A SUMMER INTERNSHIP PROJECT ON

THE PROCESS OF TAXAUDIT

MANSINGHANI KULKARNI & ASSOCIATES

SUBMITTED TO

SAVITRIBAI PHULE PUNE UNIVERSITY

FOR THE PARTIAL FULFILLMENT OF THE DEGREE
MASTER OF BUSINESS ADMINISTRATION

(SPECIALIZATION: FINANCE)
SUBMITTED BY

GUNJAL ANJANI KISHOR

To

MAHATMA GANDHI VIDYA MANDIR’S

INSTITUTE OF MANAGEMENT AND RESEARCH PANCHAVATI NASHIK-03

MBA- 2 SEMESTER- 3
ROLL NO-24
UNDER THE GUIDANCE OF
DR. D.V.ABHONKAR

1
 CERTIFICATE TO WHOMSOEVER IT MAY CONCERN

This is to certify that MS. Gunjal Anjani Kishor student of Mahatma Gandhi Vidyamandir’s Institute of
Management and Research, Panchavati, Nashik pursuing (MBA Finance) affiliated to Savitribai Phule Pune
University (formerly known as University of Pune) has completed her Summer internship project work in
our firm on this topic: “The Process of Tax Audit from 1st August 2022 to 30th September 2022.”

She has collected all the information, which was required for the purpose of completion of her project work.

We found her sincere, honest and hardworking during the above period.

We wish her all the success for her future endeavors.

For Mansinghani Kulkarni & Associates

Chartered Accountants

Place: Nashik

Date: 30th Sept 2022

Authorized Signatory

2
 ACKNOWLEDGEMENT

It is indeed a great pleasure to submit this project, which is a sheer output of my hard work and dedication
and staff. Personnel who have put their best efforts to make this project a success. I take pleasure in thanking
each other.

I would like to express my sincere gratitude to my project guide from the Dr. D.V.Abhonkar, the continued
support and direction she gives during this project work.

I would like to thank for Vice Principal Dr. Ganesh Teltumbade and project guide Dr. D.V.Abhonkar, for
their valuable support, I would like to thank all these persons. Whose valuable guidance at every phase of
the project has helped me in the completion of this project

Date: -

Place: - Nasik

MISS. GUNJAL ANJANI KISHOR.

MBA 2ND YEAR

3
 DECLARATION

I, the undersigned Miss. GUNJAL ANJANI KISHOR, hereby declared that the project work entitled “THE
PROCESS OF TAX AUDIT” has been successfully completed from the result of my own effort and the
same has not previously submitted to any examination of the PUNE UNIVERSITY or any other university.

This project report is submitted to Savitribai Phule Pune University in the partial fulfilment of the degree of
Master of Business Administration (MBA).

Date: -
Place: - NASIK.
MISS.GUNJAL ANJANI KISHOR.
(MBA 2NDYEAR)

4
 INDEX

SERIAL CONTENT PAGE

NUMBER NUMBER

1. Chapter I: Profile of the organization.

1.1 History of organization.
1.2 Products/Services of the organization.
1.3 Organization Chart.

2. Chapter II: Outline of the problem.

2.1 Need and significance of the study

2.2 Objectives of the study
2.3 Scope of the study.
2.4 Limitations of study.

3. Chapter III: Research Methodology and Data Analysis.

3.1 Research Methodology of the project
3.2 Data Analysis and interpretation
3.3 Findings & Conclusions
3.4 Suggestions.

4. Chapter IV: Project Conclusions.

4.1 Learning outcome through project
4.2 Contribution to host organization.

5. Chapter V: References.
Annexure -1 References
Annexure -2 Appendices.

5
 EXECUTIVE SUMMARY

A tax audit is the process of verification and inspection of the accounts of a taxpayer to
confirm their adherence to the provisions of the Income Tax law. Section 44AB of the
Income Tax Act, 1961 deals with the Audit of the Accounts of a certain category of persons
carrying on a business or engaged in a profession.

Tax Audit Report to Be Filed Electronically By the Chartered Accountant to the

Income Tax Department. After filling the income tax report the chartered accountant, the
taxpayer needs to approve the submitted report using an E-filing account with the income
tax department.

The final result of every audit is a written report that details the audit scope and objectives,
result, recommendation for improvement, and the audit client’s responses and corrective
action plans.

6
 Chapter 01
Profit of the Organization.

7
MANSINGHANI KULKARNI & ASSOCIATES

8
 1.1 HISTORY OF ORGANIZATION.

Mansinghani Kulkarni & Associates is intently focused on serving growth- oriented organization and
individuals facing expanding requirements and challenges in this new regulatory era. Their ability to decode
and resolve complex issues and proactively engage with clientele has positioned themselves as a one- stop-
shop with several professional service offerings under one roof. They have created niche service offering
with a targeted and a meticulously planned and process-oriented approach. Their clientele immense trust can
reaffirm their commitment to qualitative and value added services delivery. Their strength lies in the ability
to combine in- depth knowledge of cross- sections of the industry with the specialized skills of their
professionals, spreads across their wider spread network.

SPECIALITY:

Financial Services, Income Tax Act, Accounting, GST Registration, and GST Compliances, Companies
Law, Auditing and Assurance, Taxes Registration Procedure, Company Incorporation, Limited Liabilities
Partnership (LLP) Services, Start-Up Consulting, Business Taxation, Financial Statements Assurance,
Transaction Advisory & Individual Tax Compliance.

