Budget 2015 which was presented by Arun Jaitley on 28th Feb 2015 has introduced an Amendment in Section 288 of the Income Tax Act to provide that an Auditor who is not eligible to be appointed as Auditor of a Company as per the provisions of Section 141(3) of the Companies Act 2013 shall not be eligible for carrying out any Audit or furnishing any report/ certificate under any provisions of the Income Tax Act in respect of that company.
On similar lines, an Auditor would be ineligible for carrying out any Audit or furnishing of any report/ certificate under any provisions of the Income Tax Act in respect of non-company as well.
However, the ineligibility for carrying out audit or furnishing of any report/ certificate in respect of an assessee shall not make an accountant ineligible for attending the Income Tax proceedings referred to in Section 288(1) as authorised representative on behalf of that assessee.
Another amendment has been introduced in this section stating that a person convicted by a court of an offence involving fraud shall not be eligible to act as authorized representative for a period of 10 years from the date of such conviction.
The definition of accountant in explanation below Section 288(2) of the Income Tax Act has also been revised on the lines of the definition of “Chartered Accountant” in the Companies Act 2013.
These changes will take place from 1st June 2015.
Reason for Amendment in Section 288 regarding Auditor’s Appointment
The Income Tax Act contains certain provisions (eg Section 44AB, Section 80IA, Section 92E, Section 115JB etc) which mandate the taxpayers to furnish Audit reports and certificates issued an “Accountant” for ensuring correct reporting/computation of taxable income by the taxpayers.
The explanation to Section 288(2) of the Income Tax Act defines an Accountant as a Chartered Accountant within the meaning of the Chartered Accountants Act, 1949.
The Comptroller and Auditor General of India (C&AG) published its report on “Appreciation of Third Party (Chartered Accountant) Certification in Assessment Proceedings” (No. 32 of 2014). In para 3.9 of the Report, it has been stated that the Chartered Accountants Act, 1949 debars an Auditor to express his opinion on the Financial Statements of any business or any enterprise in which he, his relative, his firm or partner in the firm, has substantial interest.
However, during the course of an audit it has been noticed that an auditor his report in Form 56F in respect of a closely held company in which the Auditor’s brother was the managing director.
To ensure the independence of auditor, Section 141(3) of the Companies Act 2013 contains a list of certain persons who are not eligible for appointment as an auditor. The Audit/ Certification function under the Income Tax Act is mainly provided for protecting the interests of revenue. An Auditor who is not independent cannot meaningfully discharge his function of protecting the interests of revenue.