Eligibility, appointment, acceptance, responsibility, communication and no objection from previous auditor and change of tax auditor

[Tax Audit Report]

The term "accountant" has been defined in sub-clause (i) of Explanation to section 44AB as under

"accountant" shall have the same meaning as in the Explanation below sub-section (2) of section 288".
The above-mentioned Explanation reads as under
Accountant' means a chartered accountant within the meaning of Chartered Accountants Act, 1949 (38 of 1949) and includes, in relation to any State, any person, who by virtue of the provisions of sub-section (2) of section 226 of the Companies Act, 1956 (1 of 1956), is entitled to be appointed to act as an tax auditor of companies registered in that State."
The proviso to section 44AB also lays down that where the accounts of an assessee are required to be audited by or under any other law, it shall be sufficient compliance with the provisions of this section, if such person gets the accounts of such business or profession audited under such other law before the specified date and furnishes by that date the report of the audit as required under section 44AB.

in the case of any assessee like a co-operative society where the accounts under the relevant law are allowed to be audited by a person other than a chartered accountant, the tax audit may also be conducted by the statutory auditor who may not be a chartered accountant. BUT

After the amendment of section 44AB by the Finance Act, 2001, tax audit under section 44AB can be conducted by an ‘accountant’ only. Therefore, if in case of any assessee like a co-operative society where accounts under the relevant law have been audited by a person other than an accountant (i.e. a CA), the tax audit under section 44AB will have to be conducted by an ‘accountant’(CA) as defined in section 44AB. To put it differently, in such a case, Form No. 3CD should be got certified by an ‘accountant’(CA). The auditor appointed under the relevant law who is not a CA is not eligible to certify Form No. 3CD. [Para 9.1 of ICAI’s Guidance Note on Tax Audit under section 44AB of the Income-tax Act, 1961 (Revised 2005 edition) hereinafter referred to as to “ICAI’s Guidance Note on Tax Audit”]

[Tax Audit Report]

There is a recognised practice under the Act that the audit can also be done by a firm of chartered accountants.

In such a case, it would be necessary to state the name of the partner who has signed the audit report on behalf of the firm.

The member signing the report should give his membership number below his name whether he is signing as a partner of a firm or in his individual capacity.

[GJAFCA]

A question may arise whether a tax auditor appointed under section 44AB can be held responsible if he does not complete the audit and give his audit report before the specified date. Answer to this question will depend on the facts and circumstances of the case. Normally, it is the professional duty of the chartered accountant to ensure that the audit accepted by him is completed before the due date. If there is any unreasonable delay on his part, he is answerable to the Institute if the complaint is made by the client. However, if the delay in the completion of audit is attributable to his client, the tax auditor cannot be held responsible. In view of the fact that section 44AB does not give any discretion to the tax authorities to extend the time limit for completion of audit, the audit has to be completed within the time limit provided in this section. It is, therefore, necessary that no chartered accountant should accept audit assignments which he cannot complete within the above time frame.

[GJAFCA]

Section 44AB does not stipulate that only the statutory auditor appointed under the Companies Act or other similar statute should perform the tax audit. The tax audit can, therefore, be conducted either by the statutory auditor or by any other chartered accountant in practice

[GJAFCA]

A question may arise in the case of a public sector company or any other company where the statutory auditor has not been appointed by the authorities concerned as to whether the tax auditor appointed under section 44AB can complete his audit without waiting for statutory audit report on the accounts audited by the statutory auditors. It may be noted that Form No. 3CA requires the tax auditor to enclose a copy of the audit report conducted by the statutory auditor or the auditor of the financial statements as the case may be. Where a statutory auditor has not been appointed by the authorities concerned or where the report of the statutory auditor is not available for whatever reasons, it will be possible for the tax auditor to give his report in Form No. 3CB and to certify the relevant particulars in Form No.3CD.

Similar approach is also adopted in the case of assessee following accounting year other than financial year more particularly in the case of foreign companies or subsidiary of foreign companies who has to follow english calender year as its accounting year.

[GJAFCA]

The tax auditor should obtain from the assessee a letter of appointment for conducting the audit as mentioned in section 44AB. It is advisable that such an appointment letter should be signed by the person competent to sign the return of income in terms of the provisions of section 140 of the Income Tax Act, 1961. The tax auditor should get the statement of particulars, as required in the annexure to the audit report, authenticated by the assessee before he proceeds to verify the same.

The tax auditor is required to submit his report to the person appointing him.

[GJAFCA]

The appointment of the auditor for tax audit in the case of a company need not be made at the general meeting of the members. It can be made by the Board of Directors or even by any officer, if so authorized by the Board in this behalf. The appointment in the case of a firm or a proprietary concern can be made by a partner or the proprietor or a person authorised by the assessee.

[GJAFCA]

It is possible for the assessee to appoint two or more chartered accountants as joint auditors for carrying out the tax audit, in which case, the audit report will have to be signed by all the chartered accountants.

[GJAFCA]

In case of difference in the opinion of joint tax auditors, each tax auditor may issue separate audit report.

[GJAFCA]

The position of a tax auditor for conducting audit under section 44AB will be considered as an office of profit. Therefore, the provisions of section 314 of the Companies Act, 1956 will be attracted when a relative of a director is appointed as a tax auditor of the company, if the remuneration thereof exceeds the limits prescribed in the aforesaid section. The necessary formalities will be required to be complied withas required under section 314.