Expert Advisory Committee
ICAI-Expert Advisory Committee
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2.1  Query:      

 

Tax audit under section 44 AB, where accounting year is different from the previous year.

 

1. A multi-purpose co-operative society is engaged mainly in the following activities:

           (a)        Providing package advances to farmer members against crops.

           (b)        Marketing agricultural products of the members.

           (c)        Accepting fixed deposits and savings deposits from members.

           (d)        Providing fertilizers, pesticides etc. to the farmer members.

(e)       Dealing in consumer products like foodgrains, cereals, kariana and other items through head office and retail branches in surrounding villages.

 

2. The accounting year of the society is from Ist July to 30th  June since the inception of the society. This accounting year, as per the querist, is suitable to the period of crop pattern of the farmer members. Due to aforesaid reason and other practical difficulties, management of the society is not willing to change its accounting year ending from June to March. Statutory audit of the society is also conducted by the special auditors appointed by the cooperative department of the State Government for the year ending as on June 30 every year.

 

3. As per the querist, it is not practicable to prepare trading, and profit and loss account for the year ending as on March 31, as the figures are split in two sets of books, i.e., for 3 months (April to June) in one year’s books of account, and for 9 months (July to March) in the following year’s books of account.

 

4. The querist has sought the opinion of the Expert Advisory Committee on the following issues:

 

(a)        Can tax auditor appointed under section 44 AB of the Income-tax Act, 1961, issue his audit report on the basis of the accounts for the year ending as on June 30? If not, how the accounts for the year ending as on March 31 of the relevant previous year should be compiled from the two sets of books, for the purpose of tax audit? Also, how the tax auditor will certify the profitability or otherwise in the absence of consolidated books of account for the relevant previous year?

 

(b)        Certain societies which were not affected by the crop pattern, have changed their accounting year from June to March ending. In case of such societies, if the statutory audit of the society is not completed within the time prescribed under section 44AB of the Income-tax Act, 1961, whether the chartered accountant appointed under section 44 AB can issue his report in Form 3CB instead of Form 3CA, stating therein that the statutory auditor’s report is not available. As per the querist, it is not affordable in terms of fees for the tax auditor to issue Form 3CB, because it entails certification of truth and fairness of financial statements of the society, which would also be done by Government auditor, though at a later time.

   

Opinion                                               November 25, 1994

 

1. The Committee notes paras 8.4 and 10.14 of ‘Guidance Note on Tax Audit Under Section 44 AB of the Income-tax Act’, which read as follows:

 

“8.4      A question may arise in the case of a public sector company or any other company where the statutory auditor has not been appointed by the authorities concerned as to whether the tax auditor appointed under Section 44AB can complete his audit without waiting for statutory audit report or the accounts audited by the statutory auditors. It may be noted that both Forms 3CA and 3CB require the tax auditor to enclose a copy of the financial audit report conducted by the statutory auditor or the financial auditor as the case may be. But in the case of non-appointment of the statutory auditor and particularly in the circumstances beyond the control of the assessee concerned, a genuine difficulty may arise. It is, therefore, felt that where a statutory auditor has not been appointed by the authorities concerned, it should be possible for the tax auditor to give his report in Form 3CB and to certify the relevant particulars in Form 3CD. This is particularly important in those cases where the assessee concerned has suffered losses in the relevant accounting year. It may, however, be noted that the tax auditor in such cases will have to conduct the financial audit as well in order to enable him to certify whether or not the accounts reported upon by him give a true and fair view of the state of affairs of the assessee whose accounts are audited by him under Section 44AB of the Income-tax Act, 1961.

 

10.14   Where for assessment year 1989-90, the accounting year of the company is different from the previous year under the Income-tax Act, say calendar year, the question arises whether the tax auditor can audit and certify the accounts for the period of three months from 1st January to 31st March, and enclose them along with the statutory accounts for the calendar year under the Companies Act alongwith his report in Form 3CA/3CB, or whether the tax auditor will have to certify the accounts for the entire period of 15 months and submit his report on the accounts for the entire period for purposes of Section 44AB(1). It appears that the tax auditor will have to submit the report on the accounts for the entire period of 15 months for purposes of Section 44AB, for which accounts will have to be prepared by the company. For this purpose, he will have to audit the accounts for the period from 1.1.89 to 31.3.1989 and has to certify the accounts for 15 months by placing reliance on the statutory audited accounts for the calendar year. Likewise for the subsequent assessment years also, he will have to certify and submit his report on the accounts for the financial year being the previous year for purposes of Section 44AB, though he may place reliance on the statutory auditor’s report on accounts audited for the calendar year.

 

The tax auditor should give his report for that period in order to comply with the provisions of Section 44AB in Form 3CB. It may be noted that Form 3CA is not appropriate in such cases since there is no statutory audit report covering the entire period forming part of the relevant previous year for income-tax purposes."

 

2. On the basis of the above, the Committee is of the following opinion in respect of the issues raised by the querist in para 4 of the query:

 

(a)        The tax auditor appointed under section 44AB cannot issue his audit report on the basis of the accounts of the society for the year ending as on June 30. Such auditor should conduct audit and issue his report as suggested in para 10.14 of the Guidance Note on Tax Audit under Section 44AB of the Income-tax Act, reproduced at para 1 above.

 

(b)        Where the statutory audit of the society’s accounts for the previous year is not completed within the time prescribed under section 44AB, the tax auditor should give his report on the previous year’s accounts in Form 3CB, and certify the relevant particulars in Form 3CD. Also, in such cases, the tax auditor will have to conduct the financial audit as well in order to enable him to certify whether or not the accounts being reported upon by him give a true and fair view of the state of affairs of the society.

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