Tax Audit
An income tax audit is the examination of a business or individual tax return by the Internal Revenue Service (IRS) or state tax authority. The IRS and various state revenue departments use the terms audit, examination, review, and notice to describe various aspects of enforcement and administration of the tax laws.
Objectives:-
Tax audit is conducted to achieve the following objectives:
- Ensure proper maintenance and correctness of books of accounts and certification of the same by a tax auditor
- Reporting observations/discrepancies noted by tax auditor after a methodical examination of the books of account
- To report prescribed information such as tax depreciation, compliance with various provisions of income tax law, etc.
All these enable tax authorities in verifying the correctness of income tax returns filed by the taxpayer. Calculation and verification of total income, claim for deductions, etc., also becomes easier.
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?
In such cases, the taxpayer need not get his accounts audited again for income tax purposes. It is acceptable if accounts are audited under such other law before the due date of filing the return. The taxpayer can furnish this prescribed audit report under Income tax law.
What constitutes an 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 Form No.3CAis 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 aforementioned audit reports, the tax auditor must furnish the prescribed particulars in Form No. 3CD, which forms part of the audit report.
How and when tax audit reports shall be furnished?
The tax auditor shall furnish a tax audit report online by using his login details in the capacity of ‘Chartered Accountant’. Taxpayers shall also add CA details in their login portal.
Once the tax auditor uploads the audit report, the same should either be accepted/rejected by the 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.
You must file the tax audit report on or before the due date of filing the return of income. It is 30th November of the subsequent year in case the taxpayer has entered into an international transaction and 30 September (extended to 30th November for AY 2021-22) of the subsequent year for other taxpayers.
The penalty of non-filing or delay in filing tax audit report
If any taxpayer is required to get the tax audit done but fails to do so, the least of the following may be levied as a penalty:
- 0.5% of the total sales, turnover, or gross receipts
- Rs 1,50,000
However, if there is a reasonable cause of such failure, no penalty shall be levied under section 271B.
So far, the reasonable causes that are accepted by Tribunals/Courts are:
- Natural Calamities
- Resignation of the Tax Auditor and Consequent Delay
- Labor problems such as strikes, lock-outs for an extended period
- Loss of Accounts because of situations beyond the control of the Assesses
- Physical inability or death of the partner in charge of the accounts