The primary object of the Income-tax Act, 1961 is to levy and collect proper tax on income. The first step in this respect is the determination of income in accordance with the provisions of the Act. Determination of taxable income is different from commercial profits. The accountant is under a duty to prepare and present true statements of the accounts of the assessee. He should, neither suggest nor assist in the preparation of false accounts. But he is under no duty to investigate whether the accounts produced by the assessees are correct or not. Primarily that is a matter for the decision of the Income-tax Authorities. However, the position has changed with the introduction of section 44AB in the Income-tax Act, 1961 by the Finance Act, 1984, w.e.f.
1-4-1985, i.e. A.Y. 1985-86. With the result, the accountant’s role was widened to encompass within his duties and responsibilities examination and verification of accounts as to their correctness. Audit under section 44AB is generally known as Tax Audit.

In the case of the companies there is a statutory requirement to get the accounts audited in the interest of the shareholders, so that proper facts and figures are obtained which can be relied upon for giving a true and fair view of the financial health of the company. The scope of audit and examination of accounts for the purpose of determining taxable income is wider. Apart from examining the evidence for a particular item of expenditure or income, an auditor has to ascertain whether the income is taxable or the expenditure is allowable. In tax audit the tax authorities have their specific requirements as regards information which may not be available from the general purpose financial statements. Special statements for the specific use of tax authorities are therefore required to be prepared and the auditors are called upon to report on them.

According to the CBDT the purpose of tax audit is to ensure that the books of account and other records are properly maintained and that they faithfully reflect the correct income of the tax payer and claims for deduction are correctly made. The object is also to facilitate the tax administration by proper presentation of accounts before the tax authorities and to save the time of the assessing officer in carrying out the routine verification.

Even before the insertion of section 44AB in 1985, the Act provided for special audit u/s 142(2A) which was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. In the course of the assessment proceedings the Assessing Officer can invoke the provisions of section 142(2A) only in special circumstances where the conditions prescribed therein are satisfied. The basic condition for invoking this provision is complexity of accounts and the interest of the revenue. The provision cannot be invoked arbitrarily or with ulterior motive, such as, extension of time for completion of assessment. The section requires that for invoking this provision the Assessing Officer has to obtain the prior approval of the Chief Commissioner/Commissioner. The section does not expressly provide for any opportunity of hearing to be given by the Assessing Officer or the Chief Commissioner / Commissioner before invoking the provision. However, some courts have taken the view that opportunity of hearing is implied in the section. There is a difference of opinion amongst the High Courts in this respect. The provisions in this section are operative irrespective of the applicability of section 44AB and as such even in a case where the accounts have been audited u/s 44AB, the provisions of section 142(2A) can be invoked if the conditions are satisfied.

Special Story – Accounts, Audit & Certification under Income-tax Act, 1961

Apart from the tax audit and special audit referred to above the Income-tax Act, 1961 provides for audit & certification for the purpose of deduction and exemption under different sections. The Special Story for this month on ‘Accounts, Audit & Certification under Income-tax Act, 1961’ is intended to cover all these aspects. This Special Story will be very much useful to all our members as a reference material in their day-to-day practice. My special thanks to Shri Arvind H. Dalal for sparing his valuable time for editing the articles in the Special Story. I thank Shri Chandravijay Shah for designing the Special Story and Shri Naresh Dharia for assisting him in co-ordinating with the authors. I also thank all authors for sparing their valuable time and giving their articles within the scheduled time.

Index to Volume XXX (April 2004 to March 2005)

From the last two years we have been preparing the Annual Index of our journal. The first two were given with the February 2004 and August 2004 Issues of the Journal. The third Annual Index to Volume XXX (April 2004 to March 2005) is accompanying this Issue of the Journal. Annual Index makes the reference to the different Issues of the journal more handy and convenient. I wish to record the appreciation of the special efforts put in by Shri Bharat Chovatia and Shri Haresh Kenia in bringing out the Annual Index. I also thank Shri Chintan Shah, Shri Janak Vaghani, Shri Ketan Vajani, Shri Kishor Vanjara, Shri Naresh Dharia, Ms. Nikita Badheka, Shri N. K. Bhat and Shri Sunil Ghabhawalla for assisting in the preparation of the Index. I am also thankful to all those who have given their constructive suggestions in the process of preparation.

In the last over 30 years our journal has made a considerable progress in the coverage and quality and has achieved a unique position. Up to March 2002, we had quarterly Issues of March of the Law and special Issue for other months. We changed the system, with effect from April 2002. Now, every month the Issue contains both, the March of the Law and Special Issue in the form of Special Story. Since last year the coverage on Indirect Taxes has been increased and improved.

All this achievement is the outcome of the efforts and contribution by many; the Editors, the Editorial Board, the Chairmen, the office bearers and the other members of the Journal Committee and the others who have contributed directly or indirectly as authors etc. My sincere thanks to all of them. In the last three years, I had the opportunity of working for the journal as Editor and Chairman. Now it is the time for a change and a new person is expected to take charge. I am sure that you will continue your support for further improvement of the journal.


K. B. Bhujle
Editor