9
 PROFILE OF THE ORGANIZATION

Name of the organization: Mansinghani Kulkarni & Associate.

Registration Number: 147564W.

No. of Qualified staff: Two Partners’.

Details of Staff: Senior Staff – 1.

Semi- qualified – 2.

Article Clerk’s – 01

Office Location: 02, Sangeet Park, Near Mahesh Eye

Hospital, Govind Nagar, Nashik-09.

Mobile No: 7620629839

8788883194

Email ID: mkcaassociates@gmail.com

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 1.2 SERVICES OF THE ORGANIZATION.

FINANCIAL
SERVICES .

INCOME TAX
TAX AUDIT.
ACT.

TAXES
REGISTRATION ACCOUNTING.
.

GST
REGISTRATION
.

11
1.3 ORGANIZATION CHART.

Prithvi Mansinghani.

Shantanu Kulkarni.

Senior Employee.

Article Assistant.

12
Whom Tax Audit is applicable?

The following persons are compulsorily required to get their accounts audited:-

IN THE CASE OF PROFESSIONALS:

1. If gross earnings are more than 50 Lakhs in a financial year.

2. If carry on a profession eligible for presumptive taxation (Section 44ADA) and you have claimed that
your profits were lower than the stipulated limit, and income is more than the maximum amount up till
which income tax isn't chargeable.

IN THE CASE OF PEOPLE CARRYING ON A BUSINESS:

1. If turnover or gross earnings are more than 1crore.

2. If running a business which is eligible for presumptive taxation (Section 44AE, 44BB or
44BBB) and you claim that profits or gains are lower than the stipulated limit, and then audit is necessary.
3. If business is qualified for presumptive taxation as per Section 44AD of the Income Tax
Act and
4. Declare that the taxable income has been below the limits specified as per the presumptive taxation and
your income is more than the threshold limit

AMENDMENTS IN ABOVE PROVISIONS

Finance Act 2020: The threshold limit of Rs 1 crore turnover for a tax audit is proposed to be increased to
Rs 5 crore with effect from AY 2022-23 (FY 2021-22) if the taxpayer's cash receipts are limited to 5% of
the gross receipts or turnover, and if the taxpayer's cash payments are limited to 5% of the aggregate
payments.
Finance Act 2021: With effect from 1st April 2021, the threshold limit of Rs 5 crores is increased to Rs 10
crores in case cash transactions do not exceed 5% of the total transactions.

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 VARIOUS CATEGORIES OF TAX PAYER BELOW

CATEGORY OF PERSON THRESHOLD

BUSINESS

Carrying on business (not opting for Total sales, turnover or gross receipts exceed
presumptive taxation scheme) Rs.1 crore in the FY

If cash transactions are up to 5% of total

gross receipts and payments, the threshold
limit of turnover for tax audit is increased to
Rs.10 crores (we. f. FY 2020-21)

Carrying on business eligible for presumptive Claims profits or gains lower than the
taxation under Section 44AE, 44BB or prescribed limit under presumptive taxation
44BBB scheme

Carrying on business eligible for presumptive Declares taxable income below the limits
taxation under Section 44AD taxation under Section 44AD prescribed
under the presumptive tax scheme and has
income exceeding the basic threshold limit.

Carrying on the business and is not eligible to
claim presumptive taxation under Section
44AD due to opting out for presumptive
taxation in any one financial year of the lock
in period i.e. 5 consecutive years from when
for the presumptive tax scheme was opted.
If income exceeds the maximum amount not
claim presumptive taxation under Section
chargeable to tax in the subsequent 5
consecutive tax years from the financial year
when for the presumptive tax scheme was
opted.

Carrying on business which is declaring If income exceeds the maximum amount not
profits as per presumptive taxation scheme chargeable to tax in the subsequent 5
under Section 44AD. consecutive tax years from the financial year
when the presumptive taxation was not opted
for.

Carrying on business which is declaring If the total sales, turnover or gross receipts
profits as per presumptive taxation scheme does not exceed Rs 2 crore in the financial
under Section 44AD year, then tax audit will not apply to such
business.

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 PROFESSION

Carrying on profession. Total gross receipt exceedsRs 50 lakh in the

FY.

Carrying on the profession eligible for 1. Claims profits or gains lower than the
presumptive taxation under section 44ADA. prescribe limit under the presumptive
taxation scheme.

2. Income exceeds the maximum amount not

chargeable to income tax.

BUSINESS LOAN

In case of loss from carrying on of business Total Sales, turnover or gross receipt exceed
and not opting for presumptive taxation Rs 1 crore.
scheme.

If taxpayer’s total income exceed basic In case of loss from business when sales,
threshold limit but he has incurred a loss from turnover or gross receipt exceed 1 crore, the
carrying on a business (not opting for taxpayer is subject to tax audit under 44AB.
presumptive taxation scheme).

Carrying on the business (opting presumptive Tax audits not applicable.

taxation scheme under section 44AD) and
having a business loss but with income below
basic threshold limit.

Carrying on the business (presumptive Declares taxable income below the limit
taxation scheme under section 44AD prescribed under the presumptive tax
applicable) and having a business loss but scheme and has income exceeding the basic
with income exceeding basic threshold limit. threshold limit.

