Internal audit set-up. - Income Tax - 484/CBDT

INSTRUCTION NO. 484/CBDT December 12, 1972 Attention is invited to the Board's letter No.F.66/83/72-Ad.VII dated the 6th December, 1972 sanctioning additional strength for the Audit organisation of the I.T. Department with a view to improve its performance in the handling of matters connected with the C A.G.'s revenue audit and internal audit. The present functioning of the Department's audit organisation in both respects leaves much to be desired and with the utilisation of the augmented strength and the concerned effort at all levels. The Board expect the organisation to give good account of itself so that the achievements and the image of the Department stand out better. In this connection reference is invited to the observations relevant to audit in the Chairman's circular D.O. letter No.8/ML/Ch.DT/72 dated 14-11-1972 to the Commissioners of Incometax. 2. Administrative Steps: Detailed instructions about internal audit set-up and the procedure relevant thereto will follow separately. As regards revenue audit it will be seen from the Board's above noted letter No.F. 66/83/72-Ad.VII dated 6.12.1972, that inter alia the following important steps have been taken for strengthening the administrative machinery for handling this important item of work:- (a) The Charge Commissioners will hereafter have audit as one of their top important overall responsibilities even where the work is actually allotted for handling to Additional Commissioners, the latter now being administratively under the Charge Commissioners. The C. A.G.'s report and its discussion in the PAC of the Parliament brings the Department's functioning to the notice of the Legislature and it is imperative, therefore, that utmost importance is attached to audit work of the Department as a sensitive show window of its general performance. (b) A Deputy Director with supporting staff has been allotted to the D.I.(I.T. Audit) for exclusive attention, under the D.I.'s supervision, to audit Co-ordination functions of the Directorate. The audit responsibility of the Directorate has now to be discharged in a more dynamic and through going manner. The points on which the D.I.'s help would be particularly needed by the Board are detailed at relevant places in these instructions. (c) With the added strength, the IACs (Audit) have manageable jurisdiction and even where an IAC (Audit) has to cover another Commissioner's charge there is a Chief Auditor, locally available in that charge. Further, regular staff is being provided to the IACs (Audit) for improving follow-up work on revenue audit objections. with this strengthening of the watching agency, the pace for rectification/revisionary action on accepted audit objection should be taken and report sent in time to Audit to avoid criticism for delay. (d) Chief Auditors have now been provided in all Commissioner's charge and internal audit work has been shifted from them to the new ITO (Internal Audit); this leaves the Chief Auditors in all charges with the work of handling revenue audit matters as their main task and they should, therefore, be able to ensure proper functioning in this field. 5. Procedure: As regards the procedure for handling revenue audit objections it may be pointed out that in the last PAC meeting there was severe criticism about the lack of promptness and care in dealing with such objections at various stages by the Department. This slackness and indifference in such a significant area has persisted inspite of repeated instructions from the Board detailing proper steps to be taken and emphasising the need for strict vigil in this behalf. In many cases, the information furnished by the Departmental officers to the Audit and the Board is not complete or not sent in time or there are delays in taking remedial action or the wider implications of the mistakes noticed are not realised for suitable preventive steps at the Commissioner's level or, in the alternative, at the Board's level on Commissioner's recommendations. Having regard to the aforesaid circumstances and the provision of additional personnel, the following broad outlines of procedure are prescribed for being followed hereafter for handling revenue audit objections, this superseding, to the extent necessary, the earlier instructions on the subject:- (a) Record of revenue audit objections: Complete and accurate record of revenue audit objections should be maintained in registers following the form prescribed on the basis of PAC's recommendations (para 1.10 of 46th Report 1965-66) in Board's letter F/83/71/35-ITB dated 19.2.1966. vide also DI(IT)'s recent circular No.M-35/18/70/DIT/15089 dated 24.11.1972. There should be yearly tally with the AGs of the pendency, on the basis of the above mentioned register and the annual statements furnished by the AGs to the Cs.I.T. This tally should be completed within a month of the receipt of the AG's annual statement and the CIT should thereupon obtain a certificate to this effect from the Chief Auditor and send it to the DI(IT) who will keep watch over compliance. (b) Handling of Draft Paras (Individual cases) The procedure and time limits laid down for dealing with the revenue audit objections at the level of the assessing ITO/IAC(Audit) and Commissioners laid down in the Board's Instructions No.159 F5/6/69-IT(Audit) dated 16.4.70 should be strictly followed right from the initial stages of audit parties, half