SUMMER TRAINING REPORT ON

A STUDY ON TAXATION,
AUDITING SERVICES PROVIDED
Undertaken at

NARENDER KUMAR GUPTA & COMPANY

Submitted in partial fulfillment of the requirements for the
award of the degree of

BACHELOR OF COMMERCE (HONS)

By

SHARAD

Vivekananda School of Business Studies

Vivekananda Institute of Professional studies

Guru Gobind Singh Indraprastha University, Delhi

December - 2019

1
 To Whom It May Concern

I, Sharad from BCOM-IV Semester of the Vivekananda Institute of

Professional Studies, Delhi hereby declare that the Summer Training Report
(B.com 309) titled A Study on Taxation and Auditing Services Provided,

Conducted at is an original work and the same has not been submitted to any
other Institute for the award of any other degree. A presentation of the
Summer Training Report was made on and the suggestions as approved by the
faculty were duly incorporated.

Date:

Signature of the Student

Sharad Gupta, with enrollment no. 36317788817 has submitted a Summer Training
Report titled A Study on Taxation and Auditing Services Provided, conducted at
Narender Kumar Gupta and Co. for partial fulfillment of Bachelor of Business
Commerce (B.COM) to be awarded by G.G.S.I.P. University, Delhi. I certify that this
report has been completed under my guidance and is satisfactory.

Date: Signature of the Guide

Name of the Guide:

Designation:

2
 ACKNOWLEDGEMENT

I offer my sincere thankfulness and humble regards to VIPS COLLEGE New

Delhi for imparting us very valuable professional training in B.COM.

I pay my sincere regards and gratitude to Dr. Nikita Aggarwal my project Guide for
giving me the cream of her knowledge. I am thankful to her as she has been a constant
source of advice, motivation and inspiration. I am also thankful to her for giving her
suggestions and encouragement throughout the project work.

I take this opportunity to express my gratitude and offer my thanksgiving to our

computer Lab staff and library staff for providing me the opportunity for utilizing
their resources for the completion of the project.

I am also thankful to my family and friends for constantly motivating me to complete

the project and providing me an environment which enhanced my knowledge.

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 TABLE OF CONTENTS

Topic Page No

Certificate
SummerTraining Appraisal
Acknowledgement
Executive Summary
Chapter 1: INTRODUCTION
CHAPTER 2: REVIEW OF LITERATURE -
CHAPTER 3:RESEARCHMETHODOLOGY

CHAPTER 4 : DATA COLLECTION

CHAPTER 5: DATA ANALYSIS
CHAPTER 6: FINDINGS AND SUGGESTIONS
CHAPTER 7: CONCLUSION
References/Bibliography
Appendices
Glossary

4
 EXECUTIVE SUMMARY

The project that I worked upon is titled as “A STUDY ON TAXATION, AUDITING

SERVICES PROVIDED BY NARENDER KUMAR GUPTA & CO..”. It was
completed after a in-depth analysis of the particular client’s Financial statements and
thereby conducting the tax audit and issuing the audit report to the respective clients.

In this project, I have studied the firm’s clients financial statements, analyzing their
growth, performance and any abnormal losses occurrence, which I observed while
assisting the auditor, during the audit of the particular client’s business.

The project also discusses about how chartered accountants firms conducts tax audit
of the client’s companies which is statutory in nature.

The primary data has been collected by obtaining the necessary set of book of
accounts, financial statements, vouchers, past audit reports etc. from the client’s
accounts office. Also, I did a parallel study about the effectiveness of the financial
services rendered by the CA firm and why is it necessary for the companies to get the
audits done.

For this report I have studied the past works of the various authors about audit reports,
which helped me in the preparation of the proper reporting format of audits for the
companies.

In this project, I have also mentioned about the various types of advanced auditing,
brief description about the taxation and their usage and necessity along with the
analysis and interpretation of the data, gathered through the primary and secondary
sources. I also gathered information, views of the clients to examine the effectiveness
of the working behavior and the services provided by the CA firm and the extent of
client satisfaction by personally interviewing the staff.

5
6
LIST OF TABLE AND CHARTS:

SNO TABLES CHARTS

.

1 Company 1: FINANCIAL RATIO

M/s RUBBER INDIA pvt TAX COMPUTATION

ltd.

2 Company 2: FINANCIAL RATIO

M/s BANSAL TAX COMPUTATION

STATIONERS

3 Company 3: FINANCIAL RATIO

M/s PUNEET & CO. TAX COMPUTATION

4 Company 4: FINANCIAL RATIO

M/s AKSH TAX COMPUTATION

INTERNATIONAL

5 Company 5: FINANCIAL RATIO

M/s DELHI ACRYLIC CO. TAX COMPUTATION

6 Company 6: FINANCIAL RATIO

M/s SHIV ENGINEERING TAX COMPUTATION

7
CHAPTER- 1: INTRODUCTION

8
 CHARTERED ACCOUNTANTS:

Chartered Accountants:

An accounting designation given to accounting professionals in many countries

around the world except the United States. A Chartered Accountant (CA) designation
typically proves the holder has the qualifications to audit financial statements and
business practices as well as offer advisory services to clientele. They enjoy a
statutory monopoly in audit of financial statements under the Companies Act, 2013,
Income Tax Act, 1961 and various other statutes in India. Financial statements
audited by a chartered accountant are presumed to have been prepared according to
GAAP in India (otherwise the audit report should be qualified). However, not all
Chartered Accountants work in audit. Firms of accountants provide varied business
services, and many accountants are employed in commerce and industry. Their areas
of expertise include financial reporting, auditing and assurance, arbitration, risk
management, economics, corporate finance, management accounting, information
systems audit, corporate law, direct tax, indirect tax and valuation of businesses. The
Government of India is now planning to open up a new field of practice in social audit
of government welfare schemes like MGNREGA and JnNURM. Apart from the field
of professional practice, some CAs work in industry and commerce in financial and
general management positions such as CFO and CEO.

 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI):

The Institute of Chartered Accountants of India (ICAI) is a statutory body established

under the Chartered Accountants Act, 1949 (Act No. XXXVIII of 1949) for the
Regulation of the profession of Chartered Accountants in India. ICAI now is the
second largest accounting body in the whole world. The Institute of Chartered
Accountants of India was established under the Chartered Accountants Act, 1949
passed by the Parliament of India with the objective of regulating accountancy
profession in India. ICAI is the second largest professional accounting body in the
world in terms of membership second only to AICPA. It prescribes the qualifications
for a Chartered Accountant, conducts the requisite examinations and grants license in

9
the form of Certificate of Practice. Apart from this primary function, it also helps
various government agencies like RBI, SEBI, MCA, CAG, IRDA, etc. in policy
formulation.

ICAI's first president was CA G.P. Kapadia (1949 to 1952), CA Manoj Fadnis is the
current president of ICAI and CA M. Devaraja Reddy is current vice president.

ICAI is the only licensing cum regulating body of the financial audit and accountancy
profession in India. It recommends the accounting standards to be followed by
companies in India to The National Financial Reporting Authority (NFRA) and sets
the accounting standards to be followed by other types of organizations. ICAI is
solely responsible for setting the auditing and assurance standards to be followed in
the audit of financial statements in India. It also issues other technical standards like
Standards on Internal Audit (SIA), Corporate Affairs Standards (CAS) etc. to be
followed by practicing Chartered Accountants. It works closely with the Government
of India, Reserve Bank of India and the Securities and Exchange Board of India in
formulating and enforcing such standards. Members of the Institute are known as
Chartered Accountants. Chartered Accountants are subject to a published Code of
Ethics and professional standards, violation of which is subject to disciplinary action.
Only a member of ICAI can be appointed as statutory auditor of an Indian company
under the Companies Act, 2013. The management of the Institute is vested with its
Council with the president acting as its Chief Executive Authority. A person can
become a member of ICAI by taking prescribed examinations and undergoing three
years of practical training. The membership course is well known for its rigorous
standards. ICAI has entered into mutual recognition agreements with other
professional accounting bodies world-wide for reciprocal membership recognition.

