How to Approve a Tax Audit Report by the Assessee

Receiving your completed tax audit report from your Chartered Accountant (CA) is a significant milestone, but it's not the final step. Before this report is filed with the tax authorities, you—the assessee—must review and formally approve it. This article breaks down exactly what you need to look for in the report, how to communicate effectively with your auditor, and the step-by-step process of approving your tax audit report online.

What is a Tax Audit Report?

Before you approve anything, it’s important to understand what you're looking at. A tax audit report isn't a single document but a combination of forms that certifies your financial statements have been reviewed and comply with the provisions of the Income Tax Act. It primarily consists of two parts:

• Form 3CA/3CB: This is the auditor's formal declaration. Form 3CA is used if your business accounts are already required to be audited under another law (like the Companies Act). Form 3CB is used for all other businesses or professions. The auditor states here that they have examined the accounts and provides their overall opinion.
• Form 3CD: This is the heart of the report. It's a detailed statement of particulars where your auditor provides specific information across dozens of clauses, covering everything from depreciation amounts and employee benefit payouts to related-party transactions and tax deductions claimed. This form provides the tax department with a standardized, in-depth view of your financial and tax records.

Your CA prepares this report after a thorough audit of your books of accounts, which you might maintain using software like QuickBooks or Xero. Their role is to provide an independent opinion on the truth and fairness of your financial records from a tax law perspective. Your role is to ensure that the facts and figures presented in the report are an accurate reflection of your business operations during the year.

Your Critical Review: What to Look For in the Audit Report

Approving the audit report should never be a rubber-stamp exercise. This is your final chance to spot errors or misinterpretations that could lead to tax notices or further scrutiny down the road. Treat this review as a final reconciliation between your understanding of your business and the formal declarations being made to the tax authorities.

While your CA has done the heavy lifting, you hold a unique position of knowing the day-to-day realities of your business better than anyone. Here’s a checklist to guide your review of Form 3CD:

Core Business and Personal Details

Start with the basics. It sounds simple, but errors in fundamental information are surprisingly common and can cause filing complications.

• Assessee's Details: Double-check your name, address, and Permanent Account Number (PAN). Ensure they match your official records perfectly.
• Status: Confirm your legal status is correctly indicated (e.g., individual, company, partnership firm).
• Financial Year: Make sure the report clearly pertains to the correct assessment year for which the audit was conducted.

Key Clauses in Form 3CD to Scrutinize

Form 3CD is long and technical, but some clauses carry more weight than others. Pay special attention to these areas:

• Clause 13: Method of Accounting: Confirm the method noted (accrual or cash) is what you consistently follow. A mismatch here can distort your profit and tax liability.
• Clause 17: Transfers of Land or Building: If you sold property for less than its stamp duty value, this clause requires details. Verify that the transaction value and stamp duty values are recorded accurately to avoid issues related to deemed income.
• Clause 21: Payments to Specified Persons/Related Parties: Payments to relatives or associated businesses are a major area of tax department focus. Review every transaction listed here. Ensure the amounts are correct and justifiable based on fair market value. Outsized payments to related parties can be disallowed.
• Clause 26: TDS/TCS Compliance: This section details your compliance with Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) rules. Cross-reference the TDS amounts mentioned in the report with your own records and Form 26AS. Any discrepancy is a clear red flag for the tax department.
• Clause 31: Loans and Deposits: This clause covers loans or deposits accepted or repaid in amounts of ₹20,000 or more, which are required to be transacted through banking channels. Ensure that all such transactions reported are accurate and you have bank statements to prove they were not done in cash.
• Clause 44: GST Reporting: This section requires a detailed breakdown of expenses, segregating them into GST-registered and unregistered suppliers. While it is complex, review the overall figures to see if they align with your general understanding of your vendors. A high value of purchases from unregistered dealers might be a point of further inquiry.

Double-Check the Auditor’s Remarks

Sometimes, an auditor may not be able to obtain sufficient information for a particular clause or may disagree with the treatment of an item. In such cases, they will add an "observation," "qualification," or "disclaimer" in Form 3CA/3CB. Read these comments carefully. A qualified opinion suggests the auditor has reservations about certain aspects of your financial statements. You must understand what these reservations are and why they exist before approving the report.

Communicating with Your Auditor Before Approval

Finding a potential discrepancy or having a question about a particular entry isn't a problem—it’s the purpose of the review process. The key is to address it constructively with your auditor before you approve the document.

1. Schedule a Meeting: Don't try to resolve complex points over email. Ask your CA for a brief call or meeting to walk through the draft report together. This shows you are engaged and allows for a real-time, interactive discussion.

2. Prepare a List of Questions: Before the meeting, write down your questions. Frame them clearly. For instance, instead of saying "The TDS section looks wrong," ask, "In Clause 26, the TDS amount for Q3 seems lower than what I have in my records. Can we cross-check this against our payment vouchers and Form 26AS?"

3. Provide Supporting Documents: If you believe a figure is incorrect, be ready to provide the evidence, such as an invoice, bank statement, or contract. This helps your auditor quickly verify the information and make necessary corrections. Remember, they are working from the information you provide, so any new documentation is helpful.

Remember, this is a collaborative effort. The goal is to file a report that is both accurate and compliant, protecting you from future tax liability and penalties. Clear and open communication is the best way to achieve that.

The Step-by-Step Approval Process on the Income Tax Portal

Once you are completely satisfied with the accuracy of the tax audit report, you can proceed with the formal approval. The entire process happens online through the official income tax e-filing portal.

1. Your CA Uploads the Report: After you give them your verbal go-ahead, your CA will upload the completed tax audit report (Form 3CA/3CB and 3CD) to the e-filing portal using their professional login credentials.
2. You Receive a Notification: Once uploaded, the report will appear in your own e-filing account. You will typically be notified via SMS and email that a form has been submitted by your CA and is pending for your acceptance.
3. Log In and Navigate: Log into the income tax e-filing portal using your user ID (usually your PAN) and password. Go to e-File → Income Tax Forms → View Filed Forms.
4. Locate the Pending Form: In the "Filed by others" tab, you will see Form 3CA-3CD or 3CB-3CD with a status of "Pending for acceptance". Click on it to view the report. You can download the full report in PDF or JSON format to be certain it is the same version you reviewed.
5. Accept or Reject: You will see two options: "Accept" and "Reject".
   • If you "Accept," you will be asked to verify your approval using either a Digital Signature Certificate (DSC) or an Electronic Verification Code (EVC). A DSC is mandatory for companies and firms required to have one, while others can often use an EVC generated via Aadhaar OTP, bank account, or Demat account.
   • If you “Reject,” you must provide a reason. This will send the form back to your CA’s "worklist," and they will have to revise and re-upload the form, starting the process again. Only reject if you find a last-minute error you have not already discussed.

Once you accept, the status changes to "Accepted," and the audit report is considered successfully filed. Your next step, which should follow immediately, is to file your Income Tax Return (ITR).

Final Thoughts

Successfully reviewing and approving your tax audit report is a process of diligent verification and clear communication with your tax professional. By carefully examining key details, particularly in Form 3CD, and discussing any questions with your auditor, you confirm the accuracy of your financial story before it becomes an official record with the tax authorities.

When questions and complex tax scenarios arise during the audit itself, our clients (CPAs and tax pros) depend on Feather AI to get clear, citation-backed answers instantly. This allows them to verify their positions on deductions, compliance issues, and reporting requirements efficiently, ensuring the draft audit report they send you is already built on a strong, verifiable foundation of tax law. This leads to a smoother, faster review and approval process for everyone involved.