margin Memos to the ITOs. on to the intimation by AG to the CIT about the former's intention to send proposed draft para to the C AG on a particular case. Thereafter, the following stages of processing should be followed:- (i) As indicated in the Board's letter No. F-9/1/68-IT(Audit) dated 1.8.1969 as supplemented by the DI(IT)'s letter No. M-35/18/70/DIT dated 28.10.72, the CIT should collect and compile, on receipt of the AG's aforesaid intimation, complete information about proposed draft audit paras involving income-tax of Rs.10,000 and above or other direct taxes effect of Rs.1,000 and above, Indeed, if the earlier stages of processing of the item had been carefully gone into, the required information should already be on the Commissioner's file and would only need quick supplementing as may be necessary. This should enable the Cs.I.T. to send prompt reply within the prescribed time limit of six weeks to the AG; any delay leading to adverse comment by audit will be seriously viewed. (ii) Later on receipt of draft paras from the C. A.G. , the Board will send copies thereof to the CsIT and D.I(IT). The Cs.I.T. and D.I.(IT). The CsIT should then send to the Board within the prescribed time limit of one month report in the form already prescribed and prevailing vide Board's letter No.F. 236/34/70-IT(Audit) dated 26.6.71. They should also send at this stage to the D.I.(IT) a more detailed report (five copies) in the proforma attached herewith as Appendix, so that the D.I.(IT) starts preparations in advance for compiling a comprehensive Brief-cum-paper book (the paper book comprising copies of relevant orders etc) for these individual cases likely to figure in the Audit Report of the C. A.G. to be presented to the Parliament and consequently liable to get discussed in the Public Account Committee meeting. The IAC (Audit) /CIT must personally ensure by reference to the assessment records etc. that the information furnished in these reports respectively to the Board and D.I(IT) is full and factually correct and there is no occasion later for challenge to these facts, or for doubt and modification; the Board will take a very serious view of any lapse in this regard. There has to be an alert and imaginative scrutiny of these audit paras at senior levels for proper exposition and requisite action instead of routine indifferent treatment. (iii) On getting the above first mentioned report from the CIT, the Board will inform the C AG inter alia about acceptance or rejection of the audit objections and endorse copy to the CIT/DI(IT). On receipt of this endorsement the DI(IT) will move ahead his preparation of the comprehensive Brief-cum-paper book mentioned in sub-para (ii) above. He will secure further information and particulars as may be necessary for the Brief-cum-paper book. The D.I. will be responsible for ensuring that these reference papers give complete and correct picture for the Ministry's spokesmen before the PAC meeting. (iv) The DI(IT) will give concluding shape to the draft Brief-cum-paper book when copy of the Audit Report as presented to the Parliament is received indicating the items incorporated, these items consequently to arise for discussion in the next meeting of the P.A.C. After check-up with the Audit Report, the D.I. will send the relevant draft Briefs-cum-paper books as and when completed and in instalments to the Board for finalisation well before the PAC meeting. The draft Brief to be prepared by the D.I. will be in a form to be evolved by him in consultation with the Board. One copy of the draft brief with four copies of the paper book are made available to the Finance Secretary, Chairman and member concerned for use during the P.A.C. meeting. (v) For the draft audit paras already received from the C. A.G. for his Audit Report for 1971-72 copies have already been sent by the Board to the Cs.I.T. and their reports in the presently prevailing proforma vide sub-para (ii) above are being received and should be expedited for the remaining items. However, the Cs.I.T. should also compile and send to the D.I.(IT) detailed reports as per sub-para (ii) to process Briefs-cum-paper books according to the foregoing sub-paras by 31.3.1973. Copies of Board's communication to the C. A.G. accepting/resisting the draft audit paras, will be sent by the Board to the D.I.(IT) ; copies of draft paras have already been made over to him by the Board. (c) Draft Paras (General and Statistical): What has been stated in the foregoing sub-paras (a) and (b) applies to audit paras relating to individual cases. The paras relating to general and statistical matters will be handled in the Board's office, on receipt of the draft paras/Audit Report and in consultation with Cs.I.T. and D.I.s who should furnish required information and comments with utmost accuracy and expedition. 4. The duties of IAC (Audit) and Chief Auditor prescribed in Annexures II and III of the Board's Instruction No. 52 F.5/4/69-IT(Audit) dated 28.5.69 may be considered modified to the extent necessary in view of the observations above, the Chief Auditors former functions relating to internal audit will hereafter be assigned to the new ITOs (Internal Audit). Under the IAC (Audit) the Chief Auditor will be responsible for revenue audit matters (besides personal and establishment assistance to the IAC) and the ITO (Internal Audit) will be responsible for internal audit matters (including supervision over IAPs).