other taxpayers.

Consequences of non-compliance

If any taxpayer is required to perform a tax audit but fails to do so, 0.5% of total sales, turnover, total receipts, or 150,000 rupees may be imposed as a fine. However, if a reasonable reason for non-compliance is established, no penalty will be imposed.

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