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 INDIAN RULES AND REGULATIONS OF TAX AUDIT

1. Section 44BB: For Non-Resident Indians (NRIs) involved in the business specializing in the mineral
oils industry, like exploration.

2. Section 44BBB: International Company that is involved in the business of civil construction etc. or
in specific power projects.

3. Section 44AD: Any business except those businesses that are specified under Section

44AE.

4. Section 44ADA: This section covers the regulations with regard to the income tax audits for eligible
professionals

5. Section 44AE: This section focuses on businesses specializing in leasing, hiring, and plying of
goods carriages.

6. Section 44 AB: The provisions related to tax audit are stated under section 44AB in the Income Tax
Act 1961. This section reflects the rules to maintain books of accounts and other financial records by
the taxpayer properly. This helps in maintaining complete information regarding tax, income, and
deductions of the taxpayer. This section helps in the reduction of fraudulent practices. The audit is
conducted by a practicing-chartered accountant. The audit report is reported to the income tax
department along with the income tax return.

7. Section 271B-Failure to get the accounts audited or furnishes the report as required under Section
44AB.

• In the case of business: ½% of the turnover/gross receipts.

• In the case of profession: ½% of the gross receipts

OR

Rs. 1, 50,000whichever is less.

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FORMS REQUIRED FILING TAX AUDIT

Tax auditor shall furnish his report in a prescribed form which could be either Form 3CA orForm 3CB
where:

Form No 3CA:- is furnished when a person carrying on business or profession is already mandated to get
his accounts audited under any other law. For instance, A company is required to get its accounts audited
compulsorily under the Companies Act 2013. So, it will furnish Form3CA.

Form No. 3CB:- is furnished when a person carrying on business or profession is not required to get his
accounts audited under any other law. A proprietorship entity or partnership firm, having a turnover of more
than 1 crore and not opting for presumptive income scheme, is not required to get its accounts audited under
any other law except income tax. So, it will furnish Form 3CB.

Form No 3CD:- In case of either of the aforementioned audit reports, the tax auditor must furnish the
prescribed particulars in Form No. 3CD, which forms part of the audit report.

Form No 3CE:- Non-residents and foreign companies receiving royalty or fees for technical services from
the government or an Indian concern have to get their accounts audited. The auditor will furnish the report in
Form 3CE along with an annexure mentioning the particulars.

How and when tax audit reports shall be furnished?

The tax auditor shall furnish a tax audit report online by using his login details in the capacity of

"Chartered Accountant'. Taxpayers shall also add CA details in their login portal.

Once the tax auditor uploads the audit report, the same should either be accepted/ rejected by the taxpayer in
their login portal. If rejected for any reason, all the procedures need to be followed again till the audit report
is accepted by the taxpayer.

You must file the tax audit report on or before the due date of filing the return of income. It is 30th
November of the subsequent year in case the taxpayer has entered into an international transaction and 30
September of the subsequent year for other taxpayers.

17
PENALTY OF NON-FILING OR DELAY IN FILING TAX AUDIT REPORT.

If any taxpayer who is required to get the tax audit done but fails to do so, the least of the following may be
levied as a penalty:

 0.5% of the total sales, turnover or gross receipts

 Rs 1, 50.000

However, if there is a reasonable cause of such failure, no penalty shall be levied under section 271B.

So far, the reasonable causes that are accepted by Tribunals/Courts are:

Natural Calamities:

• Resignation of the Tax Auditor and Consequent Delay

• Labour problems such as strikes, lock-outs for an extended period
• Loss of Accounts because of situations beyond the control of the Assesses
• Physical inability or death of the partner in charge of the accounts.

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TYPES OF TAX AUDIT

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THERE ARE TYPES OF TAX AUDIT ARE EXPLAINED BELOW:

 Office Audit: This type of audit is conducted in office and the concerned person must visit the
office with necessary document in a row.

 Field Audit: This type of audit is generally conducted in office.

 Desk Audit: it is a one-to-one interview with the taxpayer and a thorough review of their tax
records in the IRS office. It is an interview with the staff to obtain information about his/her duties
and responsibilities.

 Correspondence audit: Here you will receive a letter in which it will be

Mentioned the documents required for the auditing process.

 Limited Audit: Finance Act 2021: With effect from 1st April 2021, the threshold limit of Rs 5
crores is increased to Rs 10 crores in case cash transactions do not exceed 5% of the total
transactions.

 Comprehensive Audit: refers to taxation of income from all sources, eliminating special
treatment for income of certain types and significantly broadening the tax base from the Internal
Revenue Service's adjusted gross income measure.

 Mail Audit: The IRS conducts audits in two ways – by mail, or in person. This topic deals with an
audit by mail – where the IRS sends you a letter explaining your tax return has been selected for
examination and identifying the items under review.

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PROCEDURE OF E-FILLING OF TAX AUDIT.
The procedure of e-filing of tax audit report can be broadly divided in few steps as mentioned below:
 Chartered Accountant is required to create his account on E-filing site this would be a special
logiDesigned for Chartered Accountants'. A separate log-in as “Chartered Accountant' is required for
e-filing of Audit report although auditor may have their personal login on e-filing site to file their
own Income Tax return.

