Tax Audit - A glance

By : Karan Teli

These days we all are busy with our tax audits schedules and many of the small firms have their most earnings and survival on tax audits itself.

An attempt is made here in my series “TAX AUDITS” about what exactly is this and what are its importance in today’s world.

To start with basically, what is the guiding section or legislatives which require a person/business to undergo a tax audit?

It’s section 44AB which is the general section and there are few more sections which, by nature and influence, make a business come under tax audit net. It’s the presumptive taxation sections i.e. 44AD, 44AE, 44AF.

Once the audit of such person/business is done then what are its reporting requirements? Form 3CA/3CB and 3CD is given by the person who performs the audit and this are generally called tax audit reports.

Now, how is eligible to do these audits? Unlike the internal audits wherein, the audit can be performed by a CA in practice or a specialised team of management, the tax audits are ONLY to be performed by a practicing Chartered Accountant.

Are there any limits prescribed to the CA's for undertaking the number of tax audits during a year? Yes, a practicing CA can only undertake 45 Tax audits in a year.

It is more evident by ICAI president's statement as "The ceiling on tax audit has been increased from 30 to 45 per chartered accountant/per partner. Each partner can undertake 45 tax audits," Mr Sunil Talati, President of ICAI. (During 2007-08 I believe). 

Let’s go deep into provisions now,

First comes the general section on tax audits which are governed by Section 44AB. What do these provisions say all about?

It provides some figures called Rs.6000, 000/- and 1500, 000/-.

This first figure of Rs. 6000,000/- is applicable to a person who has achieved and crossed it as business turnover and second figure of Rs.1500,000/- is applicable to a person who has rendered services for more than the above said figure. Here it should be clearly understood that the turnover needs to exceed to the specified above mentioned limits. For businesses, not only the turnover is counted, but also the total sales and gross receipts and in case of professions it is gross receipts only.

Now, the word turnover has come into picture. What does turnover means? Does it mean Gross turnover or Net turnover? Does it include VAT, CST, Excise Duty?

A summarized meaning of turnover after considering the guidance note of ICAI says that, the aggregate value for which the sales are effected or services are rendered is to be taken. It includes all the types of taxes applicable on such goods.

But, doesn’t the above two figures sound funny? A newly set up iron trading business would easily achieve this turnover in a year or two. Then what is the intention behind these figures? The governing authorities want almost all the business to come under this tax audit net to avoid all such violations of other taxes and diverting of income.

Are there any time limits to comply with these provisions i.e. to get the books audited and submit and audit report? 30^th September, of every year (unless this date is not officially changed) a golden day.

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