The Central Board of Direct Taxes (CBDT) has issued a new Standard Operating Procedure (SOP) for handling internal audit objections, under Instruction No. 2/2024, dated 9th September 2024.
The new SOP replaces previous instructions, including Instruction No. 6/2017, and applies immediately, covering both new and pending internal audit objections.
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Key Highlights from the Standard Operating Procedures —
Audit Setup and Responsibilities
The internal audit is conducted under the direct supervision of the Principal Chief Commissioner of Income Tax (PCCIT). The SOP outlines clear responsibilities for the Principal Commissioners (PCIT), Additional Commissioners (Addl. CIT), and other officers in the audit process. The audit covers all tax matters, ensuring compliance with legal provisions, judicial precedents, and departmental guidelines.
Comprehensive Audit Scope
Internal audits will examine cases to identify errors or omissions, focusing on verifying arithmetic accuracy and adherence to judicial pronouncements. Any audit observation other than a formal audit objection will now be communicated to the jurisdictional PCIT or CIT.
Classification of Audit Objections
Audit objections are classified into major and minor categories based on the revenue effect, with Rs. 10 lakh as the threshold for major objections. Additionally, any objections related to the exemption wing, such as grant or denial of registrations, are also classified as major objections.
Re-Checking of Audited Cases
The SOP mandates re-checking of audited cases by the PCIT and Addl. CIT to ensure all potential objections are raised. If any mistakes are found during re-checking, the cases are returned to the concerned auditor for further review.
Resolution and Remedial Actions
The PCIT or CIT will examine audit objections and decide on their acceptability within 15 days. If objections are accepted, remedial actions, such as revisions under Section 263 of the Income Tax Act, must be initiated. The SOP outlines specific timelines for initiating and reporting remedial actions.
Emphasis on Timeliness and Reporting
The SOP establishes strict deadlines for handling objections and reporting progress. Monthly reports on pending and resolved audit objections are required, and quarterly reviews by the Chief Commissioners of Income Tax (CCIT) will ensure progress toward audit targets.
Introduction of Ledger Cards
To promote accountability, ledger cards will be maintained for officers responsible for errors in assessments, ensuring reformative actions are taken based on audit outcomes.
Use of Technology
The Internal Audit Module of the Income Tax Business Application (ITBA) is emphasised for all audit-related actions, including raising, handling, and closing objections. Where ITBA functionality is limited, communication will be handled through official designation-based emails.
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The instructions also stated that, “The internal audit mechanism has been established to prevent errors, ensure timely remedy and for enhancing the quality of assessments. The evolving landscape of operations and responsibilities in the Department, especially in the faceless environment, has necessitated that the internal audit procedures be updated to ensure its efficiency while enhancing accountability and promoting compliance to tax laws. Accordingly, in supersession of all existing instructions on internal audit in general and Instruction No-6/2017 dated 21-07-2017 in particular, the instructions as follows are issued.”
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