ICAI is one of the founder members of the International Federation of Accountants

(IFAC), South Asian Federation of Accountants (SAFA), and Confederation of Asian
and Pacific Accountants (CAPA). ICAI was formerly the provisional jurisdiction for
XBRL International in India.

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 COMPANY’S PROFILE:

NARENDER KUMAR GUPTA & COMPANY is a One Stop Shop Solutions for all
your Financial, Accounting, Taxation and Investments Needs. At D&A we have a
Very Qualified Team of Experienced Chartered Accountants, Company Secretaries,
MBA's, and Cost Accountants too. It was established in the year 2009. It is a leading
chartered accountancy firm rendering comprehensive professional services which
include audit, management consultancy, tax consultancy, accounting services,
manpower management, secretarial services etc.

They are registered with the ICAI and are eligible to offer following chartered
accountant services:

» Accounting Services

» Auditing Services

» Income Tax Services

» Societies and Trust Consultancy

» Sales Tax matters Consultancy

» Service tax matters Consultancy

 Accounting Services

They offer highly efficient accounting services which are provided by them for their
clients. They also offer design, implementation and review of accounting manual.
Their accounting services are offered at market leading rates.

 Design, implementation and review of accounting manual

 Advice on various accounting issues including those related to Indian GAAPs.

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12
 Auditing & Assurance Services

They are blessed with team of qualified chartered accountants highly efficient in
auditing and assurance services. Their wide range of services are aimed for financial
stability of the clients and take care of the decision making abilities. The services they
provide are in compliance with the legal environment.

 Statutory audit ▪ Company Audit

 Internal Audit ▪ Tax Audit
 Income Tax Services

They specialize in providing Income tax services to individuals, small scale and
medium scale businesses which are highly effective and efficient. Our range of
services include preparation of returns, getting assessment done, TDS and
withholding tax compliance, fringe benefit tax compliance and income tax appeals
before CIT and ITAT.

 Preparation of return
 Getting Assessment done
 Consultancy in tax matters & tax planning
 TDS & Withholding tax compliance
 Income Tax Appeals before CIT (Appeals)
 Income Tax Appeals before ITAT

 Societies and Trust Audit

They are engaged in providing auditing services to societies and trust consultancy to
their clients.

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 Service Tax Matters Consultancy

They have rich experience in offering service tax matters consultancy which are vital
in the current scenario. Our range of services include filing of returns, maintenance of
records and They also properly assess the situation of our clients. The consultancy is
provided by them at market leading rates.

 Registration
 Filing of return
 Maintenance of Records
 Assessment

Major 6 clients:

 BANSAL STATIONERS
 SA RUBBER INDIA PVT. LTD.
 M/S. PUNEET & CO,
 M/S. ASKSH INTERNATIONAL
 DELHI ACRYLIC HOUSE
 M/S SHIV ENGINEERING

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 CHAPTER – 2:
LITERATURE REVIEW

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The literature review is an abstract of the reference books and webliography that is
used for helping in the making of the project – “ A STUDY ON TAXATION,
AUDITING SERVICES PROVIDED BY NARENDER KUMAR GUPTA &CO.

ABSTRACT-2:

“Audit of accounts in the corporate sector was always mandatory by virtue of the
provisions of The Companies Act, 1956. Realizing the importance of audit this
requirement has been extended to non-corporate assesses. Since by virtue of sec
44AB all assesses irrespective of their nature, if they fulfill the criteria as laid out in
the section have to get their accounts audited.
The intention of bringing in this piece of legislation as observed by the Finance
Minister while presenting the Union Budget for 1984-85 is the compulsory audit is
intended to ensure proper maintenance of books of accounts and other records, in
order to reflect the true income of the tax payer and to facilitate the administration of
tax laws by a proper presentation of the accounts before the tax authorities. This
would also save the time of the Assessing Officers considerably in carrying out the
verification.

The limits of turnover have been in place for the past 16 years as a result the number
of assesses under the ambit of sec 44AB has risen alarmingly. There is a need to
revise the turnover limits upwards since only then will it be able to help the Assessing
Officers to pay special attention to such assesses .The situation at present is that the
Assessing Officers are inundated with a plethora of Tax Audit Reports which has
increased the burden on the taxman naturally affecting the quality of assessments.”

-PROF. PRAKASH PEGADWALA,

SVKM’S NARSEE MONJEE COLLEGE OF
COMMERCE &ECONOMICS, 2017

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ABSTRACT-2:

The Effect of Tax Audit on Tax Compliance in Nigeria (A Study of Bauchi State
Board of Internal Revenue):

This paper assesses the effect of Tax audit on tax compliance in Nigeria a case of
Bauchi State Board of Internal Revenue. The methodology employed for data
collection is only primary source, which involved the use of questionnaires, in which
48 questionnaire were administered to the staff of Bauchi State Board of Internal
Revenue, some selected individuals tax payers and corporate bodies within Bauchi
State out of which only 42 questionnaires were completed and returned. The data
generated for the study were interpreted using simple percentage. The main finding of
the study include among other; the Relevant Tax Authority (RTA) employed tax audit
towards achieving target revenue, that tax audit reduce the problems of tax evasion,
that tax payers do not usually cooperated with tax audit personnel during the exercise.
etc The paper recommends that; the RTA at all levels should improve the standard of
tax audit employed for effectiveness and efficiency, tax audit should aim at reducing
the level of tax evasion and RTA should provide a policy that would allow the tax
payers to cooperate during the period of tax audit.

- MU’AZU SAIDU BADARA

DEPARTMENT OF ACCOUNTING

ABUBAKAR TATARI ALI POLYTECHNIC BAUCHI

(Research Journal of Finance and Accounting)

(Vol. 3, No 4, 2018)

17
ABOUT THE TOPIC -

“A STUDY ON TAXATION, AUDITING SERVICES

PROVIDED BY A CHARTERED ACCOUNTANT FIRM”
The project is regarding a study of the taxation, auditing service provided by the
chartered accountancy firms to the clients by helping them for the maintenance of
accounts and also guiding the clients ( individuals or firms ) about the income tax
filing services as well conducting statutory audits for the companies for monitoring
their efficiency as well as helping to file the Income tax , Sales Tax, DVAT, VAT for
the firms/companies and income tax , TDS returns for the individuals.

TAXATION:

Taxes in India are levied by the Central Government and the state governments Some

minor taxes are also levied by the local authorities such as the Municipality.

The authority to levy a tax is derived from the  Constitution of India which allocates
the power to levy various taxes between the Centre and the State. An important
restriction on this power is Article 265 of the Constitution which states that "No tax
shall be levied or collected except by the authority of law". Therefore each tax levied
or collected has to be backed by an accompanying law, passed either by
the Parliament or the State Legislature. In 2013-2014, the gross tax collection of the
Centre amounted to 13.64 trillion(US$210 billion).

Constitutionally established scheme of taxation :

Article 246[4] of the Indian Constitution, distributes legislative powers including

taxation, between the Parliament of India and the State Legislature. Schedule VII
enumerates these subject matters with the use of three lists:[5]

List - I entailing the areas on which only the parliament is competent to make laws,

List - II entailing the areas on which only the state legislature can make laws, and

18
 List - III listing the areas on which both the Parliament and the State Legislature can
make laws upon concurrently.

WHAT IS TAX?

A tax (from the Latin taxo; "rate") is a financial charge or other levy imposed upon a

taxpayer (an individual or a legal entity) by a state or the functional equivalent of a
state to fund various public expenditures.[1] A failure to pay, or evasion of or
resistance to taxation, is usually punishable by law. Taxes are also imposed by
many administrative divisions. Taxes consist of direct or indirect taxes and may be
paid in money or as its labor equivalent. Few countries impose no taxation at all, such
as the United Arab Emirates and thekingdom of Saudi Arabia.

KINDS OF TAXES:

 DIRECT AND INDIRECT TAX

Taxes are sometimes referred to as "direct taxes" or "indirect taxes". The meaning of
these terms can vary in different contexts, which can sometimes lead to confusion. An
economic definition, by Atkinson, states that "...direct taxes may be adjusted to the
individual characteristics of the taxpayer, whereas indirect taxes are levied on
transactions irrespective of the circumstances of buyer or seller.” According to this
definition, for example, income tax is "direct", and sales tax is "indirect".