The procedure for the same is discussed here under:

 Open the web-page: www.incometaxindiaefiling.gov.in
 Click on tab Register Yourself and Registration Form would appear.
 Select the User Type. For example: "Tax Professional - Chartered Accountant and press
"Continue"
 At this stage, three steps would be reflected at the top of the window (i) enter basic details (ii)
Registration Form and (iii) Registration

 Enter the basic details such as ICAI Membership no., date of enrolment, surname, Date of birth,
PAN etc. and attach the digital signature of the Chartered Accountant.
 Fill up the registration form and set the password.
 Click “Submit” it and activation link would be sent to the e-mail ID of the Auditor.
 Click on the link - account would be activated and Auditor will get his User ID.

21
1. LOGIN OF TAX CONSULTANT WOULD BE OPENED AT THE
BEGINNING.

22
 2. WOULD GO TO: E- FILE – UPLOAD FORM.

 Enter the PAN of Assesses and PAN of Chartered Accountant.

 Select form name and Assessment Year.
 Attach XML file of Form 3CA-3CD/3CB-3CD. Auditor is required to submit Balance Sheet and
Profit & Loss Account along with Audit report on new e-filing Portal.
 After the above-mentioned attachments are done, auditor would be required to sign them digitally.
 Click on "Submit." After being successfully uploaded, the form would be sent to work flow of the
assesses for his approval.

The form once uploaded by the auditor would be reflected in the work list of the auditee. The auditee then
would be required to login to e-filing portal, go to his work-list and accept/reject the form. Once the form
has been accepted by the auditee, it would be successfully submitted and auditee will get an
acknowledgement number. The e-filing procedure ends here and no further action is required to be taken.

23
 REQUIRED DOCUMENTATION FOR TAX AUDIT:

NO DOCUMENT REQUIRED FOR FILLING TAX AUDIT

1. Name of the Assesses.

2. Address.

3. Permanent Account No.

4. Obtain the list and verify the various indirect taxes payable by the assesses, (Vat,
Excise duty, Service tax.)

5. Status.

6. Previous Year Ended.

7. Assessment Year.

8. List of related parties and transaction.

9. i) Verify whether the assesses has converted any capital asset into stock in trade by
scrutinizing the assets account.
Obtain the list of assets convert into stock in trade.

10. i) Check whether any land or building or both has been transferred by the assesses
during the previous year by verifying from the statement of profit or loss/balance
sheet.
ii) Verity the consideration received / receivable by the assesses from his bank
account/agreement entered by him.
Obtain the assessable value of the property adopted by state government for stamp
duty. The copy of the registered document will give the evidence of the same.

11. i) For person carrying on legal, medical, engineering or architectural professions or

the profession of account technical consultancy or interior decoration or authorized
representative or film artist the following books are prescribed us 44A.A:
a. cash book;
b. journal, if the accounts are maintained according to the mercantile system of
accounting;
c. Ledger;
d. Carbon copies of bills; and
e. Original bills wherever issued to the person and receipts in respect of expenditure
incurred by the person.
ii) Obtain list of books of account maintained by the assesses.
iii) Compare list of books maintained with previous year's schedule.

12. 1. Bills of Purchases and sales.

13. 2. GST R1 from 1 April TO 31March by the person having turn over more than 1
corer.
24
14. 3. Scrutinize previous year's tax audit report, current liabilities & secured / unsecured
loans.

15. i) Has the assesses accrued/paid any interest on loan borrowed,

4. Ascertain the purpose of such loan.

16. 1. Verify the details of payments to partners/members for interest, Salary, bonus,
commission or remuneration with reference to the deed of partnership/other
documents books of account.

17. 2. Scrutinize schedules/vouchers for expenses like - Staff Welfare, Entertainment,

Rent, General Expenses, Sales Promotion, and Travelling, Hotel & Club bills, Guest
house expenses, Drivers Salary, Telephone expenses, Electricity expenses and Motor
Car expenses.

18. i. Scrutinize audited accounts and schedules for expenditures for any expenditure of
capital or personal nature:
a. Repair & Maintenance
b. Travelling expenses
c. Salaries & Wages
d. Stores & spare parts consumption
e. Depreciation
f. Legal, Professional & Consultancy charges
g. printing and stationary
h. Electricity Bills
3. i. Miscellaneous Expenses.

19. Bank Statements for 1 April to 31 March

• Saving Account
• Current Account
• CC (Cash Credit Account)
• Loan Account if, loan taken
1. Verifying Previous Year Trading Account, Profit & Loss Account and
Balance Sheet.

20. Verifying Previous Year and Current Year Inventories Raw Material, Working
Progress and Finished Goods.

21. Verifying GST R1 & GST R2 for the Year.

22. Liabilities and Asset

i. Fixed Assets
ii.Current Assets
iii.Debtors
iv.Cash and Bank Balance
v.Bills Receivable
Liabilities
i. Capital
ii.Creditors
iii. Bank Overdrafts/Bank Loan (Secured / Unsecured).

