2.7 Query:           

Appointment of auditor under section 44AB

of Income-tax Act.

1.   A firm has been getting its accounts audited under section 44AB of Income-tax Act, 1961, from a firm of chartered accountants ‘X’

2. The firm got its accounts audited under section 44AB for the year ending 31.3.90. At the time of finalising and signing the tax audit report, the firm ‘X’ got one more appointment letter dated October, 1990, duly signed by the management of the firm for the year ending 31.3.1991.

3. Now the firm is interested to get its tax audit from another firm of chartered accountants ‘Y’.

4. The firm of chartered accountants ‘Y’ has received appointment letter dated April, 1991 as tax auditor from that firm in respect of year ending 31.3.1991.

5. On firm Y’s asking regarding professional objection as per Code of Conduct, it is expected that the firm ‘X’ will raise an objection holding Y’s appointment to be invalid, since the firm ‘X’ has already got appointment letter for the year ending 31.3.1991. According to the querist, the firm ‘X’ will say that it is an irrevocable appointment. Last year the same type of situation arose and the firm ‘X’ replied on the above lines. The firm ‘Y’ did not do tax audit as it was having time shortage.

6. The assessee firm has cleared professional charges bill of the firm ‘X’. There is no dispute about this issue in this query.

7.The querist has sought the opinion of the Expert Advisory Committee as to the remedy available with the firm ‘X’ and the firm ‘Y’.

                                                                  Opinion                                       September 17, 1991

1.The  Committee notes that unlike in the Companies Act, 1956 where there is a specific procedure for appointment and removal of the auditor, the Income-tax Act, 1961 does not contain any such provisions for appointment and removal of the auditor, who can audit the accounts under section 44AB of the Income-tax Act

2.The Committee is of the opinion that whether an assessee can remove a tax auditor appointed under Section 44AB, would depend upon the facts and circumstances of the case. Normally, no auditor is removed during the tenure of his appointment when he is appointed to audit the accounts of a particular year. There is no specific procedure for removal of an auditor appointed under Section 44AB. It is, however, possible for the management to remove an auditor if there are any valid grounds for such removal. This may arise where the auditor has delayed submission of audit report under Section 44AB for any unreasonable period and if it is found that there is no possibility of getting the audit report before the specified date. In such cases, the assessee may be justified in removing the auditor. However, the auditor cannot be removed on the ground that he has given an adverse audit report or the assessee has an apprehension that the auditor is likely to give an adverse audit report. If there is any unjustified removal of auditors, the Special Committee constituted by the Institute can intervene in such cases. Normally, no other Chartered Accountants should accept the audit assignment if the removal of his predecessor is not valid on grounds.*

                                                ___________________________________

  * This view is also contained in para 8.14 of the ‘Guidance Note on Tax Audit under Section 44AB of the Income-tax Act”, issued by the Institute of Chartered Accountants of India.