Direct taxes are based on simple existence or ownership. Indirect taxes are imposed
on events, rights, privileges, and activities. Thus, a tax on the sale of property would
be considered an indirect tax, whereas the tax on simply owning the property itself
would be a direct tax.

 TYPES OF DIRECT TAX:

 TAXES ON INCOME:

› INCOME TAX

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The major tax enactment in India is the Income Tax Act, 1961 passed by
the Parliament, which imposes a tax on the income of persons.

 This Act imposes a tax on income under the following five heads.

 Income from house property

 Income from business and profession
 Income from salaries
 Income in the form of capital gains
 Income from other sources

In terms of the Income Tax Act, 1961, a person includes

 Individual
 Hindu Undivided Family (HUF)
 Association of Persons (AOP)
 Body of Individuals (BOI)
 Company
 Firm
 Local authority
 Artificial Judicial person not falling in any of the preceding categories

Many jurisdictions tax the income of individuals and business entities, including
corporations. Generally the tax is imposed on net profits from business, net gains, and
other income. Computation of income subject to tax may be determined under
accounting principles used in the jurisdiction, which may be modified or replaced
by tax law principles in the jurisdiction. The incidence of taxation varies by system,
and some systems may be viewed as progressive or regressive. Rates of tax may vary
or be constant (flat) by income level. Many systems allow individuals certain personal
allowances and other non business reductions to taxable income, although business
deductions tend to be favored over personal deductions.[4]

Personal income tax is often collected on a pay-as-you-earn basis, with small

corrections made soon after the end of the tax year. These corrections take one of two

20
forms: payments to the government, for taxpayers who have not paid enough during
the tax year; and tax refunds from the government for those who have overpaid.

The tax rate is prescribed every year by Parliament in the Finance Act, popularly called
the Budget. In terms of the Finance Act, 2015, the rate of tax for individuals, HUF,
Association of Persons (AOP) and Body of individuals (BOI) is as under:

 A surcharge of 2.50% of the total tax liability is applicable in case the payee is
a Non-Resident or a Foreign Company; where the total income
exceeds 1 crore (US$150,000).
 Education cess (EC) is applicable @ 2% on income tax, inclusive of surcharge
if there is any.
 Secondary and Higher Education Cess (SHEC) is applicable @ 1% on Income
Tax.
 A marginal relief may be provided to ensure that the additional IT payable,
including surcharge, on excess of income over 10 lakh (US$15,000) is limited to an
amount by which the income is more than this mentioned amount
› CAPITAL GAINS TAX:

Capital gain is generally a gain on sale of capital assets—that is, those assets not held
for sale in the ordinary course of business. Capital assets include personal assets in
many jurisdictions. Some jurisdictions provide preferential rates of tax or only partial
taxation for capital gains. Some jurisdictions impose different rates or levels of capital
gains taxation based on the length of time the asset was held.

› CORPORATE TAX:

Corporate tax refers to income, capital, net worth, or other taxes imposed on
corporations. Rates of tax and the taxable base for corporations may differ from those
for individuals or other taxable persons.

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 › WEALTH (NET WORTH TAX):

Some countries' governments will require declaration of the tax payers' balance

sheet (assets and liabilities), and from that exact a tax on net worth (assets minus
liabilities), as a percentage of the net worth, or a percentage of the net worth
exceeding a certain level. The tax may be levied on "natural" or legal "persons".

INDIRECT TAX:

An indirect tax (such as sales tax, per unit tax, value added tax (VAT), or goods and
services tax (GST)) is a tax collected by an intermediary (such as a retail store) from
the person who bears the ultimate economic burden of the tax (such as the consumer).
The intermediary later files a tax return and forwards the tax proceeds
to government with the return. In this sense, the term indirect tax is contrasted with
a direct tax, which is collected directly by government from the persons (legal or
natural) on whom it is imposed.

Some commentators have argued that "a direct tax is one that cannot be shifted by
the taxpayer to someone else, whereas an indirect tax can be.”

 TAXES ON GOODS AND SERVICES:

› VALUE ADDED TAX (GOODS AND SERVICE TAX):

A value added tax (VAT), also known as Goods and Services Tax (G.S.T), Single
Business Tax, or Turnover Tax in some countries, applies the equivalent of a sales tax
to every operation that creates value. To give an example, sheet steel is imported by a
machine manufacturer. For a VAT and sales tax of identical rates, the total tax paid is
the same, but it is paid at differing points in the process.

VAT is usually administrated by requiring the company to complete a VAT return,

giving details of VAT it has been charged (referred to as input tax) and VAT it has
charged to others (referred to as output tax). The difference between output tax and
input tax is payable to the Local Tax Authority.

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› SALES TAX:

Sales taxes are levied when a commodity is sold to its final consumer. Retail
organizations contend that such taxes discourage retail sales. The question of whether
they are generally progressive or regressive is a subject of much current debate.
People with higher incomes spend a lower proportion of them, so a flat-rate sales tax
will tend to be regressive. It is therefore common to exempt food, utilities and other
necessities from sales taxes, since poor people spend a higher proportion of their
incomes on these commodities, so such exemptions make the tax more progressive.
This is the classic "You pay for what you spend" tax, as only those who spend money
on non-exempt (i.e. luxury) items pay the tax.

› EXCISES:

An excise duty is an indirect tax imposed upon goods during the process of their
manufacture, production or distribution, and is usually proportionate to their quantity
or value. The fundamental conception of the term is that of a tax on articles produced
or manufactured in a country. In the taxation of such articles of luxury as spirits, beer,
tobacco, and cigars, it has been the practice to place a certain duty on the importation
of these articles.

OTHER TAXES:

AD VALOREM TAX

An ad valorem tax (Latin for "according to value") is a tax whose amount is based on

the value of a transaction or of property. It is typically imposed at the time of a
transaction, as in the case of a sales tax or value-added tax (VAT). An ad valorem tax
may also be imposed annually, as in the case of a real or personal property tax, or in
connection with another significant event (e.g. inheritance tax, expatriation tax,
or tariff). In some countries a stamp duty is imposed as an ad valorem tax

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 TAXES ON PROPERTY : PROPERTY TAX

A property tax (or millage tax) is an ad valorem tax levy on the value of property that
the owner of the property is required to pay to a government in which the property is
situated. Multiple jurisdictions may tax the same property. There are three general
varieties of property: land, improvements to land (immovable man-made things, e.g.
buildings) and personal property (movable things). Real estate or realty is the
combination of land and improvements to land.

AUDITING:

Auditing  refers to a systematic and independent examination of books, accounts,

documents and vouchers of an organization to ascertain how far the financial
statements present a true and fair view of the concern. It also attempts to ensure that
the books of accounts are properly maintained by the concern as required by law.
Auditing has become such an ubiquitous phenomenon in the corporate and the public
sector that academics started identifying an "Audit Society". The auditor perceives
and recognizes the propositions before him/her for examination, obtains evidence,
evaluates the same and formulates an opinion on the basis of his judgment which is
communicated through his audit report. Any subject matter may be audited. Audits
provide third party assurance to various  stakeholders that the subject matter is free
from material misstatement. The term is most frequently applied to audits of the
financial information relating to a legal person. Other areas which are commonly
audited include: internal controls, quality management, project management, water
management, and energy conservation.

As a result of an audit, stakeholders may effectively evaluate and improve the

effectiveness of risk management, control, and the governance process over the
subject matter.

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25
 KINDS OF AUDITS:

i. STATUTORY AUDIT:

Statutory Audit is compulsory audit prescribed under statute i.e. law. Appointments
of auditors, removal, remuneration, rights, duties, liabilities are governed as per the
Provisions of the respective law applicable to the organization. Scope of the audit
work and all others terms are as laid down by the law. It can be conducted only by a
qualified Chartered Accountant. Statutory audit is conducted after preparation of
final accounts. Statutory auditor has to report whether the balance sheet and profit
and loss A/c are drawn upon conformity with law and whether they show true and fair
view. Statutory auditor has to submit report to the shareholder. His remuneration is
fixed by shareholder.

ii. TAX AUDIT:

Statutory audits as well as the cost audit are taken up as result of specific provisions
contained in the companies Act, 1956. However, a new concept of tax audit has been
evolved lately under the Income Tax Act, 1961. In India, the Indian Income Tax Act,
1961, provides for compulsory audit of accounts of certain assesses whose turnover or
receipts exceed the specified limit. The Income Tax Act has provided for rules and
regulations regarding tax audit. The tax audit can be undertaken by the practicing
member of the institute of Cost and Works Accountants of India. The objective of
such audit is to assist the tax authorities in determination of correct tax liability. The
tax auditor has to report about the transactions which have an effect on fixation of tax
liability.

