GST Departmental Audit under Section 65: Form ADT-01, Desk Verification & ADT-02 Defense Guide

1. Executive Overview & The Enforcement Paradigm under Section 65

The Goods and Services Tax (GST) architecture in India is fundamentally structured upon a self-assessment tax regime under Section 59 of the Central Goods and Services Tax (CGST) Act, 2017. Under self-assessment, taxpayers determine their own tax liability, claim Input Tax Credit (ITC), and file periodic monthly or quarterly returns. To maintain fiscal discipline, prevent systemic revenue leakage, and verify the correctness of turnover, exemptions, and input tax credit claims, the legislature enacted Section 65 of the CGST Act, 2017, read with Rule 101 of the CGST Rules, 2017, establishing the statutory mechanism for Departmental Audit by Tax Authorities.

Unlike routine return scrutiny under Section 61—which is an automated desk-based comparison of portal figures—an audit under Section 65 is a deep, forensic examination of the taxpayer's complete books of account, financial statements, transactional documentation, manufacturing records, and operational processes. The audit can be conducted at the taxpayer's registered place of business or at the tax office. Because Section 65 audits culminate in binding findings in Form GST ADT-02 that directly feed into Show Cause Notices under Section 73 or Section 74, taxpayers and practicing professionals must adopt a structured, evidentiary defense strategy. Deploying specialized litigation management tools like assureNotice and automated reconciliation engines like assureTax is essential to successfully defending against audit objections.

2. Statutory Architecture: Comparative Analysis of GST Audit, Scrutiny & Special Audit

Practitioners must clearly distinguish between the three distinct verification and audit powers conferred upon the tax administration under the CGST Act, 2017:

Comparative Parameter	Section 61 (Scrutiny of Returns)	Section 65 (Departmental Audit)	Section 66 (Special Audit)
Initiating Authority	Proper Officer / Jurisdictional Range Superintendent.	Commissioner or any officer authorized by general or special order (Audit Commissionerate).	Assistant Commissioner with prior approval of Commissioner.
Scope of Inquiry	Confined to discrepancies apparent on the face of filed GST returns (GSTR-1, GSTR-3B, GSTR-2B).	Comprehensive review of books of account, financial statements, contracts, e-way bills, stock registers, and ITC.	Complex cases involving high value, specialized industry valuation, or credit distortions. Conducted by a nominated Chartered Accountant or Cost Accountant.
Statutory Notice Format	Form GST ASMT-10 pointing out specific return discrepancies.	Form GST ADT-01 served at least 15 working days prior to audit commencement.	Form GST ADT-03 directing the taxpayer to get accounts audited by nominated CA/CMA.
Location of Verification	Strictly desk-based at the tax officer's desk; no site visit.	At the place of business of the registered person OR in the office of the proper officer (Desk Audit).	Auditor's office or taxpayer's premises as determined by nominated CA/CMA.
Statutory Completion Window	30 days for reply in ASMT-11; closure in ASMT-12.	Strictly 3 months from commencement, extendable by Commissioner up to a maximum of 6 further months.	90 days, extendable by Assistant Commissioner by further 90 days.
Final Concluding Instrument	Form GST ASMT-12 (Acceptance of reply) or Section 73/74 notice.	Form GST ADT-02 detailing audit findings, taxpayer explanations, and crystallized demand.	Audit Report in Form GST ADT-04 submitted to Assistant Commissioner.
Audit Expenses	Not applicable.	Borne by the tax department.	Remuneration and expenses determined and paid by the Commissioner.

3. Deep-Dive Technical Mechanics & Procedural Stages under Section 65

3.1 Selection of Taxpayers & Risk-Based Parameters

Audits under Section 65 are not initiated randomly. The Directorate General of Analytics and Risk Management (DGARM) and GST Audit Commissionerates deploy advanced data analytics to select auditees based on specific risk flags, including:

• Significant divergence between turnover reported in GSTR-1, GSTR-3B, and Income-tax ITR / Form 26AS.
• Substantial ITC availed from canceled taxpayers, non-filers, or suppliers identified as risky under Rule 86A.
• Inordinate claims of inverted duty structure refunds or zero-rated export refunds without payment of tax.
• High ratio of exempt supplies coupled with negligible proportionate ITC reversals under Rule 42 and Rule 43.
• Frequent amendments in turnover or continuous manual tax adjustments through credit notes.

