Tax Audit For Partnership Firm

Tax Audit for partnership means to Examine the books of accounts maintained by partnership firm & verify the accurateness of the income earned & deduction claimed by the firm in the Income tax returns .Tax audit for FY 2019-20(i.e AY 20-21) shall be governed  by the provisions ( Section 44AB ) & Rules laid down in the Income Tax Act 1961 . Partnership firm who’s turnover crosses specified limit for those firm Tax audit is applicable. The Chartered Accountants conducting audit needs to record all his observations & findings and submit in the form of an audit report. In below article we discussing about tax audit applicability , due date of filing , tax audit report format & penalty for tax audit.  

 

• Audit Section is 44 AB of Income Tax Act 1961
• Appoint CA firm for Tax Audit
• Due Date of Tax Audit Filing is 30 September 
• Due Date of Income Tax Filing 30 September
• For Non Filing Penalty upto Rs.150000/-
• Digital Signature is mandatory

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Objectives of Tax Audit

1. It restricts the manipulation of individual’s or organization Books of accounts by certification through proper authority.
2. Check tax evasion by Firm if any .
3. Provide accurate information about partnership firm & avoid window dressing.
4. To identify the discrepancy in turnover reported as per Financials Statements  with the returns filed as per the requirement of any other law(Comparing the  turnover with GST and recording the reasons for any differences)

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Tax Audit Applicability

Tax audit applicability for partnership firm is given under Section 44AB of Income Tax Act 1961. Tax Audit for partnership firm is applicable if the turnover/ gross receipt exceeds Rupees One Crore in case of business and Rupees Fifty laces in case of profession. As per nature of business of firm turnover criteria changes.

• Business Activity Turnover > Rs. 1 Cr – Audit Applicable 
• Professional Services Activity Turnover > Rs. 50 Lac Audit Applicable 

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Meaning of Business : – Sec. 2(3) has defined the term as “ any trade, commerce, manufacturing activity or any adventure or concern in the nature of trade, commerce and manufacture”

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Meaning of Profession : – “Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette.

• Architect
• Accountant
• Authorized representative
• Engineer
• Film Artist – Actor, Cameraman, Director, Music Director, Editor, etc.
• Interior Decorator
• Legal Professional – Advocate or Lawyert
• Medical Professional – Doctor, Physiotherapist, etc.,
• Technical Consultant

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Example :

S.No	Example	Nature of Activity	Turnover	Tax Audit Applicability
1	M/s Shree Sales ( Partnership firm ) is business of supply of building material. The firm turnover for FY 2019-20 is 2.5 Cr	Business	Turnover > Rs. 1 Cr	Tax Audit Applicable
2	M/s Shree Consulting ( Partnership firm ) is business of engineering  service provider . The firm turnover for FY 2019-20 is 52 Lac	Profession	Turnover > Rs. 50 Lac	Tax Audit Applicable
3	M/s Shree Marbles ( Partnership firm ) is business of supply of Marble products . The firm turnover for FY 2019-20 is 52 Lac	Business	Turnover < Rs. 1 Cr	Tax Audit Not Applicable

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Tax Audit Checklist For Partnership Firm : – 

1. Verify Deed of Partnership for profit sharing ratios , interest on capital , salary etc.
2. Obtain the list of businesses carried by firm and ensure to incorporate in audit report.
3. Ensure maximum amount of partners remuneration does not exceed the maximum amount specified in the act
4. Check Valuation of closing stock 
5. expenditure of personal nature debited to profit & loss account 
6. Amount inadmissible under section 40A(3)
7. particulars of any liability of a contingent nature
8. loan or deposit in an amount exceeding the limit specified in section 269SS
9. Examine books of accounts

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Tax Audit Due Date for Partnership firm

Due date for tax audit for partnership firm for FY 2019-20 ( AY 2020-21 ) is 30 September 2020. If the partnership firm is liable for audit u/s 44AB then firm should file tax audit in due date. Also income tax reuturn filing due of firm shall be 30 September 2020. 

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Tax Audit Penalty For Partnership firm

Any partnership firm where tax audit is applicable & fails in tax audit filing in due date invites penalty under section 271B  of Income Tax Act 1961. Penalty for non filing of tax audit shall be as below , penalty may be levied i.e lower of

1. 0.5% of the total sales, turnover or gross receipts
2. Rs 1,50,000

However, Section 273B tax audit can be filed audit due. There is no penalty shall be levied under section 271B if firm proves there is a reasonable cause of such no filing, which causes are accept by Tribunals/Courts as reasonable Cause are:

1. Resignation of the Tax Auditor and Consequent Delay
2. Death or physical inability of the partner in charge of the Accounts
3. Labor Problems such as strikes, lock-outs for a long period
4. Loss of Accounts because of Fire/Theft etc. beyond the control of the Assesses
5. Natural Calamities

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Tax Audit Report Format

Income Tax Act 1961 given Tax audit report format for partnership firm. Below are Tax Audit report formats.

(a)  Form 3CA –

1. Name of Firm , PAN Number , Address etc.
2. Date of Audit report
3. Audited Balance sheet , Profit & Loss statement
4. Audit observation & qualifications 
5. Auditor Name , Membership number , Address etc.

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(b)  Form 3CB  –

Where assesse isn’t required to get his accounts audited under any other law except Income tax.

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(c)  Form 3CD

Statement of Particulars including details of the assesse and compliances which are required to be furnished .

1. Name of Firm , PAN Number , Address etc.
2. Date of Audit report
3. Audited Balance sheet , Profit & Loss statement
4.  Reporting of detailed observations, discrepancies mentioned in form 3CD
5. Auditor Name , Membership number , Address etc.
6.  A declaration that the accounts are maintained at the branch and head office

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DSC for Audit Filing

Digital Signature for Chartered Accountant and  authoried partner is mandatory for audit filing. While uploading the Audit Form CA needs to attach DSC , which shall be approved by partner.

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