Income Tax Audit under Section 44AB

Income Tax Audit under Section 44AB- An Introduction

The term ‘Audit’ means an official inspection of an organization’s accounts and production of report, typically by an independent body. It is also referred to as a systematic review or assessment of something. “Tax Audit” as the name suggests is an examination or review of accounts of any business or profession carried out by taxpayers from an income tax point of view. It makes the process of income computation for filing of return of income easier.

Objectives of tax audit

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 of 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.The core objective of an income tax audit is to ensure the taxpayer adheres to the income tax rules and provisions in a financial year. The transactions entered by the taxpayer w.r.t. Receipts, expenses, loan, deductions, etc are as per the provisions. The following are other objectives:

  1. To ascertain/derive/report the requirements of Form Nos. 3CA/3CB and 3CD.
  1. a proper audit for tax purposes would ensure that the books of account and other records are properly maintained
  2. Books of account truly reflect the income of the taxpayer and claims for deduction are correctly made by him
  3. Certification of books of accounts by an auditor
  4. A reporting of the discrepancies/ observations of the tax auditor on examination of books of accounts to the income tax department
  5. A check for fraud and malpractice by the taxpayer while filing income tax returns
  6. Reporting of essential details such as depreciation, loans and advances, deductions, and compliance with provisions of the income tax act. This reporting helps the income tax department in two ways. Firstly, facilitate the administration of tax laws by a proper presentation of accounts before the tax authorities. Secondly, calculation and verification of total income, expenditure, claim of deductions, and so on.
  7. Save the time of Assessing Officers in carrying out routine verifications, like checking the correctness of totals and verifying whether purchases and sales are properly vouched for or not. The time of the Assessing Officers saved could be utilized for attending to more important and investigational aspects of a case.