3.2 Mandatory 15-Day Prior Notice in Form GST ADT-01

Section 65(3) mandates that the registered person shall be informed by way of a notice not less than fifteen working days prior to the conduct of audit in Form GST ADT-01. This statutory notice period is mandatory and jurisdictional. An audit initiated without giving 15 working days' advance notice suffers from procedural invalidity, violating natural justice.

Form GST ADT-01 typically encloses a comprehensive questionnaire requiring the taxpayer to produce:

1. Audited Financial Statements (Balance Sheet, Profit & Loss Account, Cash Flow Statement, Notes to Accounts, and Director's Report).
2. Statutory Audit Report, Tax Audit Report under Section 44AB (Form 3CA/3CD), and Cost Audit Report.
3. General Ledger, Trial Balance (grouped and ungrouped), and Chart of Accounts.
4. Reconciliation statements between financial turnover and taxable turnover reported in GSTR-9 and GSTR-9C.
5. Inward supply registers, Tax Invoice copies, E-way bill logs, and Goods Inward Notes (GIN).
6. Physical stock registers, raw material consumption logs, and scrap generation records.
7. Agreements with job workers, freight service providers, clearing agents, and related party entities.

3.3 Statutory 3-Month Completion Timeline & The Meaning of "Commencement"

Under Section 65(4), the audit shall be completed within a period of three months from the date of commencement of the audit. The explanation to Section 65(4) defines "commencement of audit" as the date on which:

• The records and other documents called for by the tax authorities are made available by the registered person; OR
• The actual institution of audit at the place of business, whichever is later.

Where the Commissioner is satisfied that the audit cannot be completed within three months for reasons recorded in writing, they may extend the period by a further period not exceeding six months. If an audit continues beyond the initial 3 months without an explicit, written extension order passed by the Commissioner, any subsequent demand founded upon such delayed audit is legally vulnerable before appellate forums.

3.4 Audit Query Memos & The Right to Rebuttal

During the course of the audit, whenever the audit team observes any discrepancy, omission, or credit irregularity, they issue a formal Audit Query Memo (Spot Memo). The taxpayer must be given reasonable opportunity to provide written explanations, documentary substantiation, and legal precedents. Practitioners managing responses must utilize assureNotice to archive all audit memos, track query reply deadlines, and ensure that factual clarifications are placed on record before the final findings are compiled.

3.5 Final Audit Findings in Form GST ADT-02

Under Section 65(6) read with Rule 101(5), on conclusion of the audit, the proper officer shall, within thirty days, inform the registered person whose records are audited about:

1. The findings of the audit;
2. Their reasons for such findings; and
3. The rights and obligations of the registered person in relation to such findings.

This statutory communication is issued in Form GST ADT-02. The issuance of ADT-02 terminates the audit proceedings. If the taxpayer accepts the findings, they may discharge the tax, applicable interest under Section 50, and reduced penalties via Form GST DRC-03. If the taxpayer disputes the findings, the proper officer initiates formal adjudication proceedings under Section 73 (non-fraud) or Section 74 (fraud, willful misstatement, suppression of facts) by issuing a Show Cause Notice in Form GST DRC-01.

4. Practical Examples, Case Studies & Numerical Illustrations

The following seven real-world case studies illustrate the primary technical challenges encountered during Section 65 audits and provide actionable defense methodologies.

Case Study 1: GSTR-2B versus GSTR-3B ITC Discrepancy & Retrospective Rule 36(4) Defense

Context & Facts: During a Section 65 audit of M/s Precision Engineering Ltd for FY 2021-22, the audit team observes that the taxpayer availed ITC of ₹1,85,00,000 in Table 4(A)(5) of Form GSTR-3B. However, the auto-populated Form GSTR-2B on the portal reflects an eligible credit of only ₹1,42,00,000, creating an apparent excess credit claim of ₹43,00,000. The audit team issues a query memo proposing to recover ₹43,00,000 with mandatory interest under Section 50(3) and penalty under Section 122.

