Tax audit under the Income-tax Act is a distinct engagement from the statutory audit even when the same firm carries out both. The auditor reports on the books of account and on the particulars listed in Form 3CD for the previous year. Applicability is determined by the turnover, gross receipts, or presumptive-taxation conditions in force for that year.
Clause-wise work includes nature of business, books maintained, method of accounting and stock valuation, loans and deposits, TDS compliance, amounts debited to the profit and loss account that are inadmissible, GST reconciliation, and other clauses notified for the year. Each clause is supported by a working paper that shows the source, the test performed, and the figure reported.
Where books are maintained on a basis different from ICDS or from the Income-tax Act’s depreciation schedule, the differences are quantified so that the computation of income and the tax-audit report tell the same story. Observations that do not belong in the form but affect the return are recorded separately for the file.
The report is e-filed and linked to the ITR. Keeping the tax-audit file, computation, and financial statements together shortens the response time if the same figures are later examined in assessment.