Audit under Different Statute

Audit under Different Statute

As of we all know that every act has its own type of audit like VAT Act has VAT audit, Service Tax Service Tax Audit, Excise act Excise audit, 2000 and income tax act has Tax Audit. These all are tax audits but every audit has different aspects for it and only the audit done u/s44AB of income tax act is known as Tax Audit.

In every statute/ act there are some specific sections which defines the criteria and limit applicable to any entity falls in the preview of that statute/act.  Like income tax act speaks about tax audit of business and profession u/s 44 AB, Excise act also prescribe Audit under it likewise all other statute  VAT ,Service Tax Company Act has specific sections directing an Audit.

1.       Income Tax Audit

2.       Excise Audit

3.       Company Law Audit

4.       VAT Audit

5.       Service Tax Audit

Income Tax Audit Sec.44AB

Income Tax Audit u/s 44AB in common parlance or layman language also known as Tax Audit.

As per section 44AB of the Income Tax Act, 1961 every business and profession has to undertake compulsory tax audit in case turnover from such business exceeds Rs 1 crs for business and in case of profession gross receipt exceeds Rs 25 lakhs from such profession. In case if turnover/receipt is less than given limit assessee can opt for deemed income provision and profit and gain from such business and profession has to be minimum of 8% of such Turnover/Gross Receipt.   

Reference: Section 44AB of the Income Tax Act, 1961

Audit of accounts of certain persons carrying on business or profession

Every person,—carrying on business shall, if his total sales, turnover or gross receipts, as the case

 may be, in business exceed or exceeds 100 lakh ( 1 crore) rupees in any previous year or carrying on profession shall, if his gross receipts in profession exceed twenty five lakh rupees in any previous year; or carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed :

Provided that this section shall not apply to the person, who derives income of the nature referred to in section 44B or section 44BBA, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later:

Provided further that in a case where such person is required by or under any other law to get his accounts audited, 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 law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section.

Explanation.—for the purposes of this section,—

“Accountant” shall have the same meaning as in the Explanation below sub-section (2) of section 288;

“Specified date”, in relation to the accounts of the assessee of the previous year relevant to an assessment year, means the due date for furnishing the return of income under sub-section (1) of section 139

Excise Audit 2000

EA Audit a new system of audit was initiated from 1^st December 1999 by replacing traditional audit system in excise. This system was implemented in case of all assessees paying cash duty of over Rs.5 crores per annum. In September 2000, the Central Board of Excise and Customs made this audit applicable in case of all assessees paying cash duty of over Rs. 1 crore per annum. At present, in addition to audit of such units, those units which pay cash duty of Rs. 10 lakhs or more but less than Rs.1 Crore will be audited once in two years. Not more than 20% of the Units paying cash duty less than Rs.10lakhs are to be audited in a year.

Statutory Audit under CEA 

 Sections 14A and 14AA have been inserted in the CEA, by the Finance Act, 1995 and Finance Act, 1997, enacting provisions relating to Statutory Audit under specified circumstances.

Valuation Audit – Section 14A provides that if at any stage of enquiry investigation or any other proceeding, the Officers not below the rank of ACCE having regard to the nature of the case and interest of revenue is of the opinion that the value of the goods have not been correctly declared or determined by the manufacturer or any other person, he may, with the prior approval of the Chief CCE direct such manufacturer or such person to get the accounts of his factory, office, depot, distribution or any other place audited by the cost accountant nominated by the Chief CCE. The said cost account and shall submit the report within the period specified by the CCE duly signed and certified by him mentioning therein particulars as may be specified.

Special CENVAT Audit – Section 14AA provides that if the CCE has reasons to believe that a manufacturer has availed or utilized credit of duty under the Rules which is not within the normal limit having regard to nature of excisable goods produced or manufactured the type of inputs used and other relevant factors as he may deem appropriate or has availed duty by reason of fraud, collusion or willful misstatement or suppression of facts, he may direct such manufacturer to get the accounts of his establishment audited by a Cost Accountant nominated by him. The Cost Accountant so nominated shall submit a report for such audit duly signed and certified by him to the said CCE.

Internal Audit by Assessee’s under CEA 

In view of introduction of reforms in Central Excise procedures and consequent shifting of responsibility from CED to the assessee for determination of correct excise duty liability, conduct of regular audits by an assessee himself has gained increased significance.

Internal Central Excise Audit maybe conducted

                                 i.            Departmentally by an assessee’s organisation itself or

                               ii.            By an independent firm of professionals viz., Chartered Accountants/Cost Accountants/Company Secretaries.

Such audits could be carried out: On a continuous basis, on a periodic basis, for a specific area/activity. To illustrate: CENVAT Scheme, New Projects, Exports, Job Work, Inventory, Refunds etc.

The types of functional areas which can be subject matter of Audit in relation to Central Excise are Concepts, Exemptions, Valuation, Procedures, Documentation and Records.

Company Law Audit

Company act 1956 discussed in details about the appointment of company auditor its rights duties and obligations, it also discussed about the appointment of auditor in different sections for various types of company. In company act 1956 they defined two kind of audit Financial and cost audit.

Company Act 1956 says that every company registered under this act is liable for audit under company’s act. Company act also mention that every company or type of company will fall under cost audit on issuance of cost audit order by MCA.

Cost Audit under Company Act

Cost Accounting Record Rules are applicable as per MCA notification dt.3rd June, 2011 or 30^th June, 2011 or 24^th January, 2012  to every company including a foreign company as defined u/s 591 of the Act which is engaged in Manufacturing, Production, Processing, Mining Activities and wherein: ‐

1. Aggregate value of net worth on the last day of preceding financial year was more than ` 5 crores. Or

2. Aggregate value of the turnover of sales and other activity of all the products exceeds 20 crores in the

preceding year. Or

3. The debt or equity securities of the company are listed or are in process of getting listed on any

of the stock exchanges in India or outside India.

VAT Audit

The overall objective of audit is to bridge the gap between tax legally due to state and tax actually paid by tax payers. In other words, maximization of Tax Revenue and improvement in self tax compliance by VAT dealers. VAT Audit is conducted by VAT department they have certain criteria for that if assessee meets those then VAT audit is performed in majority LTU’s(Large Tax payer units ) will fall in to the preview of VAT Audit . Although they delegate the VAT audit to a professional degree holder like CA or CWA.

As VAT rules and regulations for every state is different so do they have different set of rules and perimeter for VAT Audit.

Service Tax Audit

The overall objective of audit is to bridge the gap between tax legally due and tax actually paid by tax payers. In other words, maximization of Tax Revenue and improvement in self tax compliance. Service tax audit is conducted by department itself .They entrusted a CEO with the authority to conduct audit.

The Auditor has to aim at detection of non compliance, procedural irregularities and leakage of revenue due to deliberate action or ignorance on the part of the taxpayer. At the same time, the Auditor should keep in view the prevalent transactional and professional practices, as also the practical difficulties faced by a taxpayer. Service tax Audit will mandatorily apply on those units which pay cash duty of Rs. 10 lakhs or more or those units which are paying less than 10 lakh cash duty but can be potential tax.