Practitioner Defense Strategy:

1. Breakdown of the ₹43,00,000 Variance:
   • ₹22,00,000 represented ITC on genuine invoices where suppliers had paid taxes but delayed filing GSTR-1 until Q1 of FY 2022-23 (timing difference verified through GSTR-2A/2B reconciliations).
   • ₹15,00,000 pertained to import of goods through customs, where IGST was paid via Bill of Entry through ICEGATE, which was not reflected in GSTR-2B due to portal synchronization bugs.
   • ₹6,00,000 represented genuine vendor defaults where the vendor failed to upload invoices.
2. Statutory Submissions:
   • For the ₹22,00,000 timing difference, submit vendor declarations and show that Section 16(4) limitation was satisfied as credit was availed within the statutory deadline.
   • For the ₹15,00,000 Bill of Entry credit, produce the authenticated Bill of Entry, ICEGATE payment challan, and CA certificate confirming non-duplication.
   • For the ₹6,00,000 vendor default, rely on the legal doctrine that bona fide purchasers cannot be penalized if they hold genuine invoices, payment proof through banking channels, and physical proof of receipt of goods, as upheld in landmark High Court jurisprudence (e.g., Suncraft Energy and Arise India).
3. Outcome: The audit officer in Form GST ADT-02 drops ₹37,00,000 of the proposed demand. The taxpayer pays ₹6,00,000 voluntarily via assureTax through Form GST DRC-03 without penalty under Section 73(5).

Case Study 2: Cross-Charge versus Input Service Distributor (ISD) Audit Dispute

Context & Facts: M/s Global Logistics Ltd maintains its Corporate Head Office (HO) in Mumbai, Maharashtra, and operational branch offices across Karnataka, Tamil Nadu, and Delhi. During the audit under Section 65, the Maharashtra GST audit team discovers that the HO incurred central IT software license expenses of ₹1,20,00,000, common HR management salaries of ₹80,00,000, and corporate legal fees of ₹40,00,000. The HO availed full ITC on these expenses but did not issue cross-charge tax invoices to its distinct entities (branches) under Schedule I of the CGST Act.

Audit Objection & Legal Analysis:

• The audit team proposes a tax demand of 18% on ₹2,40,00,000 = ₹43,20,000, alleging failure to distribute credit via ISD or cross-charge under Section 25(4) read with Schedule I.
• Statutory Defense using Circular No. 199/11/2023-GST:
  1. Circular 199 clarifies that for past periods prior to the mandatory ISD amendment under Finance Act 2024, cross-charge of internally generated services (such as employee salaries) is not mandatory where the recipient distinct entity is eligible for full input tax credit.
  2. For third-party common expenses, the taxpayer can issue cross-charge tax invoices, and the recipient branch can avail full ITC immediately, making the exercise completely revenue-neutral.
  3. Submit financial ledgers generated through assureFinancials showing that all branch units were eligible for 100% ITC.
• Result: Demand on internal employee salaries dropped entirely. Third-party common invoice credit regularized through cross-charge invoice adjustments without cash tax outflow.

Case Study 3: Blocked Credit under Section 17(5)(c) and 17(5)(d) on Factory Construction

Context & Facts: M/s Titan Polymers constructed an automated chemical processing facility. In FY 2022-23, it capitalized ₹12,00,00,000 under "Building & Plant Structure" and availed ITC of ₹2,16,00,000. During the Section 65 audit, the audit officer alleges that all construction expenses are blocked under Section 17(5)(d) as goods/services used for construction of an immovable property on own account.

Evidentiary Segregation & Technical Breakdown:

Component Description	Capitalized Amount	ITC Availed (18%)	Statutory Classification & Audit Treatment
Civil Foundation for Heavy Reactor Vessels	₹4,50,00,000	₹81,00,000	Eligible ITC: Plant & Machinery Explanation to Section 17 specifically includes foundations and structural supports. ITC is fully allowable.
Specialized Industrial Piping, Valves & Electrical Panels	₹3,50,00,000	₹63,00,000	Eligible ITC: Apparatus and equipment directly integral to manufacturing process; qualifies as Plant & Machinery.
Pre-Engineered Factory Shed (Superstructure)	₹2,50,00,000	₹45,00,000	Disputed/Litigative: Submissions based on the Supreme Court ruling in Safari Retreats interpreting Section 17(5)(d) purposively.
Administrative Office Building & Guest House	₹1,50,00,000	₹27,00,000	Ineligible ITC: Strictly blocked under Section 17(5)(d). Voluntary reversal accepted.

Audit Outcome: By presenting an itemized chartered engineer's certificate and plant layout drawing, the taxpayer secures full relief on ₹1,44,00,000 (Piping + Foundations), agrees to reverse ₹27,00,000 on admin building, and contests the remaining ₹45,00,000 shed component based on judicial precedents.

Case Study 4: Pro-Rata Reversal of Input Tax Credit under Rule 42 and Rule 43

Context & Facts: A multi-product pharmaceutical firm manufactures both taxable formulations (taxed at 12% and 18%) and exempt generic life-saving medicines (exempt via notification). Total common input tax credit availed on factory overheads, security, and administrative services during FY 2023-24 was ₹90,00,000. The audit team observes that the taxpayer performed monthly Rule 42 reversals but failed to compute the annual re-computation mandated under Rule 42(2) before the due date of September/November following the end of the financial year.

