Important Points Before Making Tax Audit Report

Tax Audit Report

The objective of Tax Audit Report is to assist Income Tax Department is assessing the correct income of the assessee and give information on compliance prescribed under the Income Tax Act. As per section 44AB of the Income Tax Act, 1961, certain persons and professionals are required to get their accounts audited by the Chartered Accountant (CA) and provide a report of such audit in the designated form duly verified and signed by the CA.

Tax Audit Report Points

Tax Audit Report

These persons include the following in Tax Audit Report :

  1. Any person carrying on business and his total sales, turnover or gross receipts exceed Rs. 1 crore in the previous year,
  2. Any person who is carrying on a profession & whose gross receipts exceed Rs. 25 lakhs in the previous year,
  3. Any person carrying on business or profession governed by the provisions of section 44AE, 44BBB or 44BB and has claimed his income to be lower than the presumptive income deemed under the relevant section in the previous year,
  4. Any person who is governed by the provisions of section 44AD & has claimed his income to be lower than the presumptive income deemed under the related section, and his income exceeds the maximum amount which is not liable to income tax in the previous year.

The penalty for non-compliance with the provisions of section 44AB is 0.5% of the gross receipts or total turnover up to a maximum penalty of Rs. 150000.

Tax audit report needs to be furnished in Form 3CA and Form 3CB, while the particulars need to be provided along with these tax reports in Form 3CD.

The due date for getting the books of accounts audited and submitting audit reports is as under:

Form No.

Tax payers

Due date for getting the books of accounts audited

Due date for submitting audit reports

Form 3CA & Form 3CD

Business or profession whose accounts have already been audited under any other law

30th September of the assessment year

30th September of the assessment year

Form 3CB & Form 3CD

Business or profession whose accounts have not been audited earlier

30th September of the assessment year

30th September of the assessment year

Points to be considered in Tax Audit Report

Following points are to be considered for making appropriate disclosures in the relevant clauses of the tax audit report.

  1. Clauses 1-8:
    -Name of the assessee
    -Address of the assessee
    -PAN
    -Applicability of indirect taxes along with registration numbers
    -Status
    -Previous year ended
    -Assessment year
    -Relevant clause of 44AB to be mentioned
  2. Clause 9: Particulars of members/partners & their profit-sharing ratios
  3. Clause 10: Nature of business/profession (nature of every business/profession in case of multiple business/profession)
  4. Clause 11: Books of accounts & relevant documents
  5. Clause 12: Profit assessable on presumptive basis
  6. Clause 13: Method of accounting
  7. Clause 14: Method of valuation of closing stock
  8. Clause 15: Particulars of conversion of capital asset into stock-in-trade
  9. Clause 16: Amounts of income not credited to Profit and Loss A/C
  10. Clause 17: Valuation of property (whether any land or building is transferred for a consideration less than value adopted or assessed or assessable by any authority of a state government)
  11. Clause 18: Particulars of depreciation as per Income Tax Act, 1961 for each block of assets
  12. Clause 19: Amounts admissible U/S 32AC to 35E
  13. Clause 20: Bonus, commission, PF recoveries, etc.
  14. Clause 21:
    Clause 21(a): Amount debited to profit & loss A/C being in the nature of capital, personal & advertisement expenditure
    Clause 21(b): Amounts inadmissible U/S 40(a)
    Clause 21(c): Interest, salary, bonus, etc. to partners
    Clause 21(d): Amounts inadmissible U/S 40A(3)
    Clause 21(e): Amounts inadmissible U/S 40A(7)
    Clause 21(f): Amounts inadmissible U/S 40A(9)
    Clause 21(g): Contingent liabilities
    Clause 21(h): Amount inadmissible U/S 14A
    Clause 21(i): Amount inadmissible U/S 36(1)(iii)
  15. Clause 22: Amount of interest inadmissible U/S 23 of MSME Act, 2006
  16. Clause 23: Payments to specified person U/S 40A(2)(b)
  17. Clause 24: Deemed profits and gains U/S 32AC/33AB/33ABA/33AC
  18. Clause 25: Profits chargeable to tax U/S 41 & computation thereof
  19. Clause 26: Payments U/S 43B
  20. Clause 27:
    Clause 27(a): CENVAT Credit utilized during the PY & treatment in P&L A/C
    Clause 27(b): Prior period income/expenditure
  21. Clause 28: Any property received without consideration or for inadequate consideration U/S 56(2)(viia)
  22. Clause 29: Consideration of the issue of shares which exceeds the fair market value of the shares U/S 56(2)(viib)
  23. Clause 30: Details of amount borrowed on Hundi repaid other than through account payee cheque
  24. Clause 31:
    Clause 31(a): Details of loans/deposits taken or accepted exceeding limit U/S 269SS during the PY
    Clause 31(b): Details of loans/deposits repaid exceeding limits specified U/S 269T during the PY
    Clause 31(c): Examining the books of accounts & relevant documents for the loan taken or the repayment
  25. Clause 32:
    Clause 32(a): Details of Brought forward loss or depreciation allowance
    Clause 32(b): Change in shareholding in a company
    Clause 32(c): Details of speculation loss U/S 73 during the PY
    Clause 32(d): Loss incurred U/S 73A in respect of any specified business during the previous year
    Clause 32(e): Deemed speculation business
  26. Clause 33: Deductions admissible under chapter VI-A or chapter III (Section 10A, Section 10AA)
  27. Clause 34:
    Clause 34(a): Deduction or collection of tax under chapter XVII-B or XVII-BB
    Clause 34(b): Furnishing of statement of tax deducted or collected
    Clause 34(c): Interest U/S 201(1A) or 206C(7)
  28. Clause 35:
    Clause 35(a): Quantitative details of principal goods traded in case of trading concern
    Clause 35(b): Quantitative details of principal items of raw materials, finished goods & by-products in case of manufacturing concern
  29. Clause 36: Details of tax on distributed profits U/S 115-O
  30. Clause 37: Any cost audit carried out
  31. Clause 38: Any audit conducted under the Central Excise Act, 1944
  32. Clause 39: Any audit conducted U/S 72A of Finance Act, 1994 in relation to valuation of taxable services
  33. Clause 40: Details of goods traded/manufactured or services rendered (Calculation of total turnover, GP/Turnover, NP/Turnover, etc.)
  34. Clause 41: Details of demand raised & refund issued during the PY under any of the tax laws (other than Income Tax Act and Wealth Tax Act)

The following items shall not be included while computing the total sales/total turnover/gross receipts.

  • Sale proceeds of fixed assets
  • Sale proceeds of assets held as investments
  • Rental income
  • Income by way of interest unless assessable as business income
  • Any expense which is a nature reimbursement to the agent by the client

Tax Audit Report shall;

  • Use professional skill and expertise
  • Apply GAAP as applicable to other audits
  • Apply techniques of reasonable test audit checks & compliance tests
  • Follow principles of:
    -Maternity
    -Prudence
    -Substance Over Form

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