Form 3CA & 3CB: Applicability and Major Components

​​​​​The dictionary meaning of the word “audit” is to examine, review, check, inspect and so on. The word Audit has been mentioned in various laws as it is a prerequisite for many compliances. Consequently

• The Company law requires a company audit
• The Cost accounting law requires a cost audit and so on.
• The Income-tax Law makes it mandatory for the taxpayer in certain cases to get the audit of the accounts of their business/profession

Section 44AB makes it mandatory for a specific class of taxpayers to get their books of accounts audited from a chartered accountant.

The audit under section 44AB

• Seeks to ascertain the compliance of various provisions of the Income-tax Law.
• And The audit that is undertaken by the chartered accountant of the books of accounts of the taxpayer in pursuing of the requirement of section 44AB​ is called tax audit.

The chartered accountant who conducts the tax audit is needed to give his findings, observation and so on in the form of the audit report. The report of the tax audit has to be provided by the chartered accountant in Form Nos. 3CA/3CB and ​3CD.

One of the primary objectives of a tax audit is to

• Ascertain
• Derive
• Report

The requirements of Forms bearing number numbers 3 CA/3CB and 3 CD Moreover, an apt audit for the tax purposes shall ensure that the

• Books of Account
• Other records

Have been properly maintained and that they truly reflect the income of the taxpayer and that the claims for deductions have been correctly made. Moreover, the audit also helps in checking fraudulent practices. It also provides for administration of tax laws by properly presenting accounts before the tax officials and consequently save the time of Assessing officers in doing routine verifications like checking correctness of totals and verification of whether purchases and sales have been properly vouched for or not. And so the precious time of the Assessing officers could be utilised in attending more important investigational aspects of a case.

As per section 44AB, following persons are as per law required to get their accounts audited:

Following people are legally required to have their accounts audited

• A person who is carrying on business, if his total sales, turnover or gross receipts in business for the year are more than Rs. 1 crore. However, the exception is a person who has opted for presumptive taxation scheme as per section 44AD and his total sales or turnover is not more than Rs 2 crores. It is important to mention here that the threshold limit is increased from Rs 1 crore to Rs 10 crore when more than 95% of the business transactions have been done through banking channel.
• A person involved in a profession, if his gross receipts in a profession are more than Rs 50 lakhs annually.
• An assessee who has declared profit for any previous year in accordance with section 44 AD and he decreases profit for any of one 5 assessment years relevant to the previous year succeeding such previous year which is lower than the profit computed as per section 44AD and his income is more than the amount that is not subject to tax.
• If an assessee who is eligible opts for the presumptive taxation scheme within the aforesaid period, he cannot opt to revert back to the presumptive taxation scheme for a tenure of 5 assessment years thereafter.
• A person who has been eligible to opt for the presumptive taxation scheme of section 44ADA but he claims that the profits or gains for the aforesaid profession to be less than the profit and gains computed as per the presumptive taxation scheme and his income is more than the amount that is not chargeable to tax.
• The aforesaid provision shall not apply to the person who has opted for the presumptive taxation scheme as per section 44AD and his total sales or turnover is not more than Rs 2 crores.
• A person who is eligible to choose the presumptive taxation scheme of section 44AE but he claims the profits or gains for the aforesaid business to be less than the profits and gains that are computed as per the presumptive taxation scheme of section 44AE.
• A person who is eligible to choose for the taxation scheme as mentioned under section 44BB or section 44BBB;however, he claims the profit or gains for the aforesaid business to be less than the profit and gains calculated as per the taxation scheme of these sections.

​​​​​​​​Persons like the company or the co-operative society are necessarily required to get their accounts audited as per their respective law. However, Section 44AB provides that if a person is required by any other law to get his accounts audited, then he is not required again to get his accounts audited to follow with the necessary requirement of section 44AB. In such a case, it shall be enough if the aforesaid person gets the accounts of such business or profession audited under such law and gets the report of the audit as required as per other law and in addition also a report by the chartered accountant in the form prescribed under section 44AB that is Form No. 3CA and Form 3CD.

The report obtained from the tax audit that has been undertaken by the chartered accountant has to be ​furnished in the prescribed form. The form that is prescribed for audit report with respect to an audit conducted under section 44AB​ is Form No. 3CB and so the prescribed particulars have to be reported in Form No. 3CD. In the case of those persons who are covered under the previous FAQ that is who are necessarily required to get their accounts audited by or under any other law, the form that is prescribed for audit report is Form No. 3CA​ and the aforesaid particulars are to be reported in Form No. 3CD.

A person who is covered by section 44AB ought to get his accounts audited and ought to obtain the audit report on or before 30th September of the relevant assessment year. For instance, the Tax audit report for the financial year 2021-22 corresponding to the assessment year 2022-23 ought to be obtained on or before 30th September 2022

The tax audit report ought to be filed electronically by the chartered accountant to the Income-tax Department. And After the filing of the report by the chartered accountant, the concerned taxpayer has to get approved his report from his e-fling account with Income-tax Department (i.e., at www.incometaxindiaefiling.gov.in ).

According to section 271B, if it is necessary for any person to follow section 44AB fails to get his accounts audited in respect of any year or years as required under section 44AB or furnish such report as required under section 44AB​, the Assessing Officer might impose a penalty. The penalty will be lower of the following amounts:

• 0.5% of the total sales, gross receipts, or the turnover as the case may be, in business, or otherwise of the gross receipts in the profession, in such year or years.
• Rs. 1,50,000.However, as per section 271B​, no penalty shall be levied if reasonable cause for such failure has been proved.