Numerical Re-Computation:

• Total Turnover of the Firm for FY 2023-24: ₹100,00,00,000
• Exempt Supply Turnover (E): ₹28,00,00,000
• Total Taxable Supply Turnover (F): ₹72,00,00,000
• Total Common Input Tax Credit (C2): ₹90,00,00,000
• Statutory Annual Ineligible Credit (D1) = (E / F) * C2 = (28 Cr / 100 Cr) * ₹90,00,000 = ₹25,20,000
• Aggregate Monthly Reversals already made during the year: ₹21,80,00,000 / 10 = ₹21,80,000
• Short Reversal payable: ₹25,20,000 - ₹21,80,000 = ₹3,40,000
• Interest Computation under Section 50(1): Interest on ₹3,40,000 calculated from April 1, 2024, till date of payment.
• Action: Discharged ₹3,40,000 plus interest via Form GST DRC-03 before Form GST ADT-02 was finalized, thereby closing the audit observation without penalty.

Case Study 5: Reverse Charge Mechanism (RCM) on Freight (GTA) & Director Remuneration

Context & Facts: During the Section 65 audit of M/s Swift Retailers Ltd, the audit officer scrutinizes trial balance expense ledgers: "Freight Inward & Cartage" (₹75,00,000) and "Director Sitting Fees & Remuneration" (₹60,00,000). The taxpayer paid freight to unregistered truck operators without generating RCM payment challans, and treated executive director remuneration as exempt employment income under Schedule III.

Legal & Tax Re-Engineering:

1. Goods Transport Agency (GTA) Analysis:
   • Under Notification No. 13/2017-Central Tax (Rate), RCM applies if the service provider is a "GTA" issuing a consignment note. Individual truck owners who do not issue consignment notes do not qualify as GTA.
   • The taxpayer produced sample lorry receipts showing mere transportation of goods without consignment notes, establishing non-applicability of GTA RCM for ₹45,00,000 of payments. For the balance ₹30,00,000 paid to registered GTAs, RCM at 5% (₹1,50,000) was discharged along with interest, and equivalent ITC was simultaneously claimed in the same month.
2. Director Remuneration Analysis:
   • Circular No. 140/10/2020-GST clarifies that executive director remuneration subjected to TDS under Section 192 (Salaries) is covered under Schedule III and exempt from GST.
   • Non-executive director sitting fees and commissions subjected to TDS under Section 194J are liable to RCM under Section 9(3).
   • The taxpayer produced Form 16 and employment contracts for executive directors (₹50,00,000), proving zero GST liability. For independent director sitting fees (₹10,00,000), RCM of 18% (₹1,80,000) was paid via DRC-03 with full ITC availed.

Case Study 6: Transition from Form GST ADT-02 to Section 73 Show Cause Notice

Context & Facts: M/s Zenith Manufacturing received Form GST ADT-02 on September 15, 2024, with three contested audit objections totaling ₹68,00,000. The audit officer issues a summary of notice in Form GST DRC-01 on September 30, 2024, invoking Section 73(1).

Litigation Strategy & Procedural Flaws:

• The SCN was issued without conducting personal hearings prior to issuance, and mechanically copied the text of Form ADT-02 without independent application of mind by the adjudicating authority.
• Using assureNotice, the practitioner drafts a structured preliminary reply citing Section 75(4) (mandatory opportunity of hearing) and demonstrates that Section 73 cannot be invoked where all transactions were transparently disclosed in audited accounts and Form GSTR-9C.
• The Adjudicating Authority drops ₹52,00,000 of the demand during personal hearing proceedings.

Case Study 7: Audit Conducted Beyond Statutory 3-Month Window Without Extension Order

Context & Facts: Audit of M/s Blue Star Traders commenced on January 10, 2024 (all records submitted). The audit team conducted visits and issued query memos until August 25, 2024 (over 7.5 months). No written extension order from the Commissioner was ever communicated to the taxpayer. Form GST ADT-02 was issued on September 10, 2024.

Challenging Jurisdiction:

• Under Section 65(4), the audit must conclude within 3 months unless an extension order (maximum 6 months) is passed by the Commissioner recording reasons in writing.
• In the absence of a valid extension order, proceedings conducted beyond April 10, 2024, are ultra vires and without statutory jurisdiction.
• The taxpayer files a writ petition before the High Court challenging the validity of ADT-02. The High Court sets aside the audit findings for lack of statutory extension order, directing the department to adhere to procedural discipline.