The tax audit was introduced by section 11 of the Finance Act, 1984, which inserted a
new section 44AB with effect from 1st April, 1985 [Assessment Year 1985-86]. This
section makes it obligatory for a person carrying on business to get his accounts
audited by a chartered accountant, and to furnish by the „specified date‟, the report in
the prescribed form of such audit, if the total sales, turnover or gross receipts in

26
 business in the relevant previous year exceed or exceeds the prescribed limit (Rs.1
Crorew.e.f. A.Y. 2013-14).

o For a professional, the provisions of tax audit become applicable, if his gross receipt
in profession exceeds the prescribed limit (Rs.25 Lakhs w.e.f. A.Y. 2013-14) in the
relevant previous year.

The Tax Audit Reports u/s 44AB has been modified substantially by a notification
issued by Ministry of Finance .The revised audit reports contain an extensive list of
items on which an auditor has to give specific report on .The revised Report places an
onerous responsibility on the auditor to conduct extensive checking of the books of
accounts and other records based on which he shall give his audit report.

Prior to the introduction of this section in the Income Tax Act, the Act provided for
the audit of Public charitable trusts and non-corporate assesse establishing new
industrial, undertakings. Also, the Income Tax authorities where given the discretion
to get the accounts audited under certain specified circumstances under sec 142(2A),
by a Chartered Accountant. The introduction of sec 44 AB widened the scope of audit
under the Income Tax Act considerably.

“ The audit report in prescribed form should be obtained from the auditor and filed
with the Return of Income. The tax auditor cannot accept more than 30 tax audit
assignments in a financial year.”

Section Business Covered

44AD Eligible Business
44AE Transport Business
44B Shipping Business of a non-resident
44BB Providing service or facilities in
connection with, or supplying plant and
machinery on hire used, or to be used, in
the prospecting for, or extraction or
production of, mineral oils
744BBA Operation of aircraft by non-resident

27
 44BBB Civil construction etc. in certain turnkey
power project by non-residents
Any Other Relevant Section This refers to the sections not listed above
under which income may be assessable on
presumptive basis like section 44D and
section 115A(1)(b) and will include any
other section that may be enacted in
future for presumptive taxation

Compulsory Tax Audit v/s 44AB:

Under the above section, tax audit is compulsory for a person carrying on any
business or profession if:

› In the case of business whose total sales turnover or gross receipts exceed
Rs.40,00,000 in the previous year, and
› In the case of a profession, if the gross professional receipts’ in the previous year
exceed Rs.10,00,000.
› In the case of an assessee covered under sections 44AD, 44AE, 44BB or 44BBB.

Special Features of Audit:

a) Audit Procedures: The nature and extent of audit procedures and working papers are
influenced by special features of SE described as above.
b) Fraud and Errors : Auditor should check the following circumstances which indicate
the possibility of fraud and Errors:
 Whether owner needs to manipulate the accounts (as the SE is his only source of
income).
 Whether personal and business transactions are mixed up.
 Whether advisor (lawyer, etc) are changed frequently.
 Whether advisor starts too late or has to be finished in a hurry.
 Whether there are unusual material transactions around year-end.
 Whether there are unusual transactions with group concern.

28
 Whether excessive fees/ commission is paid.
 Whether there disputes about taxes.
 Whether accounting records are partly missing.
 Whether cash transactions are too many.
 Whether documents for many transactions are inadequate.
 Whether many confirmations for debtors/stock have not been received back.
 Whether owner/senior manager have not been leave for long period.
 Whether working capital is insufficient.
 Whether remarks in earlier audit report are ignored.
 Whether stock records are not kept.
c) Audit Evidence:

i. Adequate audit evidence may not be available. The owner may want that some
transactions are not recorded at all. The internal controls, which should generate the
documents, may be weak.
ii. Auditor should focus on cross-checking of data, quantity reconciliations, analytical
review, external confirmations and review of transactions after year-end.
d) Audit Planning: Audit of a Se may be done by a sole C.A. Hence, audit planning will
be simple.
e) Management Certificate: Auditor should obtain a written certificate from the owner
that the accounting records/ financial statements are complete and accurate.
f) Analytical Review: Evaluating the Gross Profit Ratio over years/trade is often very
helpful in case of a SE.
g) Audit Sampling: In view of the small size, it may be possible to check 100% entries
or at least select a; large sample size for checking.

29
 CHAPTER – 3:
RESEARCH
METHODOLOGY

30
PURPOSE OF THE STUDY:

The purpose is to study about the taxation and auditing services provided by the CA
firms. While assisting the CA / auditor doing the tax audit for the various clients’
companies, I also, examined the effectiveness and benefit of the services provided by
the CA firms to their respective clients and observing the level of satisfaction of the
clients.

RESEARCH OBJECTIVES OF THE STUDY:

To examine the necessity of conducting the audits for the clients, why it is a requisite
for the firms to get the Audits done of their financial accounts and the timely filing of
the taxes levied on them.
For examining whether the services provided by the CA firms are satisfactory and the
activities are conducted while maintaining the authenticity and confidentiality for the
client companies or not.
To learn about what is taxation and auditing, how they are made mandatory and why it
is necessary for companies, individuals to pay taxes

RESEARCH METHODOLOGY ADOPTED :

The study is based on analytical method. The primary data is collected by personal
collection of the book of accounts of the mentioned clients and thereby conducting the
tax audit, along with interviewing the staff for knowing the views, comments and
confidence regarding the performance of audit, taxation and consultancy services given
by the CA firms.

The primary data is collected by interviewing the internal staff of the client companies.
The secondary data is collected from the books and websites.

RESEARCH DESIGN:

31
The research design is of Descriptive type since it involved in studying the in-depth
analysis of the data of the clients and only after analyzing the task of performing the
tax audit on the financial statements provided by the clients would be performed.

SAMPLING PLAN:

The sample that was taken was the number of the clients for whom I had personally
assisted the CA while conducting the tax audit function.

SAMPLE SIZE :

The sample that was taken was the number of the clients for whom I had personally
assisted the CA while conducting the tax audit function. Hence, The study was
performed on the 6 major clients.

SAMPLE POPULATION:

The sample area consists of the number of the clients for whom I had personally
assisted the CA while conducting the tax audit function. Hence, The study was
performed on the 6 major clients.

32
 CHAPTER – 4
DATA COLLECTION

METHOD OF DATA COLLECTION:

33
 DATA SOURCE:

The data required for conducting of the study was collected from the primary sources
of data, namely, from the accounts office of the clients for whom I had personally
assisted the CA while conducting the tax audit function. Also, for performing the
tallying function of the Sales tax figures, for the matching of the figures, the data was
also gathered from the Income tax department websites, the website of Sales tax,
VAT/DVAT/CST etc.

o Primary Sources: Client’s Companies Accounts Office

o
o Secondary data: Registrar of Companies, Income Tax Department, Sales tax,
o VAT/DVAT/CST websites etc.

ANALYSIS TECHNIQUE:

The data collected from the offices was analyzed using accounting methods and
techniques. For the diagrammatic representation, Pie charts, Bar diagrams are used to
reach at the conclusions. Findings are made on the basis of analysis of the data
gathered from the primary and secondary sources. Recommendations are made on the
basis of findings drawn from various data collected and also based on the observations
for the areas where corrections can be made.

34
 LIMITATIONS:

o The study was limited to few departments in the organizations.

o Unavailability of executives in their cabins as they were engaged in field work at that
time.
o Since, the study is based on personal learning experience, possibility of errors cannot
be ruled out.
o Since the report is based on the primary data and personal interview, there is a
possibility of occurrence of false judgment and biased opinion of the auditor.

