1. How to Do & Handle
Audit
• Do Audit –SAP
• Handle Audit- Internal & Revenue Audit if
you are an AO

2. Internal Audit
• Instruction No.3 of 2007
• Comprehensive
• SAP & IAP replace Chain Audit
• Hierarchy

3. Internal Audit
• Instruction No.3 of 2007
Hierarchy
CIT (Audit)
Addl CIT ITO(RA)
(Audit)
IAP
SAP
ITO
DC/AC
ITI
ITI

4. PSEB
• While giving effect to the order of CIT(A),
the AO treated Rs.159.25 crores as
business income instead of the correct
amount of Rs.202.49 crores
 Tax effect Rs.1859 lakhs

5. GMDC
• Unabsorbed depreciation set off in June
2000 was already set off in order u/s 154
passed in April 95
 Tax effect Rs.518 lakhs

6. Central Coal Fields
• Investment allowance of the Assessment
Year 1988-89 set off against income for
the Assessment Year 1996-97 (set off
beyond 8 years)
 Tax effect Rs.433 lakhs

7. Instrumentation Ltd.
• PF dues remitted beyond the due date not
disallowed u/s 43B
 Tax effect Rs.223 lakhs

8. State Bank of Patiala
• Interest u/s 244A allowed although the
refund was less than 10% of the tax
computed
 Tax effect Rs.77 lakhs

9. The Tinplate Company of India
Ltd.
• Out of TDS of Rs.242.71 lakhs, amount of
Rs.58.63 lakhs and interest thereon of
Rs.14.07 refunded a second time
Excess refund Rs.72.70 lakhs

10. Hindustan Lever
• Deduction u/s 80HHC: Turn over of bulk
chemicals and fertilizers business not
included in total turn over. Further, 90% of
other income reduced from export turn
over instead of reducing from business
profit
 Tax effect Rs.2009.31 lakhs

11. Tata Electric Company
• Unabsorbed depreciation of the
Assessment Year 1984-85 already set off
in the Assessment Year 1985-86 and yet
again set off in the Assessment Year
1994-95.
 Tax effect Rs.654 lakhs

12. IOB
• For AY 2002-03, REFUND OF Rs.22.98
crores issued u/s 143(1) but while raising
a demand of Rs.109.82 crores in the asst.
u/s 143(3), refund of Rs.22.98 crores was
not added.

13. AAI
• For AY 2000-01, sur charge levied at
Rs.2.76 crores instead of Rs.13.82 crores.

14. Jaipur Vidyut Vitran Nigam Ltd.
• For A.Y.2002-03, additions made in the
asst. u/s 143(3) amounted to Rs.55.75
crores but in the computation additions
aggregated to only Rs.25.75 crores.

15. SKG Consolidated Ltd.
• For AY 2002-03, sales tax of Rs.24.66
crores not paid before the due date for
filing the return not added back u/s 43B.

16. Hindustan Coca Cola Beverages
Ltd
• For AY 2001-02 & 2002-03 the AO
allowed depreciation on goodwill at
Rs.123.87 crores assuming goodwill to be
an intangible asset which it is not.

17. RIL
• For AY 2002-03, b/f loss of Reliance
Petroleum of Rs.1364.38 crores set off
agaisnt the income of RIL whereas after
scrutiny of Reliance Petroleum, the
merged company, there was no b/f loss.

18. C&AG Report for YE March 2006
DRAFT PARAS
Paras
Year of Amount accep Reply
Report DPs Rs.Cr ted Amt cr due Amt cr
2005-06 905 1971.3 340 328.28 422 1556.68
2004-05 688 3490.55 304 760.31 377 2662.39
2003-04 931 1852.65 572 849.14 175 748.42
2002-03 980 1419.2 802 731.93 97 404.44
2001-02 918 1503.37 663 612.56 92 204.69

19. Magnitude of Mistakes
• Only test check – not all cases audited
• Limited by the capability of RAP to detect errors
• Plus mistakes detected by Internal/ chain audit
• Plus mistakes detected in inspection
• Plus mistakes detected in review
 Sum total is enormous
o Above all, these mistakes relate to filers –
not the entire lot of taxpayers - current
/potential/ non-filers/ stop filers/ evaders

20. REMEDY
• Remedial Action – 154 /263/ 148 –
resources of the dept. + the assessee’s
resources
• In some cases RA may not be possible –
SC decision on reopening; on action u/s
263 (243 ITR 68)
• Resources expected to be deployed in
tackling non filers, stop filers & evaders
employed in fire fighting

21. C&AG
• Constitutional Authority
• Audit carried out u/s 16 of the C&AG of
India (Duties, Powers and Conditions of
Service) Act, 1971

22. What does C&AG do?
• Covers field offices and CBDT
through -
 audit of assts. upon test check
 exam. of rationale for issue of circulars
 exam of decisions taken in particular
cases
 exam of efficacy of systems and
procedures for collection

23. EVENTS - Revenue Audit
• HM note
• LAR
• PDP/ SOF
• DP
• Audit Para
• Audit Report

24. Evidence before the PAC
• Select CCsIT
• Members, CBDT
• Chairman, CBDT
• Revenue Secretary
• FS

25. Finale

26. Remedy
• Prevent mistakes rather than clearing the mess
after the mistakes have been committed
• Find out where things can go wrong, anticipate
them and ensure that they are not committed
• Do things right in the first place and always
• Educate
• Self check after rush period

27. • Master check list/ update/ Audit Manual
• Consult experts
• Allow internal audit
• Study C&AG Reports
• Study ‘Common Mistakes’

28. Reduction of RAP objections
• Time and other resources saved
• Image of the Dept. high
• Use of resources for other productive
work, neglected hitherto

29. Things to do
• Be passionate about your work
• Audit is not someone else’s job –it is yours
• Have respect for differences of opinion
• Take timely remedial action

30. Some suggestions
• Master file for every important case
• On the MR cover, note the objection
• Furnish proper reply at HM stage – time
saver
• Educate subordinates – invest your time in
doing this

31. Instruction No.9 of 2006
• Comprehensive
• Reply to CIT within 30 days
• CIT to send reply within 15 days
• Reply to SF within 15 days
• CIT to send PR (since revised) to Board
thr’ CCIT within specified date – outer limit
6 weeks. Copy to go to DI (Audit)

32. Remedial Action
• Take RA if correct
• Initiate RA even if not acceptable
• RA has to be taken-
objection against return processed
u/s143(1) if objection is valid
Instruction No.09 of 2006 (para3.2(c)(i)

33. Remedial Action
• Major Objections – CIT has to decide nature of
RA
• Minor objections – JCIT/Addl.CIT has to decide
RA
• Initiate even when an objection is not acceptable
• RA initiated can be dropped only with Board’s
approval if the obj involves interpretation of law,
etc. – CIT has to send report to Board within 3
months
• CCIT’s approval required in some cases

34. Accountability
• Expln to be obtained for non furnishing records
to RAP and action has to be taken
• Ledger cards maintained
• Expln. of AO in tax effect of Rs.1 lakh in IT and
Rs.30000 in other taxes
• Expl. In case of default in adhereing to time
limits
• Expln for failure to take timely remedial action
• Staff also are accountable – if arithmetical
errors, etc.