5. 10-Step Practitioner Audit Verification Program for Section 65 GST Audit

Tax teams and practicing professionals should execute this rigorous 10-step verification framework upon receiving Form GST ADT-01:

Step #	Audit Phase	Key Verification Actions & Evidentiary Documents	Statutory Reference
Step 1	Notice Validity & Jurisdiction Check	Verify Form GST ADT-01 authorization, check 15 working days advance notice, and verify DIN (Document Identification Number).	Section 65(3) & Rule 101(2)
Step 2	Turnover Triangulation	Reconcile Audited Financial Statements, Form 26AS/AIS, GSTR-1, GSTR-3B, and GSTR-9C. Identify and explain all variances.	Section 35(5) & Section 44
Step 3	Outward Supply Tax Rate Audit	Check HSN classifications, exemption notifications, export documentation (LUT/shipping bills), and commercial discount credit notes.	Section 9, 11 & 15
Step 4	ITC Eligibility & 16(2) Conditions	Verify possession of tax invoices, banking payment proof within 180 days (second proviso to Section 16(2)), and vendor filing status.	Section 16 & Rule 37
Step 5	GSTR-2B Reconciliation	Map GSTR-3B ITC claims against GSTR-2B. Quantify timing differences, import Bill of Entry credits, and genuine supplier mismatches.	Section 16(2)(aa) & Rule 36(4)
Step 6	Blocked Credit Scrutiny (Section 17(5))	Audit fixed asset register, motor vehicle repairs, health insurance, works contracts, and CSR expenses for Section 17(5) compliance.	Section 17(5)
Step 7	Exempt Supply Apportionment	Verify monthly and annual Rule 42 and Rule 43 calculations for common inputs and capital goods. Confirm proper interest calculations.	Section 17(2) & Rule 42, 43
Step 8	Reverse Charge (RCM) Verification	Audit expense ledgers for GTA freight, legal fees, director sitting fees, import of services, and security services. Check self-invoices.	Section 9(3), 9(4) & Section 31(3)(f)
Step 9	Spot Memo & Query Defense	Maintain comprehensive audit query tracker. Draft factual and legal rebuttals to spot memos within stipulated timeframes using assureNotice.	Natural Justice & Rule 101(4)
Step 10	ADT-02 Review & DRC-03 Settlement	Examine final audit findings in Form GST ADT-02. Settle accepted matters under Section 73(5) with zero penalty; contest disputed points in SCN adjudication.	Section 65(6), 73(5) & Form GST DRC-03

6. Enhancing Audit Preparedness with the AssureOffice Suite

Transforming complex GST departmental audits into seamless, defensible workflows requires enterprise-grade compliance technology:

• assureNotice: The premier tax litigation and notice tracking suite. Auto-categorizes incoming Form GST ADT-01 notices, creates collaborative workflows for answering audit query memos, maintains chronological evidentiary archives, and assists in drafting persuasive legal rebuttals.
• assureTax: Powerhouse tax computation and reconciliation platform. Instantly reconciles multi-year GSTR-1, GSTR-3B, GSTR-2B, and e-way bill data, identifying hidden ITC exposure, 180-day vendor payment defaults, and Rule 42 reversal gaps.
• assureFinancials: Provides automated trial balance audits, HSN code verification, fixed asset register capitalization breakdowns, and direct-to-indirect tax reconciliation reporting.
• assurePractice: Empowers chartered accountants and corporate tax teams to manage client audit deliverables, track team assignments, monitor statutory deadlines, and maintain secure digital client documentation.

7. Comprehensive Practitioner FAQs on Section 65 GST Audit

Q1: Can the tax department conduct an audit under Section 65 for multiple financial years simultaneously?

Yes. Under Section 65(1), the proper officer can conduct an audit for a financial year or for part thereof or combinations thereof. It is standard departmental practice to issue a single Form GST ADT-01 covering two or three financial years (e.g., FY 2019-20, FY 2020-21, and FY 2021-22).

Q2: Can a taxpayer request an adjournment or postponement of the audit commencement date?

Yes. If the taxpayer requires additional time to collate voluminous records, an application for extension can be submitted to the audit officer explaining genuine commercial or operational difficulties. However, granting the adjournment is at the discretion of the tax authority.