25
Vouching Process:

Vouching is concerned with examining documentary evidence to ascertain the authenticity of entries in the
books of accounts. In other words, it is an inspection by the auditor of evidence supporting the transactions
made in the books. Vouching is a technique used by an auditor to judge the truth of entries appearing in the
books of accounts. Some important definitions of vouching are: "Vouching means testing the truth of items
appearing in the books of original entry." - J.R. Batliboi "Vouching is an act of comparing entries in the
books of accounts with documentary evidence in support thereof." - Dicksee From the above definitions we
can conclude that vouching is a technique in which an auditor verifies authenticity and authority of
transactions recorded in the books and on the basis of which he submits a report, indicating that accounts are
correct, free from errors or fraud and complete.

Objectives of Vouching:
1. All the transactions which are connected with the business have been recorded in the books
2. To verify that all transactions recorded in the books of accounts are supported by documentary evidence.
3. The vouchers which support the entries are legally valid from the view point that they are authentic,
addressed to the business and properly dated
4. To verify that no fraud or error has been committed while recording the transaction in books of accounts.
5. The vouchers have been processed carefully through various stages of internal check system.
6. While recording the transaction whether distinction has been made between capital and revenue items.
7 Whether accuracy has been observed while totaling, carrying forward and recording an amount in the
account

26
 Vouching of cash Transactions:

1. Cash sales:

In vouching cash sales, cash register should be fully checked with carbon copies of cash memos. Then, the
auditor should verify the daily deposits of cash received in the bank dates of the cash and the date on which
the receipts are recorded in cash book must be same.

2. Cash received from the debtors:

The auditor should verify amount received from debtors from the counterfoils or carbon copies of the receipt
issued to the customers. All these receipts should be serially numbered. Amount should be entered in the
cash book on the day when received. Discount allowed to customers should be authorized by a responsible
officer. Sometimes correspondence made with customer can also be verified.

3. Loans:

While vouching the loans received, the terms and the conditions contained in the agreement should be
verified. If the loan is secured what security has been offered, whether the fact has been disclosed in the
balance sheet.

4. Bills receivable:

Bills receivable book maybe verified because the various details regarding the bills matured and discounted
are available in it. Auditor should check the amount received with the bank statement. Some bills might
have become due but no amount has been received. Whether the entry for the dishonor of such bill has been
made. A

5. Sale of Investment:

If the sales have been affected through a bank, the auditor should examine the bank advice to know the
various details. Sometimes the investment is sold through the broker. Broker's sold note or commission
should be examined to verify the sale proceeds and commission charged by the broker.

6. Sale of Fixed Assets:

Sale of fixed assets may be vouched with minute book of board of directors, correspondence, agents' sale
account and sale contract. It should be seen that proper account has been credited.
Any profit arising on the sale of asset shall be credited to revenue account which is not available for
distribution of dividends.

27
 Vouching of cash payments (payment side):

1. Cash Purchases:

Good purchased are actually received! By store keeper. Cash memos can be compared with goods inward
book to verify the goods received. Only the net amount (after trade discount) should be entered in the books.

2. Payment to creditors:

Should be examined with the receipts issued by the creditors. The receipts should indicate the purpose for
which the payment has been made. If the payment is made in full and final settlement of account, the
balance should be accounted for as discount received.

3. Bills payable:

Bills payable honored on the date of maturity and are returned by the payee after receiving the payment.
These bills should be cancelled after being paid. Bills payable paid can be vouched with bills book. If the
payment is made by the bank, bank statement or pass book can be examined to verify the payment of bill.

4. Wages:

The auditor should see the proper record is maintained for unpaid wages, deductions for any advance taken
by the worker should also be verified, and deductions made from the wages should also be entered in the
proper account. Special attention should be given to the payments made to casual workers.

5. Payment of Salaries:

In vouching the payment of salaries following points are important a. Auditor should check salary register
with the entries made in the cash book b. He should examine carefully alterations in the number of
deductions on account of fines, funds, loans, insurance etc.

6. Purchase of Investment:

The auditor should compare the investment purchased with Broker's Bought Note. If the possible, physical
verification of investments should be made. Investments must be in the name of the company. Where the
investments are purchased at cum-interested price, interest included in the purchase price should be debited
in the interest account and the balance in investment account.

7. Rent paid:

The auditor should verify the payment of rent from the agreement. The ret voucher should be supported by
rent receipt from the landlord. It should be seen that payment of rent is sanctioned by responsible officer.

8. Loans:

Auditor should be that the loan voucher should be supported by the receipt given by the party. Further
details regarding terms and condition of the loan can be verified from the loan agreement. It should be seen
that installment of loan along with interest are received in time.
Mortgage Deeds and other documents should also be examined.
28
 Vouching of purchase book:

The main aim vouching of purchases book is to see that all purchase invoices are entered in purchases book
and the goods entered in the purchases book are entered are actually received by the business. While
vouching credit purchases the auditor should examine and see the following points.

i. There should be proper record for all purchase orders. A duplicate copy of the order is kept in office for
record.
It. A copy of purchase order shall be send to the Accounts Department.
ii. All goods received should be recorded on goods received note; a copy of it should be sent to Accounts
Department.

1. The auditor should see that only credit purchases of the goods are recorded in purchase book.

2. The purchases book can be verified from purchase invoices, copies of orders placed, goods received
note, goods inward book, copies of challans from suppliers.

3. The quantity mentioned in the invoice must be same as is shown in the purchase order.

4. The price charged by the supplier must be as per quotation/pricelist of the supplier.

5. The supplier bill must be in the name of business and for the period under audit.

6. While vouching the purchase vouchers, each voucher should be stamped or initialed after
examination, so that it could not be produced again.

