10 reasons when a CA cannot do Tax Audit

Tax Audit

According to section 44AB of Income Tax Act, 1961, Assesses liable to Tax Audit shall get its Books of account audited by a Auditor. A Chartered Accountant can act as an Auditor i.e. he/she can sign income Tax Audit Report as an auditor. Auditor can be individual as well as firm.

However, not all Chartered Accountants are qualified to act as auditor. There are some cases where in spite of being a Qualified CA, he cannot Sign a Income Tax Audit Report. All the Chartered Accountants registered with the Institute of Chartered Accountant of India are required to follow Code of conduct laid down by ICAI. Going against it, can lead to heavy penalties. This article contain reasons when CA should not sign Tax Audit report of Assesee like Individual, Partnership Firm, LLP etc. (Other than Companies)

1. A CA cannot sign the Tax Audit Report of the assessee in which he, his firm or a partner in his firm has a substantial interest

Substantial interest means having more than 20% of profit share or voting rights. For example, A CA cannot become tax auditor for his own firm.

2. CA not holding Practice certificate.

A practicing member who does not hold full time Certificate of Practice (COP) or person who is in full time employment elsewhere cannot sign the Tax Audit Report. Therefore, Valid COP is must to sign any Tax Audit Report.

3. CA Officer and CA Employee of the assessee cannot sign Tax Audit.

Manager, Key Managerial Person or any other person by whose instruction the business is accustomed to act is known as officer whereas employee can be part time, full time, permanent, temporary. Both are not authorize to act as a Tax Auditor.

Read Also: 15 Reasons you may get Income Tax Notice

4. Partner and employee of the officer and employee of the assessee.

Officer and Employee explained in above point 2 are same.  In other words, CA or CA firm in practice can only do the Tax audit not under employment or in job.

5. CA, his Relative or Partner holding security or interest in the company.

In case of relative, he/she can hold security or interest of amount not exceeding face value of Rs 1,00,000.

6. CA cannot sign Tax Audit where his Relative or Partner, is indebted to assessee in excess of Rs 1,00,000.

However, If an individual has received fees on progressive basis or if debt in the ordinary course of business, he is not disqualified.

Read Also: No Tax Audit on showing Income @ 50% of Gross Receipts

7. CA is in business relationship with the Assessee.

Individual cannot sign Tax Audit Report when engaged, whether directly or indirectly, in Business relationship excluding ordinary course of business and professional services.

8. Individual having 60 tax audit at a time.

A person holding appointment as tax auditor for 60 audits, cannot accept another audits at a time. However, this does not include audits conducted under section 44AD, 44ADA and 44AE of Income Tax Act, 1961.

Read Also: Declare Income only 8% of turnover – section 44AD

9. Involving fraud and a period of ten years not elapsed

A person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction cannot do Tax Audit.

10. CA cannot sign Tax Audit where his Relative or Partner, has given guarantee of any third person to assessee

In case of relative, he/she can give guarantee of amount not exceeding face value of Rs 1,00,000.

Read Also: Income from business of plying, hiring or leasing goods carriages – Section 44AE

Important Points to note

  • If a relative holds shares/ interest after appointment of auditor, then he will be provided an opportunity to take corrective action within 60 days.
  • Directly means:- individual himself, his relative, any other person connected with entity, in which individual having significant influence or control (20%), name or trade mark or brand name used by individual.
  • Indirectly means:- firm himself, through parent, subsidiary or associate entity, through any other entity, in which the firm or any partner of the firm having significant influence or control (20%), name or trade mark or brand name used by the firm or its partners.
  • A CA in practice shall be deemed to be guilty of professional misconduct, if he accepts Tax audit of an assessee  previously held by another CA without first communicating with him in writing.
  • Relatives include-
    • spouse of the individual;
    • brother or sister of the individual;
    • brother or sister of the spouse of the individual;
    • any lineal ascendant or descendant of the individual;
    • any lineal ascendant or descendant of the spouse of the individual;
    • spouse of a person referred to in clause (2), (3) (4), (5);
    • any lineal descendant of a brother or sister of either the individual or of the spouse of the individual.

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The author of above article is Krittika Pahwa.

Disclaimer:The article or blog or post (by whatever name) in this website is based on the writer’s personal views and interpretation of Act. The writer does not accept any liabilities for any loss or damage of any kind arising out of information and for any actions taken in reliance thereon. 
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