407. Compulsory audit - Tax audit in case of companies have accounting year other than financial year
Circular No. 561 was issued by the Central Board of Direct Taxes on 22 May 1990. Its subject is 407. Compulsory audit - Tax audit in case of companies have accounting year other than financial year.
Holds that a company keeping its books to a year other than the financial year must still get its tax audit under section 44AB done for the financial year. Since section 3 makes the previous year the financial year immediately preceding the assessment year with effect from 1st April 1989, and it is the income of the previous year that is charged, the tax auditor has to audit the period covered by the relevant financial year, not the calendar or other accounting year kept under the Companies Act. The proviso to section 44AB, which lets an audit under another law serve, applies only where those accounts are audited for the financial year; where the accounting year differs the proviso does not apply, and the auditor must report in Form No. 3CB under rule 6G(1)(b).
Representations reported difficulty in complying with section 44AB in the case of companies which follow an accounting period other than the financial year.
407. Compulsory audit - Tax audit in case of companies have accounting year other than financial year
1. The Board have received representations regarding difficulties faced in complying with the provisions of section 44AB of the Income-tax Act in case of companies which follow an accounting period other than financial year.
2. Section 3 of the Income-tax Act, inter alia, provides that with effect from 1st April, 1989, "previous year" for the purposes of that Act means financial year immediately preceding the assessment year. In spite of the introduction of a uniform previous year for purposes of income-tax, some companies may adopt an accounting period other than the financial year, say the calendar year, under the Companies Act for other purposes.
3. In such cases, a question has arisen as to whether, under section 44AB of the Income-tax Act, the tax auditor can audit and certify the accounts for the period for which accounts have been maintained under the Companies Act (i.e., in this case the calendar year) or whether the tax auditor will have to certify the accounts for the relevant financial year which is the uniform accounting year for tax purposes.
4. The Board have considered the matter and are of opinion that as the income of the previous year is chargeable to tax and, for the purpose of Income-tax Act, the previous year is the financial year, the tax auditor would have to carry out the audit under section 44AB in respect of the period covered by the previous year, i.e., the relevant financial year. The proviso to the aforesaid section 44AB, therefore covers only the cases where the accounts are audited under any other law in respect of the financial year. Where the accounting year is different from the financial year, the proviso to section 44AB will not apply. Consequently, the tax auditors would have to carry out the tax audit in respect of the period covered by the relevant financial year and submit his report in Form 3CB as required in rule 6G(1)(b) of the Income-tax Rules.
Circular : No. 561, dated 22-5-1990.
In a penalty proceeding under section 271B for failure to get accounts audited, and when a tax audit report is rejected in assessment because it covers the wrong period.
Rules it names. Rule 6G of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.
Source: the Income Tax Department’s own published text — its page for this instrument.