Q3: What is the consequence if a taxpayer fails to produce books of account requested in Form GST ADT-01?

Failure to produce records without sufficient cause attracts general penalties under Section 125 (up to ₹25,000 under CGST and ₹25,000 under SGST). Furthermore, persistent non-compliance may lead the department to initiate special audit under Section 66, inspection and search under Section 67, or ex-parte assessment under Section 73/74.

Q4: Can the audit team visit the premises of the taxpayer without prior notice?

No. An audit under Section 65 strictly requires a minimum of 15 working days prior notice in Form GST ADT-01. Unannounced visits are governed by Section 67 (Inspection, Search, and Seizure), which requires an authorization in Form GST INS-01 based on reasons to believe recorded in writing by an officer not below Joint Commissioner.

Q5: Is an audit under Section 65 permissible if the taxpayer has already been subjected to scrutiny under Section 61?

Yes. Section 61 return scrutiny does not bar a departmental audit under Section 65. Return scrutiny is confined to portal return analysis, whereas Section 65 encompasses an in-depth audit of financial accounts, stock ledgers, and commercial contracts.

Q6: What happens if the taxpayer agrees with some audit findings and disagrees with others?

The taxpayer can make a partial voluntary payment for accepted findings via Form GST DRC-03 (benefiting from reduced or zero penalties under Section 73(5)). For the disputed findings, the taxpayer places detailed factual and legal objections on record, which the department must evaluate before issuing a Show Cause Notice.

Q7: Can the audit team demand interest on gross tax liability where input tax credit was available in the Electronic Credit Ledger?

No. Under the proviso to Section 50(1) (enacted with retrospective effect), interest on delayed payment of tax is payable only on that portion of tax which is paid by debiting the Electronic Cash Ledger, except where returns are filed after initiation of proceedings under Section 73/74.

Q8: Does payment made under protest during an audit prevent the taxpayer from contesting the demand later?

No. Tax payments made "under protest" during audit proceedings preserve the taxpayer's legal right to contest the merits during subsequent adjudication and appeal proceedings, and seek a refund under Section 54 if the matter is decided in their favor.

Q9: How is the 180-day vendor payment rule under Section 16(2) verified during a departmental audit?

The audit team extracts the accounts payable ledger and matches invoice dates with bank payment realization dates. If payment of invoice value plus tax is not made within 180 days from the invoice date, ITC must be reversed along with interest under Section 50.

Q10: Are audit officers bound by circulars issued by the Central Board of Indirect Taxes and Customs (CBIC)?

Yes. CBIC circulars are legally binding on all field formations and audit officers, as repeatedly affirmed by the Supreme Court. Taxpayers can effectively rely on favorable circulars to resolve audit queries.

Q11: Can an audit under Section 65 be conducted for a business entity that has canceled its GST registration?

Yes. Under Section 29(3), the cancellation of registration does not affect the liability of the person to pay tax and other dues for any period prior to the date of cancellation. The department can audit past operational periods within statutory limitation limits.

Q12: Is personal hearing mandatory before the issuance of Form GST ADT-02?

Rule 101(4) mandates that the proper officer shall give the taxpayer an opportunity to explain any discrepancies noticed during the audit. While this is typically fulfilled through audit query memos and written replies, denying an opportunity to explain violates natural justice.

Q13: What is the limitation period for issuing a Show Cause Notice based on Form GST ADT-02?

Under Section 73(10), an order must be passed within 3 years from the due date for furnishing the annual return for the relevant financial year, and the SCN must be issued at least 3 months prior to this deadline. Under Section 74(10), the order limitation is 5 years, and the SCN must be issued at least 6 months prior.

Q14: Can the audit team question the commercial wisdom or pricing of transactions between unrelated parties?

No. Under Section 15(1), transaction value is the statutory price actually paid or payable where the parties are not related and price is the sole consideration. Unless relationship or non-monetary consideration is proven, audit officers cannot substitute open market value for commercial sales between independent entities.

Q15: Can an audit team reopen an assessment for which an appellate order has already been passed?

No. Under the doctrine of merger, once an issue has been adjudicated and settled by an appellate authority or tribunal, audit officers cannot reopen or raise audit findings on the identical issue for the same period.

Q16: How should audit files and documentation be preserved to prepare for future audits?

Under Section 36, every registered taxpayer must retain books of account and records until the expiry of 72 months (6 years) from the due date of furnishing of the annual return for the year pertaining to such accounts. Storing these electronically in assureNotice ensures instant retrieval during departmental audits.