Can Income-tax Practitioners conduct Tax Audit under Section 44AB?

There are various kinds of audits being conducted under different laws such as company audit, statutory audit conducted under company law provisions, cost audit, stock audit etc. Similarly, income tax law also mandates an audit called ‘Tax Audit’. Section 44AB of the Income-tax Act, 1961 contains the provisions for the tax audit of an entity. As per these provisions, tax audit shall be conducted by a Chartered Accountant who ensures that the taxpayers have maintained proper books of account and complied with the provisions of the Income-tax Act. Tax Audit conducted by a Chartered Accountant is reported to the Income-tax department in Form no. 3CA/3CB and Form no. 3CD along with the income tax return.

What is Tax Audit under section 44AB?

Tax Audit refers to the independent verification of the books of accounts of the assessee to form an opinion on the matters related to taxation compliances carried out by the assessee.
While preparing the books of accounts of the business or profession for the purpose of income tax filing, the assessee has to comply with the provisions of Income-tax Act, 1961.
Tax audit can be conducted by a Chartered Accountant who holds the certificate of practice and is in full-time practice.
However certain classes have been defined who cannot conduct tax audit under section 44AB.
The tax auditor (CA) carries out a systematically examination of books of account as per the formats prescribed by the department.

However, can Income Tax Practitioners carry out tax audit under Section 44AB? Let us refer to the case of T.D. Venkata Rao v. UOI (1999), where the issue under consideration was whether section 44AB is violative of Article 14 and 19 of the Constitution, as it excludes Income-tax Practitioners from auditing of accounts under the said section?

Facts of the Case:

The appellant, on behalf of income-tax practitioners, claimed that they were entitled to be ‘authorised representatives’ on behalf of the assessee and, therefore, excluding them for the purpose of auditing accounts under section 44AB was violative of articles 14 and 19 of the Constitution of India.
They, therefore, challenged the validity of provision of section 44AB.
The High Court rejected the plea of the Income Tax Practitioners. This was challenged before the Supreme Court

What is Article 14 of the Constitution?

According to Article 14 of the Constitution of India, “The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.”

What is Article 19 of the Constitution?

The Constitution of India provides the right of freedom, given in article 19 with the view of guaranteeing individual rights that were considered vital by the framers of the constitution. The right to freedom in Article 19 guarantees the freedom of speech and expression, as one of its six freedoms

Observations of the Supreme Court (SC)

Section 44AB required every person carrying on business, if his total sales, turnover or gross receipts exceeded Rs. 40 lakhs, and every person carrying on a profession, if his gross receipts exceeded Rs. 10 lakhs, in any previous year “to get his accounts of such previous year audited by an accountant before the specified date….” (old limits)
The Explanation to the section defined ‘Accountant’ for its purpose to have the same meaning as in the Explanation below section 288(2).
Section 288 dealt with authorised representatives. Sub-section (2) clause (4) refers to an Accountant.
The Explanation stated that in that section ‘Accountant’ means a Chartered Accountant within the meaning of the Chartered Accountancy Act and included persons entitled to be appointed to Act as auditors of companies in a particular State by reasons of the provisions of section 226(2) of the Companies Act, 1956

Conclusion by Supreme Court (SC)

Dismissing the petition, the Supreme Court held that Chartered Accountants, by reason of their training have special aptitude in the matter of audits and thus, it was reasonable that they, who formed a class by themselves, should be required to audit the accounts of businesses.

It was observed by SC that Income-tax Practitioners did not have the same expertise as Chartered Accountants in the matter of accounts and thus, the challenge under article 19 failed.

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