TAX AUDIT

The dictionary meaning of the term "audit" is check, review, inspection, etc. There are various types of audits prescribed under different laws like company law requires a company audit, cost accounting law requires a cost audit, etc. The Income-tax Law requires the taxpayer to get the audit of the accounts of his business/profession from the viewpoint of Income-tax Law.

• Section 44AB gives the provisions relating to the class of taxpayers who are required to get their accounts audited from a chartered accountant. The audit under section 44AB aims to ascertain the compliance of various provisions of the Income-tax Law and the fulfillment of other requirements of the Income-tax Law. The audit conducted by the chartered accountant of the accounts of the taxpayer in pursuance of the requirement of section 44AB​ is called tax audit.

• The chartered accountant conducting the tax audit is required to give his findings, observation, etc., in the form of audit report. The report of tax audit is to be given by the chartered accountant in Form Nos. 3CA/3CB and ​3CD.  

As per section 44AB, following persons are compulsorily required to get their accounts audited i.e Income TAX AUDIT is compulsory in following cases:

• A person carrying on business, if his total sales, turnover or gross receipts (as the case may be) in business for the year exceed or exceeds Rs. 1 crore. This provision is​ not applicable to the person, who opts for presumptive taxation scheme under section 44AD​ and his total sales or turnover doesn't exceed Rs. 2 crores.
• Note: The threshold limit, for a person carrying on business, is increased from Rs. 1 Crore to Rs. 10 crores in case when cash receipt and payment made during the year do not exceed 5% of total receipt or payment, as the case may be. In other words, more than 95% of business transactions should be done through banking channels.
• A person carrying on profession, if his gross receipts in profession for the year exceed Rs. 50 lakhs. 
• An assessee who declare profit for any previous year in accordance with section 44AD​ and he decreases profit for any of one 5 assessment year relevant to the previous year succeeding such previous year lower than the profit computed as per section 44AD​ ​ and his income exceeds the amount which is not chargeable to tax.
• ​If an eligible assessee opts out of the presumptive taxation scheme, within the aforesaid period, he cannot choose to revert back to the presumptive taxation scheme for a period of five assessment years thereafter.
• (*) For provisions of section 44AD​ refer tutorial on “Tax on presumptive basis in case of certain eligible business”.
• A person who is eligible to opt for the presumptive taxation scheme of section 44ADA (*) but he claims the profits or gains for such profession to be lower than the profit and gains computed as per the presumptive taxation scheme and his income exceeds the amount which is not chargeable to tax.
• This provision does not apply to the person, who opts for presumptive taxation scheme under section 44AD/44ADA​
• (*) For provision of section 44ADA​, refer tutorial on “Tax on presumptive basis in case of certain eligible business”
• • A person who is eligible to opt for the presumptive taxation scheme of sections 44AE (*) but he claims the profits or gains for such business to be lower than the profits and gains computed as per the presumptive taxation scheme of sections 44AE.
• (*) For provisions of sections 44AE refer tutorial on “Tax on presumptive basis in case of certain eligible business”.
• • A person who is eligible to opt for the taxation scheme prescribed under section 44BB (*) or section 44BBB (*) but he claims the profits or gains for such business to be lower than the profits and gains computed as per the taxation scheme of these sections.
• (*) section 44BB is applicable to non-resident taxpayers engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire basis to be used in exploration of mineral oils. section 44BBB​ is applicable to foreign companies engaged in the business of civil construction or erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project.
   

  What is the penalty for not getting the accounts audited as required by section 44AB?

​​According to section 271B, if any person who is required to comply with section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB of income tax act or furnish such report as required under  section 44AB​, the Assessing Officer may impose a penalty. The penalty shall be lower of the following amounts:

1. (a) 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such year or years. 
2. (b) Rs. 1,50,000.
3. However, according to section 271B​, no penalty shall be imposed if reasonable cause for such failure is proved.