7. Any purchase, made not for the purpose of business of the client, must not be debited to purchase
account

8. Duplicate invoices must not be entered in the purchase book if original invoices have already been
recorded.

9. 9. The auditor should be more careful while vouching the purchase made in the first and last
month of the accounting period, because sometimes the purchase of last in firsthand last o in he
purchases of first month of current year or purchases of the last month of current Year may be
recorded in the next.

Vouching of Credit Sales

1. The sales register should be examined with copies of sales invoices. The sale of capital item should
not be recorded in the sales book; otherwise the profits will be inflated.

2. Test check should be applied on the calculations made in sale invoices

29
3. The totaling and the castings of sales book should be verified.

4. 4 Sales Tax, duties collected thorough sales invoices must be recorded under separate accounts.

5. It should be verified that all sales invoices are prepared on the basis of challans and then sales
invoices are entered in sales book and from there, posted to their respected accounts.

6. Sales made in the current year must be recorded under that year and shall not be treated as sales of
subsequent year.

7. All cancelled sales invoices must be kept together for verification by auditor, who should see that
cancelled invoices are properly treated in the books.

8. The statement of accounts should be verified by getting confirmations from the customer.

30
 CHAPTER-02

OUTLINE OF THE PROBLEM.

31
2.1 NEED AND SIGNIFICANCE OF THE STUDY

1. The tax audit is a technique through which the facts related to acts of a tax nature are certified and
analyzed. It is a method used to inspect both companies and individuals, that is, all those subjects
who are taxpayers and have tax obligations for the Public Administration or the State.

2. Through the fiscal audit, the accounting records, monetary movements, as well as all the
documentation that contains information related to the operations carried out by the subject during a
determined period of time are analyzed and analyzed (the periods in Fiscal terms go from year to
year.

3. The tax audit is a method through which it is analyzed if the taxpayer, whether company or person,
fulfills its tax obligations.

4. The function of the fiscal auditor goes through the verification of the declarations made by the
taxpayer before the Public Treasury and the tax payments and determining whether or not everything
is in order and according to reality.

Needs

1. A Tax audit determines whether financial records and transactions are correctly recorded and
accounted for.

2. Ensures that the records reflect the actual income of the taxpayer and that the claims for
deductions made are accurate.

32
2.2 OBJECTIVE OF THE STUDY

1. To study and understand concept of Auditing

2. To study and understand process of tax audit at Mansinghani& Kulkarni Associates. (CHARTERED
ACCOUNTANT).

3. To study and analysis documentation process and vouching process for tax audit at Mansinghani&
Kulkarni Associates. (CHARTERED ACCOUNTANT).

33
2.3 SCOPE OF TAX AUDIT

1. The scope of tax audit encompasses an examination or review of the books of accounts of any
business or profession maintained by taxpayers, conducted by a Chartered of Accountant (CA)
and the associates.

34
2.4 LIMITATIONS OF STUDY.

 Time Constraints: The time period of the study was 8 weeks which was insufficient for such an
extensive study.

 Reluctance: People were reluctant to share the information as they were insecure about the same.
They believed that their privacy would be affected by giving the information required.

 Misinterpretation of Data: The data was misinterpreted by the respondents, which in between acted
as a barrier.

 Authenticity doubtful: The information provided by the respondents may be false, which may not
lead to the authentic results.

 Findings of the research may change due to the area, age and other factors of the respondents.

35
 CHAPTER 03

RESEARCH METHODOLOGY AND DATA ANALYSIS.

36
3.1 RESEARCH METHODOLOGY OF THE PROJECT

Type of Research: Descriptive Study.

Type of Data:
Collected i) Secondary Data - Through case Study provided data
by client, websites.

Time Dimension: The dimension of the study was approximately eight

Weeks as provided by the Institute.

Period of SIP: 01-08-2022 to 30-09-2022

Case study (Tax Audit): 1) New Shri Krishna Cement Agency.

2) Radical Diagnostics.

37
3.2 BASED ON CASE STUDY APPROACH:-

Firm Name: Shri Krishna Cement Agency.

PAN NO: ASGPP9139H

GST NO: 27ASGPP9139H1Z5

Turnover of the 2021-22: 2.33,58,458 Rupees

Purchase of the 2021-22: 3, 75, 21,364 Rupee

38
 INTRODUCTION TO TAX AUDIT

The term audit refer is a check, review, verification or inspection of a record, transaction, account
etc. A tax audit is the process of verification and inspection of the accounts of a taxpayer to confirm
their adherence to the provisions of the Income Tax law.

Section 44AB of the Income Tax Act, 1961 deals with the Audit of the Accounts of a certain
Category of persons carrying on a business or engaged in a profession. The class of taxpayers listed
under this section compulsorily has to get their accounts audited by a Chartered Accountant. The
CA will check and verify that these accounts comply with the various provisions of the Income Tax
law. Simply put, this audit required as per Section 44AB of the Income Tax Act, 1961 is called a tax
audit.

The outcome of the audit is an audit report. This report is drawn by the Chartered Accountant where
he or she gives his findings and observations about the compliance of the person under audit. A tax
audit determines whether financial records and transactions are correctly recorded and accounted
for. This, in turn, ensures that the records reflect the actual income of the taxpayer and that the
claims for deductions made are accurate.