35
 CHAPTER 4:
DATA ANALYSIS

1.
2.
3.

36
COMPANY 1:

M/s S.A.RUBBER (INDIA)

[147, VILLAGE BURARI (GARHI) ,DELHI-110009]

TRADING AND PROFIT &LOSS ACCCOUNT

FOR THE YEAR ENDED 31.03.2018
PARTICULARS AMOUNT PARTICULARS AMOUNT
To Opening Stock 3647222.00 By Sales 8192388.06
By Closing Stock
To Purchases 5078269.49 (BO) 3708000.00
To Bonus Exp 82630.00    
To Electricity Exp 273288.00    
To E.S.I Exp 76625.00    
To Wages 677465.00    
To Carriage Inward 4249.00    
To Gross Profit 2060639.57    
11900388.06 11900388.06
To Accounting Charges 48000.00 By Gross Profit 2060639.57
To Courirer& Postage 344.00 By Interest 1492.00
By Sale of empty
To Electricity (office) Exp. 13870.00 drums 34000.00
To Freight & Forwarding By Sale of scraps
Charges 1050.00 &rakhs 9423.50
To House Tax 11848.00 By Dividend 1500.00
To Insurance Exp 2046.00    
To Bank Interest 34987.08    
To Interest on TDS 639.00    
To ISO Exp 7866.00    
To Legal Exp 3000.00    
To Licence Fees 5900.00    
To Manufacturing Exp 13692.00    
To MiscExp 5334.00    
To Car hiring charges 120000.00    
To Salary 658950.00    
To Telephone Exp 1200.00    
To Bank Charges 17954.24    
To DeprectionExp 220478.40    
To Interest on Loan 378845.10    
To Licence Fees (I.S.I ) 35057.00    
To Petrol & Diesel 10500.00    

37
To Printig& Stationery 8385.00    
To Rent 65510.00    
To Short & Excess 1063.23    
To Cess to Rubber Board fee 4681.00    
To Net Profit 435855.02  
  2107055.07   2107055.07

BALANCE SHEET AS ON 31.03.2018

LIABILITIES   AMOUNT ASSETS   AMOUNT
CAPITAL
ACCOUNT     FIXED ASSETS    
Opening
Balance 2863157.58   Branch Office 2938421.70  
Add Addition 1050000.00   Head Office 657213.00 3595634.70
Add profit &
Loss 435855.02        
CURRENT
  4349012.60   ASSETS    
Less Home
Loan 250440.00   Closing Stock 3708000.00  
Less Drawing 470000.00 3628572.60 UP Vat (C/F) 5578.39  
Prepaid
      Insurance 22510.00 3736088.39
LOAN AND
ADVANCES   4580843.30      
As per
Schedule Sundary
attached     Debtors    
As per
Schedule
      attached 395639.59  
BANK Advance to
OVERDRAFT     Suppliers 770686.00 1166325.59
Canara Bank
A/C
No.026726172
086   683188.25      
Security
      Deposit    
Sundry
Creditors (as
per schedule
attached)   387628.00 Sh. A.K. Jain 35927.00  
Electricity
      Security 23992.00  
Telephone
Provisions     Security 2010.00 61929.00
ESI 7295.00        

38
 CASH AND
TDS 37885.00   BANK    
Salary Payable 42261.00   Cash in Hand 909083.97  
Canara Bank
Wages Payable 67852.00   SB A/c 3518.64  
The Vaish
Coop, Bank
CST 65154.14   (H.O) 33099.00 945701.61
Rent 5000.00 225447.14      
           
    9505679.29     9505679.29

STATEMEN
T OF
ASSESSABL AMOUNT
E INCOME           (Rs)
             
INCOME
FROM
BUSINESS
OR
PROFESSIO
N            
As per Profit
& Loss A/c           435855.02
             
INCOME
FROM
House
Property            
Interest paid (3480-
on self 1160-
occupied 696-
house 119954
property     )     -118330.00
             
INCOME
FROM
CAPITAL
GAIN            
Sale
Consideration   14980000        
Less Transfer
cost   749000        
Net
Consideration   14231000        

39
Inexed Cost
of Purchase
and
Improvement
s            
1983-84 82819 731092        
1984-85 80912 662831        
1985-86 106750 821895        
1986-87 50000 365714        
1987-88 35000 238933        
  355481 2820465        
    11410535        
Less invested
in capital gain
scheme   7945200       3465334.68
             
INCOME
FROMOTH
ER
SOURCES            
Bank interest     66452      
FDR Interest     209070     275522.00
             
             
GROSS
Income           4058381.70
Less:Under
chapter VI-A            
U/s 80C 30000.0
PPF     0      
u/s 80C
Principal but
amount of 130486. restrict
House Loan     00 ed 150000  
U/s 80TTA
Bank Intt       10000 160000.00
Total Income           3898381.70
             
Rounded off           3898380.00

 TAX
COMPUTA
TION:
     
special
Tax on above rate 3465330 @0.20 693066    

40
 normal
  rate 433050 @0.10 13305   706371(*1)
Add:
Education
Cess @ 3%           21191
             
Total Tax
Due           727562
Add: Interest           10416
             
Total Tax &
Interest           737978(*2)
             
Tax Paid TDS       177739  
Advance
  Tax       401000  
Self
Assess
  ment Tax       159239 737978
(*1)-(NORMAL RATE -300000) X 0.1

(*2) -(TOTAL TAX DUE + INTEREST)

FINANCIAL RATIOS:

GROSS PROFIT RATIO = Gross Profit x 100

Sales

= (2060640/ 8192388 ) x 100 = 25.15%

NET PROFIT RATIO: = Net Profit x 100

Sales

= 435855 x 100

8192388

= 5.3%

STOCK IN TRADE

TURNOVER RATIO: = Closing Stock x 100

41
Sales

= 3708000 x 100

8192388

= 45.26%

FINANCIAL RATIOS

NPR; 17.95

GPR; 44.37

ANALYSIS:

The financial ratios pie chart shows that STR is at 60% while the GPR & NPR are at
33% & 7% respectively stating that while the firm is making profit it is maintaing a
higher stock in trade turnover ratio which suggests that the businesses need to hold
stock for a longer period.

42
 TAX COMPUTATION
4500000
4000000
3500000
3000000
2500000
2000000
1500000
1000000
500000
0
GROSS Income Total Income Tax on above Total Tax &
Interest Paid

Analysis:

The tax computation chart shows the total taxes payable for the firm after sucessful
deductions from the gross total income. It shows that since, the total income to be
taxable was at Rs.38,98,380, hence, after the deduction of tax slabs it falls under and
calculating by special and normal rates, the tax payable amount is derived at and which
is higher in this case at Rs.737978

4.
5.

43
Company2:

M/s BANSAL STATIONERS

WZ- A-252, Gali No. 7, uttam Nagar, New Delhi-110059

TRADING AND PROFIT &LOSS ACCCOUNT

FOR THE YEAR ENDED 31.03.2018

PARTICULARS AMOUNT PARTICULARS AMOUNT

To Opening Stock 7211500.00 By Sales 9791716.00

To Purchases 3683378.00 By Discount on purchase 826657.00

  By Closing Stock (BO) 691500.00

To Gross Profit 414995.00  

  11309873.00 11309873.00

44
To Audit &DSC Fee 7500.00 By Gross Profit 414995.00

To Bank Charges 810.00 By Interest on Security 45000.00

To Car
Running&maint 28450.00 By Rebate & Discount 3.00

To car insurance 5252.00  

To Conveyance Exp. 14215.00  

To Depreciation 25259.00  

To Miscellaneous
Expenses 921.00  

To Sales Promotion 16045.00  

361546
To Net Profit  

  459998.00   459998.00

BALANCE SHEET
For the year ending 31.03.2018

LIABILITIES   AMOUNT ASSETS AMOUNT

CAPITAL
ACCOUNT FIXED ASSETS 143132.00

Opening Balance 1892117  

230252.
Add Addition 00  

361546.
Add profit 00  

45
 2483915
  .00 CURRENT ASSETS  

  Sundary Debtors 920762.00

111550.
Less Drawing 00 2372365.00

Advance to
  Suppliers 1689406.00

UNSECURED
LOANS 571000.00 DVAT 9321.00

Closing Stock 691500.00

   

