What documents are required for a company tax audit in Bangladesh?

Company taxpayers must submit audited financial statements, bills, vouchers, bank statements, TDS certificates, VAT returns, Letters of Credit, Bills of Entry, ASYCUDA++ data, and other evidence supporting purchases, sales, and expenses as per the Income Tax Act, 2023.

How should a company prepare for an income tax audit?

Companies should prepare audited accounts, maintain organized records of purchases, sales, and bank transactions, ensure compliance with the Income Tax Act, 2023, and submit all required documents promptly. Consulting a chartered accountant or tax expert is recommended.

What is the importance of audited accounts in a tax audit?

Under Section 169(2) of the Income Tax Act, 2023, audited accounts are mandatory for company taxpayers. They provide a verified record of financial transactions, ensuring transparency and compliance during the tax audit process.

How can companies ensure accurate sales verification during an audit?

Companies should calculate net turnover by deducting VAT, discounts, and sales returns, ensure sales are supported by vouchers, VAT returns, and bank statements, and reconcile sales with bank deposits using the formula provided in the Income Tax Act guidelines.

What happens if unsupported expenses are claimed during a tax audit?

Claiming unsupported expenses may lead to disallowance, resulting in additional tax liabilities or penalties. Companies should provide bills, vouchers, and reasonable explanations for all expenses to avoid complications during the audit.

Instructions for Company Taxpayers Facing Tax Audit

For Company Taxpayers Facing Tax Audit

The following guidelines are designed to assist company taxpayers in effectively participating in the tax audit process for their income tax returns and preparing the necessary information and evidence. As per Section 169(2) of the Income Tax Act, 2023, submitting audited accounts/financial statements (Audited Accounts/Audit Report) is mandatory. Transparency and accurate information are crucial during the audit process. Carefully follow the instructions below.

7.1. Trading and Manufacturing Account

Proof of Production Costs: Ensure that costs directly related to production (Opening Inventory, Closing Inventory, Cost of Goods Sold, Wages, Overhead Costs such as factory rent, gas bills, electricity bills, internal transportation, etc.) are supported by accounting records, bills, vouchers, and bank statements. Prepare these documents for submission during the audit.
Documents for Imports: For import businesses, prepare Letters of Credit (LC), Bills of Entry, and data collected from ASYCUDA++ for the audit.
Local Businesses: Submit VAT returns, VAT-related documents, and accounting records during the audit.
Tax Deduction at Source: Ensure tax is deducted at source where applicable. Prepare TDS (Tax Deducted at Source) certificates and proof of payment for the audit.

7.2. Purchase Verification

Purchase Register/Ledger: Prepare the purchase register or ledger for review. Submit documents showing payments made for purchases through bank accounts and reconciliation with sundry creditors for the relevant tax year during the audit.
Supporting Documents: Prepare purchase bills, vouchers, invoices, and bank statements for the audit.

7.3. Sales Verification

Net Turnover Determination: Calculate net turnover by deducting VAT, discounts, commissions, and sales returns (if any) from gross turnover. Ensure that non-operating items (e.g., bank interest, income from factory/house rent) are not included in net turnover.
Proof of Sales: If sales amounts are not fully supported by vouchers, prepare the following documents for the audit: records from previous years, evidence from physical inspections (if applicable), VAT returns, and VAT-related documents.
Manufacturing/Trading/Non-Trading Entities:
- Manufacturing Entities: Prepare production cost analysis and bank account analysis documents for the audit.
- Trading Entities: Submit inventory analysis and bank account analysis documents during the audit.
- Non-Trading Entities: Prepare receipt registers and bank account analysis documents for the audit.

7.4. Bank Account Reconciliation with Sales

Bank Deposit Analysis: Review the amount deposited in the company’s bank account. Use the following formula to determine the amount deposited from sales: Amount deposited from sales = Sales shown in audited accounts + Opening Trade Receivables - Closing Trade Receivables + Closing Unearned Revenue or Advance Sales - Opening Unearned Revenue or Advance Sales.
Details of Other Deposits: Prepare details and evidence of deposits from sister concerns, bank loans, unsecured loans, dishonored credits, or other non-sales-related deposits for the audit.
Cash Sales: Review the cash book to determine cash sales not deposited in the bank and add them to calculate total sales. Submit the cash book and sales vouchers during the audit.

7.5. Review of Debit Side of Bank Account

Payments for Purchases and Expenses: Review the debit side of the bank account for payments made for goods and other expenses. Prepare bills, vouchers, and bank statements for the audit.
Unusual Transactions: If there are transactions of unusual amounts, provide explanations and supporting documents during the audit.

7.6. Determination of Gross Profit

Trading Account Verification: Prepare accounting records, bills, vouchers, and supporting documents for purchases, sales, inventory, wages, and other expenses for the audit.
Scenario 1: Purchases, sales, gross profit, or inventory are not fully supported by vouchers. Prepare evidence of sales estimates based on previous years’ records and bank reconciliation, along with gross profit rates of similar businesses, for the audit.
Scenario 2: Purchases and other direct expenses are not supported, but sales are supported. Prepare previous years’ gross profit rates and data from similar businesses for the audit.
Scenario 3: Purchases are supported, but sales are not fully supported. Submit details of Cost of Goods Sold and gross profit rates for reconstituted sales calculations during the audit.
Scenario 4: Purchases are supported, but other direct expenses are not. Prepare details and evidence of reasonable unsupported expenses for the audit.
Scenarios 5 and 6: All expenses and sales are fully supported. Prepare complete trading account documents (purchases, sales, inventory, wages) for the audit.

General Considerations

Turnover Consistency: Ensure the reported turnover is consistent with purchases, production costs, and bank deposits. Prepare turnover details and evidence (sales vouchers, bank statements) for the audit.
Non-Business-Related Expenses: Avoid claiming expenses unrelated to the business. Provide explanations and evidence for unsupported expenses during the audit.
Expenses Beyond Limits: Refrain from claiming expenses beyond the limits specified in the Income Tax Act. Prepare expense details and evidence for the audit.
Tax Deduction at Source: Deduct tax at source at the appropriate rate as per Part 7 of the Income Tax Act and submit proof of deposit to the government treasury (TDS certificates, challans) during the audit.
New Loans: If new loans are reported, prepare loan agreements, repayment details, and bank statements for the audit.
Section 55 Compliance: Submit details of expenses and benefits as per Section 55 of the Income Tax Act during the audit.
Fixed Asset Additions: For fixed asset additions in the relevant year, prepare purchase deeds, bills, vouchers, and bank statements for the audit.

General Instructions

Audited Financial Statements: Prepare audited accounts/financial statements accurately and submit them during the audit. Ensure they are audited by a chartered accountant and comply with the Income Tax Act.
Document Retention: Organize and retain all evidence (bills, vouchers, agreements, bank statements, TDS certificates, accounting books) for easy submission during the audit.
Transparency and Accuracy: Maintain transparency and provide accurate information during the audit to avoid complications.
Professional Assistance: Seek assistance from a tax expert or chartered accountant for guidance on the Income Tax Act and audit process.
Response to Audit Notice: Submit required documents and information within the specified time upon receiving an audit notice. Avoid delays.
Legal Knowledge: Familiarize yourself with the Income Tax Act, 2023, and related regulations. Obtain detailed information from the National Board of Revenue website (www.nbr.gov.bd) if needed.