Nature & Significance of Tax Audit

The tax audit is a technique through which the facts related to acts of a tax nature are verified and analyzed. It is a method used to inspect both companies and individuals, that is, all those subjects who are taxpayers and have tax obligations for the Public Administration or the State.

Through the fiscal audit, the accounting records, monetary movements, as well as all the documentation that contains information related to the operations carried out by the subject during a determined period of time are analyzed and analyzed (the periods in fiscal terms go from year to year).

The tax audit is a method through which it is analyzed if the taxpayer, whether company or person, fulfills its tax obligations.

The function of the fiscal auditor goes through the verification of the declarations made by the taxpayer before the Public Treasury and the tax payments and determining whether or not everything is in order and according to reality.

Once the auditor has obtained and analyzed sufficient information (whether from a corporate entity or from an individual), he will make an opinion, called an audit report , where, on the one hand, he will detail all the information gathered; On the other hand, there will be a section of comments and opinion of the auditor.

Objectives of Tax Audit of a Company

Next, we highlight the main objectives of the tax audit, focusing especially on the scope of a corporate entity:

• That the balances of the liabilities of the balance correspond to outstanding debts to the Public Treasury at the closing date of the fiscal year
• That the debit balances to the Public Treasury have been valued according to the Accounting Principles and the pertinent fiscal regulations.
• Evaluate that the accounts are correctly classified in the balance sheet, between assets and liabilities.
• Check that, if there are claims raised by the Public Administration that are not resolved at the closing date, they are correctly accounted for.
• Evaluate that the procedures have been carried out in accordance with good faith, ensuring that the established legal regulations have been complied with.

Income Tax Audit in India

There are various laws in India that govern different kinds of audit like income tax audit, stock audit, cost audit, company or statutory audit as per company law, to name a few. Section 44AB of the Income Tax Act, 1961, lays down the provisions for income tax audit.

Income Tax audit, as evident from the name, is aimed at evaluating whether an individual or company has accurately filed the income tax returns of an assessment year. An external agency is mandated to assess returns filed from income, deductions and expenditures and other rules as mentioned by the Income Tax Act, 1961. The tax audit process simplifies the computation of tax returns. The Chartered Accountant of the concerned agency performing the tax audit has to submit Form 3CA or Form 3CB, and Form 3CD, as an audit report comprising of the observations.

Income Tax Audit for companies whose tax audit is not conducted under Section 44AB of the Income Tax Act, 1961

Taxpayers who have to get their accounts audited under any law other than Section 44AB of the Income Tax Act, 1961, (for instance, stock audit or statutory audit) do not have to get their accounts audited again for the purpose of income tax audit. In such cases, accounts audited under other laws can be presented as a tax audit report for income tax filing, provided it is submitted before the stipulated due date.

The following are the other sections under Income Tax Act, 1961, which also lay down regulations related to income tax audit in India. These are presumptive taxation schemes, wherein a pre-determined percentage of income is assumed to be the gain or profit meant for taxation.

• Section 44BB: For Non-Resident Indians (NRIs) involved in business specialising in the mineral oils industry, like exploration
• Section 44BBB: International company involved in the business of civil construction etc. in certain power projects
• Section 44AD: Any business except those businesses mentioned under Section 44AE
• Section 44ADA: This section focuses on the regulations regarding income tax audits for eligible professionals
• Section 44AE: Businesses specialising in leasing, hiring and plying of goods carriages

Rules Governing Tax Audit

The following is the procedure for filing tax audit report:

• The Chartered Accountant assigned for conducting tax audit of an individual or an organisation has to present the tax audit report online, using his/her official login credentials.
• The taxpayer also has to mention the relevant information about their Chartered Accountant in their login platform.
• Once the tax audit report is uploaded by the auditor, it has to be either accepted or rejected by the taxpayer on their login portal. If the taxpayer rejects the tax audit report, the entire process has to be repeated until the tax audit report is accepted by him/her.
• Tax audit report has to be filed on or before the pre-determined due date of filing income return, i.e., 30th November of the subsequent assessment year for taxpayers who have engaged in an international transaction and 30th September of the subsequent assessment year for other taxpayers. Rules Governing Tax Audit

The following points are to be noted with regards to Tax Audit:

• If you are involved in more than 1 business, you will be liable to audit your accounts if the total turnover of all your businesses is more than Rs. 1 crore.
• If you operate more than 1 profession, you have to audit your account books in case the gross receipts of all the professions cumulatively cross Rs. 50 lakhs.
• If you run a business as well as a profession, then tax audit is not based on total turnover from both. If your business turnover is more than Rs. 1 crore then an audit is required for the business accounts, and if the gross receipts from your profession is more than Rs. 50 lakhs then an audit of the profession accounts is needed. But if your business turnover is Rs. 90 lakhs and your profession receipts are Rs. 40 lakhs, then no audit is required for either accounts.
• If the turnover of your business or profession is below Rs. 1 crore or Rs. 50 lakhs, but you have sold a fixed asset (such as vehicle or immovable property), the amount you gain from the sale will not be considered as part of your business or professional profits. Sale of the following items are excluded from calculation into total turnover/gross receipts of a businessperson or professional:
• Assets held as investment (e.g. shares, stocks, securities)
• Fixed assets
• Rental income
• Income from interest that is not part of the business income
• Any expense reimbursed by the client
• Once the tax audit report is filed online, it cannot be revised. But if the accounts have been revised – for example, a company account revision after acceptance at the Annual General Meeting, change in law or change in interpretation of law – then the audit report that has been filed can also be changed. The reasons for change in audit report have to be explicitly mentioned while filing the revised report.