CBDT issued revised instructions on SOP for internal audit

CBDT has issued revised instructions on the SOP for managing internal audit objections.  

CBDT has issued Instruction No. 2/2024, which introduces an updated Standard Operating Procedure (SOP) for managing internal audit objections.

Revised instructions aim to ensure that the internal audit process remains relevant in the evolving faceless tax administration environment by leveraging digital tools while maintaining strict oversight and transparency in identifying and addressing discrepancies within the system.

The CBDT has issued revised instructions on the Standard Operating Procedure (SOP) for handling internal audit objections, aiming to enhance efficiency, accountability, and compliance with tax laws in the department, especially within the faceless regime.  Supersession of Instruction No. 6/2017: The new instruction replaces Instruction No. 6/2017, bringing in updated practices and protocols better suited for modern tax administration, especially in light of technological advancements and the faceless approach.

These updated guidelines, effective immediately, replace all previous instructions, including Instruction No. 6/2017 dated July 21, 2017. This instruction supersedes previous guidance, including Instruction No. 6/2017, and reflects the changes necessitated by the evolving responsibilities within the Income Tax Department, particularly due to the transition to a faceless environment.

This update underscores the Central Board of Direct Taxes commitment to improving internal processes, reducing tax disputes, and increasing transparency in tax administration. The SOP is expected to help tax officials and taxpayers alike by creating a more streamlined approach to resolving audit-related issues. This instruction guides the following: Procedure for re-checking; list of auditable cases and the manner of their allocation; Conduct of audit; Procedure for handling audit objections; Remedial actions on such audit objections; Settlement of objections; Reports; Quarterly monitoring. Key Features of CBDT has issued Instruction No. 2/2024 – SOP for managing internal audit objections:

1. Audit Scope:

• • The internal audit covers all matters related to compliance with legal provisions, instructions, circulars, and prescribed procedures.
  • It seeks to identify errors or omissions, issuing an ‘Audit Memo’ in case of discrepancies. The previously used practice of issuing ‘Audit Observations’ has been discontinued.
  • Internal audits are conducted under the supervision of the Principal Chief Commissioner of Income Tax (PCCIT). The audit process involves multiple officers such as Principal Commissioners of Income Tax (PCITs), Additional Commissioners of Income Tax (Addl. CITs), and other designated officers.

2. Immediate Implementation:

• • Revised SOP applies to both new and pending internal audit objections.
  • The updated SOP aims to improve accountability and ensure compliance with tax laws by clearly defining roles and procedures for addressing internal audit objections.

3. Guidance on Audit Procedure: The instruction details the following areas:

• • Re-checking: Specific procedures for re-examining cases flagged during internal audits.
  • List of Auditable Cases: A defined method for allocating and categorizing cases eligible for audits.
  • Conduct of Audit: Streamlined procedures to ensure audits are conducted thoroughly.
  • Handling Audit Objections: Clear protocols for dealing with objections raised during the audit.
  • Remedial Actions: Steps for taking corrective actions to resolve audit objections.
  • Settlement of Objections: Guidelines for concluding audit objections efficiently.
  • Reporting and Quarterly Monitoring: A structured reporting mechanism and regular reviews to monitor progress.

4. ITBA Integration:

• • All actions related to audit objections must now be processed exclusively through the Internal Audit Module of the Income Tax Business Application (ITBA).
  • For Transfer Pricing and Tax Deducted at Source cases, if certain tasks cannot be completed on ITBA due to technical limitations, these actions can be handled through designation-based mail IDs as an alternative.

5. Focus on the Faceless Regime: With the shift towards a faceless assessment and faceless appeal system, the SOP emphasizes the adaptation of internal audit mechanisms to maintain rigorous checks in a digital environment. This is crucial for ensuring that issues raised during audits are promptly and properly addressed.
6. Objection Resolution Process:
   • The CBDT instruction details how audit objections should be resolved, with timelines and responsibilities assigned to different officers involved in the tax administration process. This streamlining aims to reduce delays in handling objections and enhances the department’s efficiency.
   • CBDT instruction enforces a structured reporting mechanism where officers are required to follow up and report on the resolution of audit objections. This ensures that issues identified in the internal audits do not go unaddressed.

Complete CBDT Instruction 

CBDT has issued Instruction No. 2/2024,

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