Audit

Question 1

When can CIR call for records for audit? (3)

Answer 1

1. CIR may call for any record/documents, including - books of accounts maintainted
   - under any ordinance or law in force
   - for conducting audit of income tax affairs of the person
2. Where records/documents kept in electronic data
   - person shall allow access to CIR/officer authorized by him
   - for use of machine and software
   - on which such data is kept
   - CIR/officer may access the required information
3. CIR shall not call for records/documents of taxpayer after EXPIRY OF 6 YEARS FROM END OF TY to which they relate.

Question 2

How can CIR conduct audit? (3)

Answer 2

1. CIR may conduct audit proceedings:
   - electronically through video links
   - any other facility as prescribed by the Board
2. Audit on basis of sectorial benchmark ratios prescribed by Board
3. CIR may determine taxable income on basis of sectorial benchmark ratios prescribed by Board.

OR

4. Board may appoint a firm of CAs/CMAs to conduct audit of any person/class of persons and scope of audit will be determined by Board/CIR
5. Board may appoint as many audit panels as necessary (scope of audit will be determined by Board/CIR)

Question 3

When are sectorial benchmark ratios used by CIR in audit? (4)

Answer 3

Where taxpayer:

1. has not furnished record/documents including books of accounts
2. has furnished incomplete records/ books of accounts
3. is unable to provide sufficient explanation regarding record/documents including books of accounts
4. it has been construed that taxable income has not been correctly declared

Question 4

What are “Sectorial benchmark ratios” (4+7)

Answer 4

• Standard business ratios
• notified by the board
• on the basis of comparative cases
• and includes:
  
  • financial ratios
  • production ratios
  • gross profit ratios
  • net profit ratio
  • recovery ratio
  • wastage ratio
  • such other ratios in respect of such sector as prescribed

Question 5

What happens after completion of audit?

Answer 5

1. CIR may (if necessary) after tp’s explanation, issue an audit report containing audit observations and findings
2. After audit report, CIR may (if necessary) amend the assessment after providing opp. of being heard to tp
3. Person can also be audited again in next and following years if reasonable grounds

Question 6

Specify the members of a Special audit panel (4+1+1)

Answer 6

The panel comprises of any two or more of members from

1. officer of Inland revenue
2. firm of CA
3. firm of CMA
4. any other person as directed by the board

HEADED BY:
OFFICER OF INLAND REVENUE

• board may prescribe mode & manner of constitution, procedure working of such special audit panel