CURRENT LIABILITIES  

   

   

Sundry Creditors 687285.00 CASH AND BANK  

  Cash in Hand 13473.00

PAYABLES & PROVISIONS Canara Bank A/c 165246.40

DVAT 2190.00  

   

    3632840.00 3632840.00

Statement Of Assessable Income

       
Source Of Income     Amount(Rs)

46
       
Income From Business      
Net Profit from Business     361546.00
       
Income From Other Sources      
Bank Interest     4000.00
       
Gross Total Income     365546.00
       
Less:Deduction Under Chapter
VIA      
Deduction Under Section 80C -
LIC Premium   31305.00  
Deduction Under Section
80TTA - Bank Intt   4000.00 35305.00
       
Total Income     330241.00
Rounded Off     330240.00

Tax
Computation
Tax On Above     8024
Less: Rebate u/s 87A     2000
      6024
Add:EducationCess @ 3%     181
Total Tax Payable     6205
Tax Paid     6205

47
 FINANCIAL RATIOS

NPR
NPR; 3.69 GPR
STR
STR; 7.06

GPR; 4.24

ANALYSIS:

The financial ratios pie chart shows that STR is at 47% while the GPR & NPR are at
28% & 25% stating that while the firm is making profit it is maintaing a higher stock
in trade turnover which suggests that the businesses need to hold stock for a longer
period

TAX COMPUTATION
350000
300000
250000
200000
150000
100000
50000
0
Total Tax Payable Tax On Above Total Income

ANALYSIS:

The tax chart shows the total taxes payable for the firm after sucessful deductions from
the gross total income. It shows that the total income to be taxable was at Rs.365546 &
after the deduction of tax under the tax slabs, the tax payable amount is derived at Rs.
6205 and it is less in this case.

48
6. COMPANY 3:

M/S PUNEET & Company

14, SADAR BAZAR ,DELHI-110006

Trading & Profit & Loss Account

(For The Year Ending 31st March,2018)
Particular Amount Particular Amount
To Opening Stock 532400.00 By Sales 13788116.00
To Purchases 11506985.00 By closing Stock 528700.00
To Cartages 15903.00  
To Wages 432000.00  
To Gross Profit 1829528.00  
  14316816.00 14316816.00
To Account Charges 40000.00 By Gross Profit 1829528.00
To Advertisement Exp. 138465.00 By Excess & Short 208.00
To Audit Fee 20000.00  
To Bank Charges 10255.10  
To Car Insurance 15272.00  
To Car Maintenance 12500.00  
To Commission 65000.00  
To Conveyance Exp. 37750.00  
To Depreciation 126364.00  
To Intt. Paid on Car
Loan 31857.27  
To Intt. Paid on Other
Loans 17974.78  
To Job Labour Charges 312240.00  
To Legal Expenses 26000.00  
To Postage Exp. 17000.00  
To Printing &
Stationery 1302.00  
To Rent 168000.00  
To Salary 186000.00  
To Sales Promotion 24400.00  
To Staff Welfare 19600.00  
To Telephone Exp. 840.00  
To Net Proffit 558915.85  
  1829736.00   1829736.00

49
 BALANCE SHEET
(For the year ending of 31st March 2018)

LIABILITIES   AMOUNT ASSETS AMOUNT

CAPITAL A/C FIXED ASSETS  
Opening Balance 1320691.70 716064.00
Add:Profit 558915.85  
  1879607.55 CURRENT ASSETS  
Less:Drawing 258789.00 1620818.55 Sundry Debtors  
  3269833.00
Advance to
SECURED LOANS Suppliers  
HDFC Bank 296480.94 158492.00
HDB Finance 27625.02 324105.96  
  Closing Stock 528700.00
CURRENT LIABILITIES DVAT Refund 473144.00
Sundry Creditors VAT Input 73436.00
2946470.00  
Advance From
Customers CASH & BANK  
944000.00 Cash In Hand 465788.00
  Yes Bank 430.30
PAYABLES &
PROVISIONS ICICI Bank 177064.71
Accounts Charges The Kangra Co-Op
Payable 10000.00 Bank Ltd. 2442.50
Audit Fee 20000.00 30000.00  
   
   
    5865394.51   5865394.51

STATEMENT OF
ASSESSABLE INCOME         AMOUNT(Rs)

INCOME FROM
BUSINESS OR
PROFESSION          
As per Profit & Loss A/c         558915.85
           
           
INCOME FROMOTHER
SOURCES          
Bank interest         7500.00
           
           
GROSS TOTAL INCOME         566415.85
Less:Under chapter VI-A          

50
 u/s 80C LIC     66751.00    
maximum
u/s 80D Mediclaim 22704 to 15000.00    
u/s 80TTA     7500.00   89251.00
Total Income         477164.85
Rounded off         477160.00
TAX COMPUTATION          
         
Tax on above         22716
Less: Rebate u/s 87A         2000
          20716
Add: Education Cess @ 3%         621
           
Add: Interest u/s 234B &
234C         2067
           
Total tax payable         23404
           
Tax Paid         23404

FINANCIAL RATIOS

STR; 3.83

GPR
NPR
STR
NPR; 4.05
GPR; 13.27

ANALYSIS:

The financial ratios pie chart shows that STR is at 18% while the GPR & NPR are at
63% & 19% stating that while the firm is making higher gross profit, it is also
maintaing its stock in trade turnover which suggests that there is fast movement of
stock and hence, the businesses do not need to hold their inventory for longer time.

51
 TAX COMPUTATION
350000

300000

250000

200000

150000

100000

50000

0
Total Income Tax on above Total Tax payable

ANALYSIS:

The tax computation chart shows the total taxes payable for the firm after sucessful
deductions from the total income. It shows that since, the total income to be taxable
was at Rs., 477164.85, hence, after the deduction of tax slabs it falls under, the tax
payable amount is derived at Rs.23404 and which is less in this case.

7. COMPANY 4:
M/s Akshh International
Prop: Vikas Gupta
3033/2,II/F ,ChunaMandi ,PaharGanj,New Delhi-55

Trading & Profit & Loss Account

(For The Year Ending 31st March,2018)
Particular Amount Particular Amount
To Opening Stock 4736812.00 By Sales 62966143.00
To Purchases 64053516.75 By closing Stock 8393297.00
To Gorss Profit 2569111.25    
  71359440.00   71359440.00
To Accounts Charges 28500.00 By Gross Profit 2569111.25
To Audit fee 10000.00 By Excess & Short 6336.70

52
 To Bank Charges 1123.60    
To Car Insurance 15562.00    
To Car Maintenance 58636.00    
To Conveyance 18000.00    
To Depreciation 92636.00    
To Intt. Paid on Loans 1087936.00    
To Rent 30000.00    
To Salary 360000.00    
To Staff Welfare 19275.00    
To Telephone Exp. 43955.00    
To Trade Discount 444.00    
To Travelling Exp. 144750.00    
To Net Proffit 664630.35    
  2575447.95   2575447.95

BALANCE SHEET
(For the year ending of 31st March 2018
         
LIABILITIES   AMOUNT ASSETS AMOUNT
CAPITAL A/C     FIXED ASSETS  
(As Per Annexures
Opening Balance 7493462.32   "A") 774936.00
Add:Addition 770000.00      
Add:Profit 664630.35   CURRENT ASSETS  
  8928092.67   Sundry Debtors  
(As Per Annexures
Less: Drawing 240000.00 8688092.67 'C') 10690482.00
      Closing Stock 8393297.00
UNSECURED LOANS   9602629.00 Security 23500.00
Special Additional
CURRENT LIABILITIES     Custom Duty 3483713.50
Sundry Creditors   2254791.85    
Advance From
Customers        
  2730519.00 CASH & BANK  
      Cash In Hand 983.56
PAYABLES &
PROVISIONS     Yes Bank Ltd 360065.46
Audit Fee Payable 10000.00      
VAT Payable 275189.00      
CST Payable 56962.00      
TDS Payable 108794.00 450945.00    
         
