Direct Taxes Introduction

History of Receipt Audit

History of Receipt audit goes back to 1913 when audit of Customs commenced. Audit of Central Excise started in 1959. Regular audit of Income Tax Receipts and Refunds commenced from 1 April 1961. The audit of Receipts (Direct Taxes and Indirect Taxes) was entrusted to the Comptroller and Auditor General of India (C&AG), prior to the enactment of the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971 {C&AG’s (DPC) Act, 1971}.

Authority of the Comptroller and Auditor General of India

The C&AG derives his authority and functions mainly from the provisions of Articles 149 to 151 of the Constitution of India. Article 149 provides that the C&AG shall exercise such powers and perform such duties in relation to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by the Parliament. The Parliament passed the C&AG’s DPC Act in 1971, which came into force with effect from 15 December 1971. Section 16 of the C&AG’s DPC Act authorizes C&AG to audit all receipts (both revenue and capital) of the Government of India and of Governments of each State and of each Union Territory having a legislative assembly and to satisfy himself that the rules and procedures are designed to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed. Section 13 of the C&AG’s DPC Act authorises C&AG to audit all the expenditure of Consolidated Fund of India and of each States/Union Territory having legislative assembly; all transactions of the Union and of the States related to Contingency Fund and Public Accounts etc.

 Compliance Audit

Audit Regulation 54 describes that audit of receipts is an examination of the systems and procedures and their efficacy in respect of the followings:

a. Identification of potential tax assesses, ensuring compliance with laws as well as detection and prevention of tax evasion;

b. Pursuit of claims with due diligence and that these are not abandoned or reduced except with adequate justification and proper authority;

c. Prompt investigation of losses of revenue through fraud, default or mistake including, if required, through the review of other similar cases;

d. Exercise of discretionary powers in an appropriate manner including levy of penalties and initiation of prosecution;

e. Appropriate action to safeguard the interests of the Government on the orders passed by the Departmental Appellate Authorities;

f. Any scheme as may be introduced by the Government from time to time;

g. Any measures introduced to strengthen or improve revenue administration;

h. Amounts that may have fallen into arrears, maintenance of records of arrears and action taken for the recovery of the amounts in arrears;

i. Other ancillary and non-assessment functions including expenditure incurred by the Departments;

j. Achievement of targets, accounting and reporting of receipts and their cross-verification and reconciliation with the accounts records;

k. Amounts of refunds, rebates and exemptions to see that these are correctly assessed and accounted for; and Any other matter, as may be determined by the C&AG.

Audit Regulation 55 provides that the scope of Audit of receipts includes examination of integrity of data, information and documents which form the basis of a policy. As per Audit Regulation 56(1), the Audit Officer shall have access to individual assessment files as may be necessary subject to provisions of applicable laws and rules. Auditee concerned shall provide access to the assessment records and also any computerised systems including the databases maintained by it in hard copy or/and electronic form.

Performance Audit

Ministry of Finance vide their letter F.No.6(5)-B(R)/99  dated 13^th June 2006 has clarified that under section 23 of the DPC Act, 1971, Comptroller and Auditor General of India, has the power to make regulations for carrying into effect the provisions of the Act in so far as they related to scope and extent of audit.  It was further clarified that performance audit which is concerned with the audit of economy, efficiency and effectiveness in the receipt and application of public funds is deemed to be within the scope of audit by Comptroller and Auditor General of Audit for  which performance Auditing Guidelines drawn up by the Comptroller and Auditor General of India already exist.

Audit Regulation 68 provides that Performance Audit is an independent assessment or examination to the extent to which an organisation, programme or scheme operates economically, efficiently and effectively. As per Audit Regulation 71, Audit may critically review the measurable objectives and performance indicators for their reasonableness and soundness in reviewing performance against the outputs and outcomes. Audit may also set criteria for reviewing programme performance based on best practices. Performance Audit envisages a high degree of interaction with auditable entities right from the selection of subject(s) for review to all subsequent stages like definition of Audit objectives and criteria, preparation of detailed Audit programmes, development of Audit findings, formulation of recommendations and other related matters. Before commencing detailed work of Performance Audit, the Director General/Principal Director (Audit) shall hold an Entry conference and after the draft Performance Audit report is ready, shall hold an Exit conference with the Income Tax Department (ITD).