Auditors Appointment as per Section 288

At the time of computation of taxable income by a taxpayer, it is important to employ a third-party auditor who doesn’t have any substantial interest in the individual. This is done to ensure that the results of the tax calculations are impartial.

A new Amendment was introduced in Section 288 of the Income Tax Act at the time of presentation of Budget 2015 by Former Finance Minister Arun Jaitley. According to the Act, “An Auditor who is not eligible to be appointed as an auditor of a company as per the provisions of Section 141(3) of the Companies Act 2013 will not be eligible for carrying out any audit or furnishing any report under any provision of the Income Tax in respect of that company.”

There are rules that are applicable even in case of non companies like an Auditor will not be allowed to carry out any audit or provide any certificate under the provision of the Income Tax Act. According to another amendment that was introduced, an individual who has been involved in a criminal act or has been convicted by the law of an offence that is related to fraud will not be allowed to act as authorised representative for a duration of 10 years from the date of the said conviction.

Reason for introduction Amendment in Section 288

The taxpayer has to submit Audit reports given by an accountant to ensure the correct calculation of taxable income by the taxpayers according to certain sections of the Indian Income Tax Act (Example: Section 80IA, Section 923, Section 115JB, etc). The Section 288(2) of the Indian Income Tax Act clearly gives the definition of an accountant as a chartered accountant.

According to the information present in “Appreciation of a Chartered Accountant Report in Assessment proceedings”, it is clearly evident that an auditor is debarred from giving out his/her opinion on the financial statement of any company in which he/she is a partner or have a substantial interest. But there have been cases where an auditor has been involved despite being close to the company. To ensure the independence of the auditor, an amendment containing a list of individuals who cannot be appointed as auditors was introduced in Section 288.

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