AUDIT OF DIRECT TAXES

AUDIT OF DIRECT TAXES DAY 1 Session 2 Slide 1.2

Audit Techniques v Assessment audit v Assessment u/s 143 (1) (summary) v Assessment u/s 143 (3) (scrutiny) v Assessment u/s 144(exparte) v Rectifications, appellate effect etc. Slide 1.2

Audit Techniques v Systems Review/Appraisal v Analysis of the provisions of various sections, degree of compliance and how far the objectives of a particular provision of law have been achieved Slide 1.2

Audit Cycle v Audit cycle is the year in which audit is conducted v We are in the 42nd cycle (i.e. 2003-04) and the audit of the assessments completed during the financial year 2002-03 will be taken up for audit v The number of the audit cycle coincides with the number of years after the enactment of the I.T Act, 1961 (i.e. 2003 - 1961) Slide 1.2

Objection Cycle v Audit Query/Audit memo/Half Margin vIt is a medium whereby an observation is first communicated to the department. vIt is only in the form of a query and not an objection vThree days are given to the Assessing officer to confirm the facts stated in the Audit query and offer his comments vA prompt reply to the audit query is very important as it would save on avoidable correspondence between the department and audit in future Slide 1.2

Objection Cycle v Para of Local Audit Report v A query becomes a Para of the Local Audit Report in the following circumstances V If the Audit Query is not replied before finalization of the Local Audit Report vIf the Audit Query is accepted by the department vIf the Audit Query is not accepted by the department and the department’s reply is not acceptable to audit Slide 1.2

Objection Cycle v Statement of Facts v High money value objections are later on pursued with the department by issue of Statement of Facts • Draft Para • The high money value objections are later on proposed as Draft Para for inclusion in C & A G’s Audit Report Slide 1.2

Objection Cycle •v The Draft Para is then sent by C & A G’s office to the Ministry of Finance (CBDT) for their comments v The Draft Audit Paras are the printed in the Audit Report in the following cases: v Where Ministry’s reply is not received v Where Ministry has accepted the objection v Where Ministry’s rebuttal to the objection is not accepted by audit. Slide 1.2

Objection Cycle v At all these stages, reply from the department is very important as it would help avoiding pursuance of objections which are factually incorrect v An objection is finally closed in the following manner v It is settled if department accepts the objection and takes remedial action v It is withdrawn if the department’s reply is accepted in audit\ Slide 1.2

ITRA HEADQUARTERS ITRA Party Scrutiny of Paragraphs/LAR by the Sr. A.O. in Para processing section IT DEPARTMENT Verification Report Not Paragraph dropped Approval of Paragraphs and LAR by the Group Officer IT DEPARTMENT Approved Reply to the paragraph Sof Reply to the Paragraph PARAGRAPH APPROVED Recorded in the objection book- Para processing section & position monitored DP Section NON Sof SoF/Non SF Case Verification Report YES Objection accepted D.P. ITRA Party Settlement of the Paragraph NOT YES Whether reply accepted Draft Paragraph for the Audit Report DROPPING/Settlement of the Paragraph Yes NO Reconsider D.P. F2: A Simplified flow diagram showing the route of processing of a paragraph and the Local Audit Report (LAR) in the ITRA Headquarters

AUDIT OF DIRECT TAXES