Proposed amendment in section 288 of Income tax act related to Audtiors

Hon'ble Finance Minister has proposed to amend Section 288 of the income tax Act to provide that an auditor who is not eligible to be appointed as an auditor under Section 141(3) of Companies Act, 2013 shall not be eligible for carrying out any audit or furnishing of any report/certificate under any provisions of the Act.

It has been clarified that such ineligibility for carrying out any audit or furnishing of any report/certificate in respect of assessee shall not make an Accountant ineligible for attending income-tax proceedings in accordance with Section 288(1). However an Accountant who is convicted by a Court for an offence involving fraud shall not be eligible to act as AR before Income-tax Authorities for a period of 10 years from the date of his conviction.

Accordingly, it has been proposed, through Clause 77 of the Finance Bill, to revise Explanation to Section 288(2) of Act on the lines of the definition of Chartered Accountant in the Companies Act. These amendments will take effect from 1^st June, 2015.

As per proposed definition in the new explanation –

(i)  An accountant means a Chartered Accountant as defined in Section 2(1)(b) of CA Act who holds a valid certificate of practice under Section 6(1) of that Act.

(ii)  However, following classes of persons are excluded from being called Accountant:

 i.  Those persons who are not eligible for appointment as an Auditor in the case of a company as per Section 141(3) of the Companies Act, 2013

 ii.  Any partner of a firm, or a member of HUF in the case of Firm or HUF as the case may be

 iii.  In other cases, (other than cases in i & ii above) the person who is competent to verify the return under Section 139 in accordance with the provisions of Section 140.

 iv.  Any relative of a person referred to in 'i, ii & iii' above.

 v.  Any officer or employee of the assessee

 vi.  Any partner or employee of the persons referred to in 'v' above

 vii.  An individual, or his relative or partner:

(a)  Who is holding any security of, or interest in, the assessee (except where value of such security or interest does not exceed one hundred thousand rupees)

(b)  Is indebted to the assessee (except where such indebtness does not exceed one hundred thousand rupees)

(c)  Who has given a guarantee or provided any security in connection with the indebtness of any third person to the assessee (except where value of such indebtness does not exceed one hundred thousand rupees)

viii.  A person who has a direct or indirect business relationship with the assessee of the nature as may be prescribed.

 ix.  A person who has been convicted by a Court of an offence involving fraud (this dis-qualification will last up to 10 years from the date of conviction)

In addition to above, sub-section (4) of Section 288, which provides disqualification to represent an assessee under sub Section (1) for a period will continue (as per disqualification enumerated in that sub-section), has also been proposed to be amended by inserting clause (d) providing disqualification of the person who has been convicted by a Court for fraud. It is provided that such disqualification will last for 10 years after the date of conviction.

An Explanation has also been provided after sub section (7) of section 288 of income tax act, to explain the meaning of term "relative" in relation to an individual. According to this, a relative means:

(a)  Spouse of the individual,

(b)  Brother or sister of the individual,

(c)  Brother or sister of the spouse of the individual,

(d)  Any lineal ascendant or descendant of the individual,

(e)  Any lineal ascendant or descendant of the spouse of the individual,

(f)  Spouse of the persons referred to in Clause (b), Clause (c), Clause (d) or Clause (e),

(g)  Any lineal descendant of a brother or sister of either the individual or the spouse of the individual.