INCOME TAX

INSTRUCTION NO. 1959/1999

Dated: January 28, 1999

Subject: Proper utilization of information contained in the audit report submitted u/s. 44AB of the Income-tax Act, 1961-Regarding.

The C & AG has commented upon the administration of section 44AB of the Income-tax Act, 1961, in the audit report for the year ended 31st March, 1996, No. 12 of 1997. In para 3.2 of the report, the C & AG has made a number of observations on the lapses committed by the Department in ensuring that assesses comply with these provisions and the proper utilization of the information in the audit report by the assessing officer in making assessments of income. The PAC has taken up this para for oral evidence and has also expressed concern over the fact that due to inadequate attention to this aspect, the objective of introducing section 44AB is getting defeated.

2. In this background, it is desired that adequate attention be given to ensure the compliance of the assessees to the requirements under this section. Further the reports must be utilized for making meaningful additions by the assessing officer. Also the aspect whether the Accountants are fulfilling their obligations in giving a report in the proper spirit should also be kept in mind. In this connection particular attention may please be given to the following aspects:

(i) At the time of processing or returns u/s. 143(1)(a) of the Act, the assessing officer may invariably check whether the assessee is required to submit an audit report u/s. 44AB.

(ii) In all cases of delay in furnishing of an audit report or failure to furnish the same, the assessing officer should immediately initiate proceedings for penalty u/s. 271B. The supervisory authorities may examine each quarter the number of cases where there are such delays or failures and whether penalty is initiated in all such cases promptly or not.

(iii) The assessing officer should examine every audit report submitted along with the return of income thoroughly to ascertain whether any prima facie adjustment to the income is required at the time of processing u/s. 143(1)(a) on the basis of such report.

(iv) At the same time of completion of assessment after detailed scrutiny u/s. 143(3), the assessing officer may again examine the audit report thoroughly to ascertain whether any addition to the income is possible on the basis of the same or whether any further investigation is required pursuant to the information submitted therein.

(v) Special attention may be given to check if there is any variation in the expenses claimed as in admissible by an assessee and as per the audit report.

(vi) All cases where the information provided in the audit report is incomplete or such non-commital replies are furnished so as to render the remarks or the report meaningless should be reported by the assessing officer to the CIT. The matter thereafter, be taken up by the CIT to see if the case reflects any professional negligence on the part of the Accountants signing the audit report. Action for initiation of disciplinary proceedings in terms of section 288 of the Income tax Act should be immediately taken by the CIT with the approval of CCIT as the case may be.

(vii) A report should be sent to the Board of all cases where action as stated at (vi) above is initiated by the CCIT immediately.

(viii) It may be possible in some cases that the tax audit report is furnished separately and not along with the return though within the due date prescribed under the law. The assessing officer may maintain a register in the enclosed proforma in which all such cases should be entered. In all such cases the assessing officer is further required to immediately link the tax audit report with the relevant return of income.

(ix) The CIT in their supervisory capacity may conduct a review of the assessments completed in the last three years by the assessing officer under them to check whether all possible additions to income have been made on the basis of the information in the audit report and a report of the review be sent to the Board by each CCIT/DGIT w.r.t. their region. These aspects must also be kept in mind at the time of regular inspection of work of Assessing Officers.

3. The above instructions may be brought to the notice of all assessing officers in your region and necessary compliance ensured.

F.No. 228/10/97-ITA-II

(MALATHI R. SRIDHARAN)
Under Secretary (ITA-II)

Sl.No.	Date of Receipt	Name of the assessee	PAN	Asstt. Year	Date of furnishing of of return of income and acknowledge- ment No.	Remarks of A.O.
1	2	3	4	5	6	7

(i) Where audit report is filed after filing of return, the assessee may provide the information in Col. (6). While audit report is filed before filing of return of income, the assessing officer has to be obtain this information later either from Department's records or from the assessee.

(ii) The Assessing Officer should sign column of daily and ensure that all tax audit reports are linked to the return of income immediately.