Revised Tax Audit : Pros and cons of revising tax audit report

Revised Tax Audit

Revised Tax Audit: Tax audits are essential under the Income Tax Act, 1961, ensuring financial accuracy and preventing fraud. Section 44AB mandates these audits for specific taxpayers. While tax audit reports are usually final, revisions are possible under certain circumstances. This blog explores the pros and cons of revising tax audit reports in light of the recent amendments to Rule 6G.

Concept of Income Tax Audit

Section 44AB of the Income Tax Act, 1961 provides for tax audit. The relevant part of the section relating to this article is being reproduced hereunder;

44AB. Every person,—……….

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 :

As per section 2(33) of the Act “prescribed” means prescribed by rules made under this Act;

Rule 6G of the Income Tax Rules, 1962 prescribes the “Form” of audit report and the “Particulars” which are required to be set forth. The Rule 6G reads as follows:

6G. (1) The report of audit of the accounts of a person required to be furnished under section 44AB shall, —

(a) In the case of a person who carries on business or profession and who is required by or under any other law to get his accounts audited, be in Form No. 3CA;

(b) In the case of a person who carries on business or profession, but not being a person referred to in clause (a), be in Form No. 3CB.

(2) The particulars which are required to be furnished under section 44AB shall be in Form No. 3CD

(3) The report of audit furnished under this rule may be revised by the person by getting revised report of audit from an accountant, duly signed and verified by such accountant, and furnish it before the end of the relevant assessment year for which the report pertains, if there is payment by such person after furnishing of report under sub-rule (1) and (2) which necessitates recalculation of disallowance under section 40 or section 43B.

Can Tax Audit report be revised?

Section 44AB as well as rule 6G does mandate and proscribe provisions relating to revision of the tax audit report. The Income Tax (Eighth Amendment) Rules, 2021 has inserted sub-rule (3) in rule 6G vide in view of hardships being faced by assesses due to the provisions of section 40 and section 43B of the Act.

Accordingly, if there is payment under section 40 or under section 43B by such person after furnishing of report under sub-rule (1) and (2) and any qualification has been made in this regard in Form 3CD, it may cause recalculation of disallowing under section 40 or under section 43B. Therefore, for the purpose of such recalculation the tax audit report may be revised in the manner provided in sub-rule (3).

Who can revise Tax Audit Report?

The tax audit report in Forms No. 3CA, No. 3CB, and No. 3CD may now be selectively amended in light of the aforementioned, in accordance with regulation 6G (3). After it is provided, it may be amended in accordance with rule 6G. Support for the foregoing conclusion can be found in the phrase “after furnishing of report under sub-rule (1) and (2)” that appears later in the sub-rule (3). It may be amended by the person who must have an audit of his finances in compliance with section 44AB. The following can be done to revise the same:

(a) by getting revised report of audit from an accountant, duly signed and verified by such accountant, and

(b) by furnishing the revised report;

Read also: Income Tax Audit Report : New changes notified in Form 3CD

Guidance note on revision of Tax Audit Report

According to the Income Tax Act of 1961’s Guidance Note on Tax Audit under Section 44AB, members may occasionally be asked to provide information on accounts that the board of directors has examined and changed. Once approved at the annual general meeting, a company’s accounts shouldn’t typically be opened again and amended.

If the audit report needs to be revised, it should be in the Institute’s recommended format. The council of the company affairs indeed mentioned that the accounts can be amended to 44AB must not get amended in a regular way. But often a time the member might be needed to amend his tax audit report to meet technical specifications. It should be noted that reports submitted under section 44AB are typically not subject to revision, except in following cases:

(i) revision of accounts of a company after its adoption in annual general meeting.

(ii) change of law e.g., retrospective amendment.

(iii) change in interpretation, e.g. CBDT’s circular, judgments, etc.

(iv) Any additional cause such as the system or software issues needed the amendment in the report which was uploaded formerly.

Read Also: Income Tax Audit limit for AY 2023-24

Further After uploading a Tax report if it came to the knowledge of auditor that his client is engaged in another business also this has been not disclosed to him at the time of the original Tax Audit. In such circumstances the tax auditor is having all the right to revise the original tax audit report at its first reporting and not sitting idle and wait for any action from the Tax authority. It is better to compute the revised total taxable income of the client and the revised tax liability. Many opined that the auditor may be at risk because of its first audit report, but this sword is having two-way edge. The auditor has to choose the one, but the auditor is eligible to revise the same within own rights.

Revised Audit Report can be revised again

The Tax audit reports may be revised indefinitely. The department and the guidance notes only recommend that it be done in the manner described in SA-560. It is evident from reading the Guidance Note on Tax Audit under Section 44AB of the Income Tax Act of 1961 that the Tax Audit report should not be routinely changed. There is, however, no restriction on how many times you can change something with a rider, provided that the revisions are limited to addressing technical needs. It should be guaranteed that the recently amended report will include references to earlier versions and be signed on the current date. The date of signing the hard copy of the tax return corresponds to the audit report date audit report /revised tax audit report.

Read also :6.2 crore ITR and 21 lakh Tax Audit Report filed on Income Tax portal

CBDT/UDIN provides facility for revision

In case, where a member is called upon to report on the revised accounts, then he must mention in the revised report said that the report is a revised report and a reference should be made to the earlier report also. In the revised report, reasons for revising the report should also be mentioned. The e-filing portal allows uploading such Revised Audit Report by the CA for the same PAN and Assessment Year.

Pros of Revised Tax Audit:

Compliance Flexibility:

Taxpayers can amend Form 3CD to rectify errors or omissions, ensuring compliance with tax laws.
Revisions facilitate alignment with updated interpretations, circulars, or legal changes.

Avoiding Legal Consequences:

Timely revisions prevent potential legal issues arising from inaccuracies or non-compliance.
Revision ensures the audit report accurately reflects the financial reality, reducing legal risks.

Enhanced Accuracy:

Corrections post-audit guarantee precise financial reporting, minimizing discrepancies.
Accurate reports contribute to transparent financial records, fostering trust with stakeholders.

Read Also: TDS Rate Chart for FY 2023-24 – AY 2024-25 – Income Tax

Cons of Revised Tax Audit:

Administrative Hassles:

Revisions may lead to uncertainties regarding tax liabilities and provisions.
Fluctuating financial figures can make it challenging to accurately predict tax obligations, potentially affecting budgeting and financial planning.

Potential Audit Scrutiny:

Revised reports might attract closer scrutiny from tax authorities, potentially leading to further audits.
Extensive revisions could raise questions about initial auditing quality, triggering deeper investigations.

Reputational Concerns:

Frequent revisions could create an impression of financial instability or mismanagement, affecting the company’s reputation.
Stakeholders might lose confidence if audit reports undergo frequent revisions, impacting business relationships.