Section 44AB

Compulsory tax audit

Kachha and Pucca Arhatiyas - So far as kachha arhatiyas are concerned, the turnover does not include the sales effected on behalf of the principals and only the gross commission has to be considered for the purpose of section 44AB. In the case of agents of the type of pucca arhatiya, on the other hand, the total sales/turnover of the business should be taken into consideration for determining the applicability of the provisions of section 44AB.—Circular : No. 452 [F. No. 201/3/85-IT(A-II)], dated 17-3-1986.

Period to be covered by auditor - In relation to the question as to whether, under section 44AB the tax auditor can audit and certify the accounts for the period for which accounts have been maintained under the Companies Act (i.e., in this case the calendar year) or whether the tax auditor will have to certify the accounts for the relevant financial year which is the uniform accounting year for tax purposes, the Board have considered the matter and are of opinion that as the income of the previous year is chargeable to tax and, for the purpose of Income-tax Act, the previous year is the financial year, the tax auditor would have to carry out the audit under section 44AB in respect  of the period covered by the previous years, i.e., the relevant financial year. The proviso to the aforesaid section 44AB, therefore, covers only the cases where the accounts are audited under any other law in respect of the financial year. Where the accounting year is different from the financial year, the proviso to section 44AB will not apply. Consequently, the tax auditors would have to carry out the tax audit in respect of the period covered by the relevant  financial year and submit his report in Form 3CB as required in rule 6G(1)(b) of the Income-tax Rules.—Circular : No. 561, dated 22-5-1990.

Action on incomplete audit reports - The Government has decided that all cases where the information provided in the audit report is incomplete or such non-committal replies are furnished so as to render the remarks or the report meaningless, should be reported by the Assessing Officer to the Commissioner of Income-tax. The matter thereafter, be taken up by the Commissioner of Income-tax to see if the case reflects any professional negligence on the part of the accountants signing the audit report. Action for initiation of disciplinary proceedings in terms of section 288 of the Income-tax Act should be immediately taken by the Commissioner of Income-tax with the approval of the Chief Commissioner of Income-tax, as the case may be.

The Central Board of Direct Taxes have issued instructions with immediate effect to the field officers to report any professional negligence on the part of the chartered accountants in preparing the tax audit report to the Institute of Chartered Accountants of India in terms of section 288, as the Institute of Chartered Accountants of India is entitled to institute proceedings against its member chartered accountants who submit faulty tax audit reports. - PIB Press Release, New Delhi, dated 10-12-1999.