How Is PAN Used in Tax Audit Reporting in India?

In India, PAN (Permanent Account Number) is an essential identifier in tax audit reporting under the Income Tax Act. It is used by auditors and taxpayers to ensure transparency, accuracy, and traceability of income, deductions, and transactions. PAN allows the Income Tax Department to consolidate and validate audit data efficiently.

• PAN as a Unique Entity Identifier

• PAN is used to identify the taxpayer being audited, whether individual, firm, or company.

• It is quoted in the Tax Audit Report (Form 3CD) and the ITR filing portal.

• PAN ensures proper linking of the audit report with the taxpayer’s assessment profile.

• It eliminates confusion or duplication in audit records across multiple years.

• Mandatory Use in Form 3CD

• Form 3CD, which contains audit observations, must include the PAN of the taxpayer.

• All related parties in specified domestic or international transactions must also be identified by PAN.

• PAN of auditor and assessee is included to validate the authority and accuracy of the report.

• Failure to quote PAN or quoting an incorrect PAN may lead to defective return classification.

• PAN in Audit of Related Party Transactions

• PAN is used to report specified domestic transactions (SDTs) and international transactions.

• Details of associated enterprises (AEs) must include their PAN, if available.

• PAN-based reporting allows authorities to cross-match entries between related taxpayers.

• It supports Transfer Pricing audits and enforcement of arm’s-length pricing.

• Reporting High-Value Transactions

• PAN enables auditors to declare cash transactions, TDS/TCS deductions, and payments made or received above thresholds.

• Such details are mandatorily reported in tax audit schedules, linked with the PAN database.

• Transactions with non-PAN holders are also highlighted, attracting closer scrutiny.

• It ensures proper mapping of income and expenditures across different sections of the tax code.

• Verification and Compliance Tracking

• PAN allows the Income Tax Department to verify consistency between the audit report, ITR, and Form 26AS.

• It helps track compliance with audit provisions under Section 44AB of the Income Tax Act.

• Any mismatch or irregularity in PAN-based audit data can lead to notices or penalties.

• PAN also enables electronic submission and confirmation of audit reports on the e-Filing portal.