Income Tax--Current Issues

Practice Update

V.K. Subramani

TAX AUDIT UNDER SECTION 44AB

Report of tax audit in Form No. 3CA/3CB along with annexure in Form No.3CD has become a vital function in tax compliance in the case of assessees engaged in business or profession. The CBDT in Circular 5 of 2021 dated 25th March, 2021 has deferred Clause 30C meant for reporting as regards impermissible avoidance agreement entered into by the taxpayer and Clause 44 meant for break-up of total expenditure with entities which are registered or not, under GST law. The reason attributed by the Board for deferring the disclosure requirements is due to the prevailing COVID-19 pandemic across the country.

In the same breath, the CBDT vide Notification in GSR 246(E) dated 01.04.2021 has amended the Income-tax rules whereby the report of tax audit furnished by the assessee which is duly signed and verified by the accountant (refer section 288(2)) could be revised before the end of the relevant assessment year if the report warrants revision due to recalculation of disallowance under section 40 or section 43B.

From the assessment year 2021-22 onwards, the tax audit report has to be furnished one month before the 'due date' prescribed for filing the return of income. In case, the taxpayer remits tax deducted at source or makes payment referred to in section 43B after the report is obtained and filed from the accountant, the subsequent action of the assessee would warrant revision of such tax audit report. To facilitate such compliance with section 40 or section 43B sub-rule (3) to rule 6G is inserted.

Revision of tax audit report is not a solution which could be resorted to by the accountant or the assessee liberally. The tax audit report could be revised in case (i) there is revision of accounts of a company after its adoption in the AGM; (ii) there is retrospective change of law; (iii) change in interpretation of a legal provision due to CBDT circular or court judgments; and (iv) error in uploaded tax audit report due to system or software error warranting a change of report.

Besides the above, Form 3CD in Clause 8A wants the accountant to state whether the assessee has opted for taxation under sections 115BA/115BAA/115BAB/115BAC/ 115BAD. The tax auditor must obtain a clear declaration from the assessee before answering this question. Similarly, disclosure requirements in Clause 17 seeks the tax auditor to state whether second proviso to section 43CA(1) or fourth proviso to section 56(2)(x) is applicable by way of Yes/No. Similarly new and specific disclosure requirements are to be made as per Clauses 18 and 32 of Form 3CD.