    23726977.52   23726977.52

53
 Statement Of Assessable Income

Source Of Income     Amount(Rs)

Income From Business      

Net Profit from Business     664630.35

       

Income From Other Sources      

Bank Interest     1000.00

       

Gross Total Income     665630.35

Less:Deduction Under Chapter VIA      

Deduction Under Section 80C - LIC
Premium   21308.00  
Deduction Under Section 80TTA - Bank
Intt   1000.00 22308.00

       

Total Income     643322.35

Rounded Off     643320.00

TAX COMPUTATION

Tax On Above     *39332

54
 Less: Rebate u/s 87A     2000

      37332

Add:EducationCess @ 3%     1120

Total Tax Payable     38452

Tax Paid     38452

*(Taxable Income roundoff -250000) x 0.1

FINANCIAL RATIOS

NPR
NPR; 3.69 GPR
STR
STR; 7.06

GPR; 4.24

ANALYSIS:

The financial ratios pie chart shows that STR is at 47% while the GPR & NPR are at
28% & 25% stating that while the firm is making profit it is maintaing a higher stock
in trade turnover which suggests that the businesses need to hold stock for a longer
period

55
 TAX COMPUTATION
350000
300000
250000
200000
150000
100000
50000
0
Total Income Tax on above Total Tax payable

ANALYSIS:

The tax computation chart shows the total taxes payable for the firm after sucessful
deductions from the gross total income. It shows that since, the total income to be
taxable was at Rs.643322, hence, after the deduction of tax slabs it falls under, the tax
payable amount is derived at Rs. 38452 and which is less in this case.

8. COMPANY 5:

M/s Delhi Acrylic Co.

Prop: DevenderSah
Khasra No. 155/70, Ground Floor, Village PoothKhurd, Delhi - 110039

Trading & Profit & Loss Account

(For The Year Ending 31st March,2018)
Particular Amount Particular Amount
To Opening Stock 519500.00 By Sales 14663291.00
By closing
To Purchases 13239427.00 Stock 258600.00
To Cartage-Inward 63225.00  
To Gorss Profit 1099739.00  
  14921891.00 14921891.00
By Gross
To Accounts Charges 12000.00 Profit 1099739.00
To Audit fee 7500.00  
To Bank Charges 4701.55  
To Bank Interest 937.00  
To Conveyance 32400.00  
To Electricity Exp 96200.00  
To Fright & Forwarding 29000.00  

56
To Professional Charges 8500.00  
To Rent 120000.00  
To Salary & Wages 432000.00  
To Sales Promotion 20325.00  
To Staff welfare 22175.00  
To Net Proffit 314000.45  
  1099739.00   1099739.00

BALANCE SHEET
(For the year ending of 31st March 2018)

LIABILITIES   AMOUNT ASSETS AMOUNT

CURRENT
CAPITAL A/C ASSETS  
Opening Balance 285977.00 Sundry Debtors  
Add: Addition 550000.00 5273719.00
Add: Profit 314000.45 Closing Stocks 258600.00
  1149977.45  
Personal
Less: Drawing 180000.00 969977.45 Investment 1268000.00
  PNB FDR 1800000.00
UNSECURED LOANS  
AshaYadav 1150000.00 CASH & BANK  
NeealmYadav 1750000.00 2900000.00 Cash In Hand 37775.00
  Yes Bank Ltd 117452.00
Punjab National
PNB OD A/c 1591050.00 Bank 1941243.45
CURRENT LIABILITIES  
Sundry Creditors  
  4869791.00  
Advance From
Customers  
  329429.00  
EXPENSES PAYABLE  
Accounting Charges 19200.00  
Audit Fee 7500.00  
CST 1342.00  
Professional Charges 8500.00 36542.00  
   
    10696789.45   10696789.45
Statement Of Assessable Income

SOURCES OF INCOME Amount(Rs)

Income From Business
Net Profit from Business 314000.45

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 Income From Other Sources
Bank Interest 1500.00

Gross Total Income 315500.45

Less:Deduction Under Chapter VIA
25308.
Deduction Under Section 80C - LIC Premium 00
1500.0
Deduction Under Section 80TTA - Bank Intt 0 26808.00

Total Income 288692.45

Rounded Off 288690.00
Tax Computation
Tax On Above 3869
Less: Rebate u/s 87A 2000
1869
Add:EducationCess @ 3% 56
Total Tax Payable 1925
Tax Paid 1925

FINANCIAL RATIOS

STR; 1.76
GPR
NPR
STR
NPR; 2.14
GPR; 7.50

ANALYSIS:

The financial ratios pie chart shows that STR is at 15% while the GPR & NPR are at
66% & 19% stating that while the firm is making higher gross profit it is maintaing its
stock in trade turnover which suggests that there is faster movement stock and hence,
the businesses do not need to hold higher inventory

58
.

TAX COMPUTATION
350000
300000
250000
200000
150000
100000
50000
0
Total Income Tax on above Total Tax payable

ANALYSIS:

The tax chart shows the total taxes payable for the firm after sucessful deductions from
the gross total income. It shows that the total income taxable was at Rs. 288692.45,
after the deduction of tax, the tax payable amount is derived at Rs. 1925 and it is less in
this.

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COMPANY 6:

M/s Shiv Engineering

Prop: Ashok Shukla

R-9A/A, Gali No.11, Anand Parbat Industrial Area ,New Delhi-5

Trading & Profit & Loss Account

(For The Year Ending 31st March,2018)
Particular Amount Particular Amount
To Opening Stock 532400.00 By Sales 1986820.00
To Purchases 150492.00 By closing Stock 538700.00
To Cartages 15904.00  
To Wages 332000.00  
To Gross Profit 1494724.00  
2525520.00 2525520.00
To Account Charges 40000.00 By Gross Profit 1494724.00
To Advertisement Exp. 106665.00 By Excess & Short 508.00
To Audit Fee 25000.00  
To Bank Charges 15255.10  
To Car Insurance 15272.00  
To Car Maintenance 12500.00  
To Commission 65000.00  
To Conveyance Exp. 37750.00  
To Depreciation 156364.00  
To Intt. Paid on Car Loan 31857.27  
To Intt. Paid on Other Loans 17974.78  
To Job Labour Charges 112240.00  
To Legal Expenses 26000.00  
To Postage Exp. 17000.00  
To Printing & Stationery 1302.00  
To Rent 198000.00  
To Salary 176000.00  

60
 To Staff Welfare 19600.00  
To Telephone Exp. 840.00  
To Net Proffit 420611.85  
1495232.00   1495232.00

FINANCIAL RATIOS

STR; 27.11
GPR
NPR
STR
NPR; 21.17 GPR; 75.23

ANALYSIS:

The financial ratios pie chart shows that STR is at 22% while the GPR & NPR are at
61% & 17% stating that while the firm is making higher gross profit it is maintaing its
stock in trade turnover which suggests that there is faster movement stock and hence,
the businesses do not need to hold higher inventory.

TAX COMPUTATION
350000
300000
250000
200000
150000
100000
50000
0
Total Income Tax on above Total Tax payable

61
ANALYSIS:

The tax computation chart shows the total taxes payable for the firm after sucessful
deductions from the gross total income. It shows that since, the total income to be
taxable was at Rs. 318860.85, hence, after the deduction of tax slabs it falls under, the
tax payable amount is derived at Rs. 7100 and which is less in this case.

62
 ANALYSIS & INTERPRETATION OF THE DATA :

KEY POINTS TO CONSIDER (FOR TAX AUDIT) :

 Cash Payments should not be more than 20,000/-

 Depreciation on the Assets are ascertained on the basis of their date of purchase
100% depreciation for 1-6 months old used assets
More than 6 months – 50% of rate of depreciation is charged

 Unsecured Loans for more than 20,000/- are not allowed to paid in Cash.

 Ensuring that the proprietor has issued TDS certificates to the contractors, to the
salaried workers and professional heads etc. for the job rendered by them to the
company.

 Timely deposit of the quarterly Income tax returns

 TDS is deducted, deposited and filing of the TDS returns with the Income Tax
department.

 Also, the Income tax returns are timely sent to the IT department.

