INCOME TAX

Appreciation of Audit Report/Certification in assessment proceedings

INSTRUCTION NO. 9/2008

DATED 31-7-2008

Kindly refer to above.

2. C&AG and carried out a systems review of Third Party certification under the Income-tax Act. This has brought out that in many cases the information available in the tax audit reports is not being properly analyzed during assessment proceedings thereby defeating the very purpose of providing for audit of accounts in the Income-tax Act i.e., to ensure that correct deductions are claimed by the assessee. It is, therefore, re-iterated that the tax audit reports as well as other statutory audit reports should be critically examined along with connected records and other available evidence and the information as available in these reports should be effectively utilized while finalizing assessment of cases selected under scrutiny. In case of e-filed returns as well as annexure-less returns, tax audit reports and other statutory audit reports should be requisitioned and thoroughly examined during assessment proceedings in cases under scrutiny.

3. With effect from 10th August, 2006, the 'Accountants' are required to indicate in Form 3CD as to whether a certificate has been obtained from the respective assessees regarding payment relating to any expenditure/taking or accepting of loans or deposits or repayment of the same through account payee cheque/bank draft (refer points 17(h) and 24(c) of Form No. 3CD).

4. Instead of simply relying on the said certificates given by the assessees, the assessing officers should undertake a test check of such transactions while completing the assessments under scrutiny. Results of such test check should also be kept on record. In case, any violation is noticed, follow up action as per the Income-tax. Act including invoking of penal provisions should be taken.

5. In cases where any factual misrepresentation by the Accountants is observed, suitable action should be taken against them as provided under section 288 of the Income-tax Act, 1961.

This may be brought to the notice of all concerned for strict compliance.