Tax audit refers to the verification of the books of accounts maintained by a taxpayer. The purpose
of a tax audit is to validate the income tax computation made by the taxpayer in the income tax
return and to ensure compliance with the laws of Income Tax. Auditing of books of accounts must
be carried out by a certified Chartered Accountant. In this article, we discuss the concepts of tax
audit limit, Section 44AB of the Income Tax Act and the legal provisions governing the
appointment of a tax auditor.

39
 PROCESS OF TAX AUDIT

Step 1: Get all the books of accounts of your client for the previous year whose audit is being
conducted.

Step 2: Make a separate checklist of the details which are required to completely fill up the form
3CD.

Step 3: Check the opening balances from the previous report.

Step 4: Vouching.

Step 5: Bank Reconciliation.

Step 6: Check whether payments exceeding Rs. 10,000/- in cash have been made? If the same are
done, they need to be reported in our report.

Step 7: Prepare the Balance Sheet & the Profit & Loss Account.

Step 8: Ledger Scrutiny.

Make sure all the ledgers of your client have been carefully overlooked by you.

Step 9: Proper Notes & Disclosures.

Step 10: You need to fill up the form 3CA-3CD or 3CB-3CD, as required and
Generate .xml to be uploaded.

Step 11: Go to https://www.incometax.gov.in/iec/foportal/

Filing/User Login/LoginHome.html.
Sign in from your client's profile

40
  Step 1:

Get all the books of accounts of your client for the previous year whose audit is being conducted.

 Step 2:

Read the form 3CD & try to keep in mind or make a separate checklist of the details which are required to
completely fill up the form 3CD. Some of this information can be about - the details of fixed asset, details of
inventory, previous report data, payments made to related persons, payments exceeding Rs. 10,000/-made
during this previous year, etc. Also, don't forget to take the details about TDS deducted by the assesses and
also the details of Indirect Taxes paid by the assesses.

 Step 3:

Check the opening balances from the previous report. This is an important step & if any of the opening
balances do no tally with the previous year's report, we will face difficulty in making the Balance Sheet of
the current year.

 Step 4:

This is one of the most important steps in doing a Tax Audit. Vouching involves the complete checking of
all the vouchers of the enterprise. Detecting the possibility of any misrepresentation or fraud done by the
client is very probable at this step. Utmost care should be taken & all the vouchers should be thoroughly
checked. Commonly we do cash expenses vouching, bank expenses vouching, purchase vouching, sales
vouching, etc.

 Step 5: Bank Reconciliation.

In order to verify whether all the transactions related to bank have been duly accounted, we verify the bank
book with the bank statements. If there is a mismatch of some transactions, we prepare a BRS i.e., a Bank
Reconciliation Statement.

 Step 6:

Check whether payments exceeding Rs. 10,000/- in cash have been made? If the same are done, they need to
be reported in our report. Also, we should make sure that cash is not going negative in the books of accounts
in any part of the year.

41
  Step 7:

Prepare the Balance Sheet & the Profit & Loss Account.
As we have to upload the scanned copies of the financial statements with our Tax audit report, make sure we
make CA certified Financial Statements first & get scanned copies of the same ready.

 Step 8:
Make sure all the ledgers of your client have been carefully overlooked by you.
The general nature of the ledger & the transactions present in the ledger do not show anything unusual or
exceptional. In case, it does, make sure you receive satisfactory explanation of the same from your client.
Otherwise, the auditor should appropriately classify his report.

 Step 9
If you find anything worth mentioning in Step 8 or non - compliance of any of the Accounting Standards,
the same should be properly reported by you, the auditor.

 Step 10:

You need to fill up the form 3CA-3CD or 3CB-3CD, as required and generate .xml to be uploaded. Also,
make sure you have up to date DSC of the auditing CA as well as of the client assessed

 Step 11:

Go to https://incometaxindiaefiling.gov.in/e-Filing/UserLogin/LoginHome.html.
Sign in from your client's profile & Go to ADD CA option from My Account drop down menu. After
Adding your CA, the auditor needs to sign in from his profile made for uploading the report & upload the
tax audit report along with the scanned copies of financial statements. After this done, we need to again go
the client's profile & approve the tax audit report. With this, we complete the submission of the Tax Audit
Report with the CBDT.

42
 3.3 FINDING AND CONCLUSION

Findings

 Section 44AB of the Income Tax Act, 1961 deals with the Audit of the Accounts of a certain
category of persons carrying on a business or engaged in a profession.

 It was found that form 3CA/3CB is required for filing tax audit.

 Vouching involves the complete checking of all the vouchers of the enterprises.

 In case of professionals, if gross earnings are more than 50 Lakhs Rupees in a financial year.

 In case of business, if turnover or gross earnings are more than 1 crore rupees.
www.incometaxindiaefiling.gov.in is website to filing an e-filing of tax audit.

43
Conclusion:-

 The income tax audit is done only on profession or business account and not on individual
income.

 A tax audit is nothing but an examination of books of accounts of a taxpayer.

 The main aim of the examination is to make sure that the taxpayer is properly maintaining the
books of accounts and other records.

 The person who is responsible for the auditing of the tax should verify that the assesses has
complied with the requirements like, income tax filing, accurate deductions in income tax etc

44
 CHAPTER IV
PROJECT CONCLUSIONS.

45
4.1 LEARNING OUTCOME THROUGH PROJECT.