 Matching the challans of the payment of VAT, purchase bills.

 Yearly analysis of the GPR, NPR, Stock-in-trade turnover ratios and ensuring there are
no abnormal losses incurred by the company.

 Checking and tallying the bills of expenditures, rent , purchases etc.

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 Matching the Sales figures with the Sales tax returns and purchases figures from DVAT.

 Examining whether the stock-in-trade ratio is higher or smaller

 Analysis of the current debtors:

Ensuring they must be just 3 months old otherwise create provisions for bad debts for the
debtors who are more than 6 months old.

CHAPTER 6 :
FINDINGS & SUGGESTIONS

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 FINDINGS:

The findings drawn are as follows;

 Cash Payments are not more than 20,000/- and there is timely payment to the creditors

 Depreciation on the Assets are ascertained on the basis of their date of purchase
100% depreciation for 1-6 months old used assets
More than 6 months – 50% of rate of depreciation is charged
Mostly, the rate of depreciation used is at 18%.

 Unsecured Loans for more than 20,000/- are paid in Cash rather they are paid through
cheques and there is no bouncing of those cheques observed.

 The proprietor has issued TDS certificates to their contractors, to the salaried workers
and professional heads etc. for the job rendered by them to the company and also, they
have been issued the TDS certificates from the financial institutions.

 There has been timely deposit of the quarterly Income tax returns as well as of sales tax
returns which are tallied through the sales tax website.

 TDS has been deducted, deposited and filing of the TDS returns with the Income Tax
department.

 Also, the Income tax returns are timely sent to the IT department.

 The challans of the payment of VAT, purchase bills provided by the clients are matching
and hence, entered in the tally erp software.

 Yearly analysis of the GPR, NPR, Stock-in-trade turnover ratios and the business
ensured that there are no abnormal losses incurred by the company.

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 Also, where there is higher stock-in-turnover ratio the firms have been advised to hold
the stocks and for the smaller ratios, it suggested that the businesses are having good
and the faster flow of the stock movement.

 The bills of expenditures, rent , purchases are checked and tallied etc.

 The Sales figures are in accordance with the Sales tax returns and purchases figures from
DVAT.

 Also, there has been no undue shortage or misappropriation of funds observed alongwith
the all the payments and incomes statements in accordance with the figures mentioned in
the financial statements.

 Many clients business was observed that they set-off their liabilities early and there was
little delay in the payments to the creditors and there has been less delay.

 Analysis of the current debtors: Ensuring they must be just 3 months old otherwise create
provisions for bad debts for the debtors who are more than 6 months old.

 The Relevant Tax Authority (RTA) employed tax audit towards achieving target
revenue.

 Tax audit reduces the problems of tax evasion, tax avoidance and other tax
irregularities.

 Tax audit aimed at ensuring the submission of accurate and current returns for proper
computation.

 Awareness on tax rules and regulation increase compliance and reduce non-compliance
tax payers.

 That one of the reason behind the tax audit is the suspicion over the returns submitted
by the tax payers.

 Tax payers do not usually co-operate with the tax audit personnel during the exercise.

 Tax audit improves the level of tax compliance by the tax payers.

 No effective sanctions over the non-compliance tax payers with the tax rules and
regulations.

 The personnel conducting the tax audit are skilful in the area of tax audit.

66
 The tax audit personnel are not adequate and equipped with necessary working
materials.

Suggestions:

After the completion of the study, according to my opinion, there still exists a
possibility that biased approach can be adopted by many CA ‘s performing the tax
audits for the companies. Though, ICAI has laid many stringent and strict rules and
regulations for maintaining the ethics always and there has been heavy emphasis by
them on the authorized audit performance to give their judgments based on the facts
which are there in front of them and to their best knowledge without having any undue
influence of the particular clients for whom they are performing the audit.

Also, the data provided to the CA’s are given by the companies is not ensured that
there is no falsification of the facts mentioned hence, they need to perform internal
audits and the various kinds of audits which are not statutory in nature along with those
which are such as company audit. So that, when the financial statements reaches the
CA is ensured to be true in all sense.
 The Relevant tax authority at all levels should improve the standard of tax audit
employed for effectiveness and efficiency.
 Tax audit should aim at reducing more problems of tax evasion, tax avoidance and
other tax irregularities for standardization.
 The scope of tax audit should be wider in such a way that will ensure proper
submission of accurate and current returns for proper computation.
 The RTA should provide a policy to the public on the awareness of the importance of
tax payment and the effect of non-tax payment, so that the level of compliance would
be high and non-compliance will be low or even none.
 The tax payers should have God fearing and submit the accurate returns of their

67
 operation.
 RTA should also provide a policy that would allow the tax payers to co-operate during
the period of tax audit and at the same time the tax payers should do their best toward
cooperating with the tax audit personnel during the period of the exercise.
 RTA should also improve the standard of tax audit personnel so that they can highly
improve the level of tax compliance by the tax payers.
 There should be effective sanctions by RTA over the non-compliance tax payers with
the tax rules and regulation.
Hence, it is advisable that in spite of indulging in falsifications of the facts, companies
should ensure that they bring forth the right facts and not involved in tax evasion
activities also.

68
CHAPTER- 7 : CONCLUSIONS

69
The primary goal of this project report was to identify the need and the requirement for
a company to conduct tax audits. It showed that unless and until the companies
conducts of their accounts how will the assessor be able to ensure that the figures and
the data mentioned in the financial statements by the companies are actual.

Audit of accounts in the corporate sector was always mandatory by virtue of the provisions
of The Companies Act, 1956. Realizing the importance of audit this requirement has been
extended to non-corporate assesses. Since by virtue of sec 44AB all assesses irrespective of
their nature, if they fulfill the criteria as laid out in the section have to get their accounts
audited.

The intention of bringing in this piece of legislation as observed by the Finance Minister
while presenting the Union Budget for 1984-85 is the compulsory audit is intended to
ensure proper maintenance of books of accounts and other records, in order to reflect the
true income of the tax payer and to facilitate the administration of tax laws by a proper
presentation of the accounts before the tax authorities. This would also save the time of the
Assessing Officers considerably in carrying out the verification.

The project study conducted helped in examining the areas which are of upmost
importance to be considered while preparation of the audit report. The in-depth
analysis of the particular client’s Financial statements helped in analyzing their growth,
performance and any abnormal losses occurrence.

The project also discussed about how chartered accountants firms conducts tax audit of

70
 the client’s companies’ accounts which is statutory in nature and what are the various
types of advanced auditing which companies can incorporate so that their growth ,
performance is increased. Also, while gathering the information it was observed that
the clients of the DEWAN & ASSOCIATE are loyal and there is high customer
satisfaction meaning that these companies comes to the DEWAN & ASSOCIATE
since they offer best services thereby maintaining the ethics of the advisory. Hence,
This study could be concluded with the mentioning of there is a liability for the assesse
irrespective of their taxable income of Tax Audit.

BIBLIOGRAPHY
BOOKS: 

 Kothari, C.R. (1997). Research methodology, 3rd edition, 1997,

Vikas Publishing House Pvt. Ltd, New Delhi
 Singhania, Dr. Vinod K. & Dr. Monica , Student’s guide to Income
Tax, 48Th edition,2014,Taxmann publications pvt. Ltd., New Delhi
 Mundhra, Vikas, Advanced Tax Laws & Practice A.Y. 2015-16,
2015 edition, Lawpoint's CS Solutions, New Delhi
 Bansal, Surbhi, Advanced Auditing & Professional Ethics, 12th
edition, 2015, Taxmann’s publications pvt. Ltd., New Delhi
 Prasath, G.Sekar & Saravana, Easy guide to advanced auditing for
CA, latest edition, 2015, Padhuka publications pvt. ltd., New Delhi

WEBLIOGRAPHY:

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1. www.charteredclub.com

2.www.icai.org

3. www.incometaxindia.gov.in

4. ICAI GUIDANCE NOTES

5. www.taxguru.in

6. www.yourfinancebook.com

9. http://www.investopedia.com/terms/c/ca.asp

ANNEXURE
SAMPLE OF TAX AUDIT REPORT :

FORM NO.: 3 CB

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FORM NO: 3CD

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