• The Project Entitle “Tax Audit".

• In my Internship I learn how to deal with clients, communication skills require to deal with clients.

• I learnt under sections 44AB of the income tax act, 1961 filing tax audit.

• Requirements of document to file income tax audit.

• Verifying previous year financial statement, vouchers, bank statement.

• I learnt how to make vouching entry in tally software.

• How to make e-filing of Tax Audit Report.

46
4.2 CONTRIBUTION TO MANSINGHANI KULKARNI& ASSOCIATE (CHARTERED
ACCOUNTANTS )

• Verify names of tax payer, GST No, Pan No, Address.

• Verification of Customer Credit/cash sales, Name of customer, Date of when customer sales the
goods.

• Verification of Purchase Bill, confirm GST No of Suppliers, Date and address of supplier.

• Verification debit and credit notes.

• Third party ledger statement (Debtor/ creditor).

• Check bank statement of client (Saving, Current, loan statement).

47
 CHAPTER V
REFERENCES.

48
ANNEXURE 1

Reference

https://medium.com/@robbiestone23/what-is-the-process-of-a-statutory- audit-in-india-
ede0cae8c806

https://lib.store.yahoo.net/lib/yhst-16628442455491/CAS041025DocumentAudit.pdf

https://life.futuregenerali.in/life-insurance-made-simple/tax-hacks/blogs/what-is-tax-audit-and-to-
whom-is-it-applicable

https://www.bankbazer.com/tax/tax-audit.html

https://enterbfslice.com/tax-audit

49
Q. 1) what is tax audit?

 The dictionary meaning of the term “audit” is check, review, inspection, etc. There are various types
of audits prescribed under different laws like company law requires a company audit; cost
accounting law requires a cost audit, etc. The Income-tax Law requires the taxpayer to get the audit
of the accounts of his business/profession from the view point of Income-tax Law. N

 Section 44AB gives the provisions relating to the class of taxpayers who are required to get their
accounts audited from a chartered accountant. The audit under section 44AB aims to ascertain the
compliance of various provisions of the Income-tax Law and the fulfilment of other requirements of
the Income-tax Law. The audit conducted by the chartered accountant of the accounts of the taxpayer
in pursuance of the requirement of section 44ABis called tax audit.

 The chartered accountant conducting the tax audit is required to give his findings, observation, etc.,
in the form of audit report. The report of tax audit is to be given by the chartered accountant in Form
Nos. 3CA/3CB and 3CD.

Q.2) what is the objective of tax audit?

 One of the objectives of tax audit is to ascertain/derive/report the requirements of Form Nos.
3CA/3CB and 3CD. Apart from reporting requirements of Form Nos. 3CA/3CB and 3CD, a proper
audit for tax purposes would ensure that the books of account and other records are properly
maintained, that they truly reflect the income of the taxpayer and claims for deduction are correctly
made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the
administration of tax laws by a proper presentation of accounts before the tax authorities and
considerably save the time of Assessing Officers in carrying out routine verifications, like checking
correctness of totals and verifying whether purchases and sales are properly vouched for or not. The
time of the Assessing Officers saved could be utilized for attending to more important and
investigational aspects of a case.

Q. 3) as per section 44AB, who is compulsorily required to get his accounts audited, i.e.,
who is covered by tax audit?

 If a person is required by or under any other law to get his accounts audited, then is it compulsory for
him to once again get his accounts audited to comply with the requirement of section 44AB?

50
Q. 4) what are Form Nos.

 The report of the tax audit conducted by the chartered accountant is to be furnished in the prescribed
form. The form prescribed for audit report in respect of audit conducted under section 44AB is Form
No. 3CB and the prescribed particulars are to be reported in Form No. 3CD.In case of persons
covered under previous FAQ, i.e., who are required to get their accounts audited by or under any
other law, the form prescribed for audit report is Form No. 3CA/3CB and the prescribed particulars
are to be reported in Form No. 3CD.

Q. 5) what is the due date by which a taxpayer should get his accounts audited?

 A person covered by section 44AB should get his accounts audited and should obtain the audit report
on or before the due date of filing of the return of income, i.e., on or before 30th September (*) of the
relevant assessment year, e.g., Tax audit report for the financial year 2015-16 corresponding to the
assessment year 2016-17 should be obtained on or before 30th September, 2016.
(*) In case of a taxpayer who is required to furnish a report in Form No. 3CEB under section 92 in
respect of any international transaction or specified domestic transaction, the due date of filing the
return of income is 30th November of the relevant assessment year.

 The tax audit report is to be electronically filed by the chartered accountant to the Income-tax
Department. After filing of report by the chartered accountant, the taxpayer has to approve the report
from his e-fling account with Income-tax Department.

Q.6) what is the penalty for not getting the accounts audited as required by section
44AB?

 According to section 271B, if any person who is required to comply with section 44AB fails to get
his accounts audited in respect of any year or years as required under section 44AB, the Assessing
Officer may impose a penalty. The penalty shall be lower of the following amounts:

 0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross
receipts in profession, in such year or years.
(b) Rs. 1, 50,000.

 However, according to section 273B, no penalty shall be imposed if reasonable cause for such failure
is proved.

51