Recent Amendments in Tax Audit Reports 05 09

Recent Amendments in Tax Audit Reports 05. 09. 14 CA Devendra Jain

Amendments In The Tax Audit Reports • Forms prescribed for reports u/s. Section 44 AB : - Form No. 3 CA: Audit report in case of a person who is required under any other law to get his accounts audited - Form No. 3 CB: Audit report in case of other persons - Form No. 3 CD: Statement of particulars required to be furnished (to be annexed with Form No. 3 CA or 3 CB, as the case may be) • The CBDT has notified the Income-tax (7 th amendment) Rules, 2014 on 25 July 2014, which substitute the existing Form Nos. 3 CA, 3 CB and 3 CD.

Amendments In The Tax Audit Reports Time limit for filing of tax audit report u/s. 44 AB (in respect of assessees not subjected to TP provisions) has been extended to 30 November 2014 (vide Notification No. F. No. 133/24/2014 -TPL dated 20 August 2014) No express clarification about due date of return……? ? ? Notification clarifies that the tax audit report filed during the period 01 April 2014 to 24 July 2014 in old forms shall be valid.

Amendments In The Tax Audit Reports Amendments in 3 CA and 3 CB v New requirements in Form Nos. 3 CA and 3 CB: The new Form Nos. 3 CA and 3 CB require any observations or qualifications in Form No. 3 CD to be disclosed in the audit report in Form Nos. 3 CA or 3 CB itself. “In *my/our opinion and to the best of *my/our information and according to examination of books of account including other relevant documents and explanations given to *me/us, the particulars given in the said Form No. 3 CD are true and correct subject to the following observations/qualifications, if any: a. …………………………… b. …………………………… c. ……………………………” 4

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 4: Whether the assessee is liable to pay indirect tax like excise duty, service tax, sales tax, customs duty, etc. if yes, please furnish the registration number or any other identification number allotted for the same Clause 6: Previous year in relation to which tax audit is conducted is required to be mentioned in the form of ______ to _______. Clause 8: The relevant clause of section 44 AB under which the audit has been conducted is required to be mentioned: Clause (a) For business Clause (b) For profession Clause (c) For S. 44 AE/44 BBB Clause (d) For S. 44 AD 5

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 11(b): Details of books of accounts maintained and the address at which the books of accounts are kept is required to be given. If the books are not kept at one location, the addresses of locations along with the details of books of accounts maintained at each location is required to be given. Definition of Books of Accounts: S. 2(12 A) "books or books of account" includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electromagnetic data storage device; 6

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 11(c): Nature of the relevant documents examined along with the books of accounts is required to be given Clause 12: Applicability of Chapter XII-G (i. e. tonnage tax scheme), First Schedule or any other relevant section is required to be mentioned if there any profits or gains assessable on presumptive basis. Clause 13(c): The details of any change in the method of accounting employed in the previous year and the effect thereof on the profit and loss needs to be given in the prescribed format as given below: Serial number 7 Particulars Increase in profit (Rs. ) Decrease in profit (Rs. )

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 14(b): The details of any deviation from the method of valuation of closing stock prescribed under section 145 A and the effect thereof on the profit and loss needs to be given in the prescribed format as given below: Serial numbar 8 Particulars Increase in profit (Rs. ) Decrease in profit (Rs. )

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 17: Details of any transfer of land or building or both for consideration less than value adopted or assessable by any authority of a State Government for the payment of stamp duty referred to in section 43 CA or 50 C is required to be given in the prescribed format as shown below: Details of property 9 Consideration received or accrued Value adopted or assessable

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 19: Apart from the deductions specified earlier, deductions claimed under sections 32 AC, 35 AD, 35 CCC and 35 CCD are also required to be reported. In relation to all deductions claimed, the form also refers to fulfillment of conditions specified under the relevant provisions of law, rules or any other guidelines, circulars, etc. issued in this behalf. S. 32 AC Investment Allowance S. 35 AD Specified Business S. 35 CCC Exp. on agricultural extension project (guidelines prescribed under Rules 6 AAD and 6 AAE ) S. 35 CCD Exp. on skill development project (guidelines prescribed under Rules 6 AAF and 6 AAH ) 10

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 20(b): Details of contributions received from employees for various funds as referred to in section 36(1)(va) is required to be given in the prescribed format as shown below: Serial Nature of Sum Due date The actual number fund received for actual date of from payment amount payment to employees paid the concerned authorities 11

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 21(a): Detailed information with respect to amount debited to the profit and loss account in respect of capital expenditure, personal expenses, advertisement expenses, expenditure incurred at clubs, penalty, etc. is required to be given. 12

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 28: Whether during the previous year the assessee has received any property, being share of a company not being a company in which the public are substantially interested, without consideration or for inadequate consideration as referred to in section 56(2)(viia), if yes, please furnish the details of the same. 13

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 29: Whether during the previous year the assessee received any consideration for issue of shares which exceeds the fair market value of the shares as referred to in section 56(2)(viib), if yes, please furnish the details of the same. 14

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 21(b): Detailed break-up of the amounts disallowable under section 40(a) is required to be given. Details required to be given for resident and non-resident payments. In relation to disallowance for non-deduction of tax at source, the disallowance has to be bifurcated between: (a) tax not deducted; and (b) tax deducted but not paid by the specified date; in addition, detailed information in relation to payee, amount, date of payment and nature of payment has to be provided. Clause 21(d): Auditor required to specifically report on the expenditure covered under section 40 A(3) / 40 A(3 A) on the basis of the examination of books of account and other relevant documents / evidence, instead of obtaining a certificate from the taxpayer. 15

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 31(c) : Reporting requirements have been amended to specifically mention whether the taking or accepting loan or deposit or repayment of the same were made by account payee cheque drawn on a bank or a account payee bank draft based on the examination of books of accounts and relevant documents Certificate from the assessee regarding taking or accepting loan or deposit, or repayment of the same through an account payee cheque or an account payee bank draft which was required under the old clause 24(c) has been deleted. 16

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 32(c), (d), (e): Details of certain losses: • Losses from speculation business or deemed speculation losses as referred to in section 73; and • Details of losses referred to in section 73 A in respect of specified businesses mentioned in section 35 AD. 17

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 33: Details of deduction claimed under section 10 AA are required to be provided in addition to deductions under Chapeter VIA. In relation to all deductions / tax holidays claimed, the forms also refers to fulfilment of conditions specified under the relevant provisions of law, rules or any other guidelines, circulars, etc. issued in this behalf. Clause 34: (a) Details required to be given in prescribed formats where assessee is required to deduct or collect tax under the provisions of Chapter XVII B or Chapter XVII-BB (b) details of statements of TDS or TCS not filed within the prescribed time limits needs to be reported in prescribed formats 18 (c) details of payment of interest u/s. 201(1 A) or 206 C(7) needs to be reported in prescribed formats

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 36: Dividend received by a domestic company from its subsidiary that is reduced for the purpose of payment of dividend distribution tax. Clause 37, 38 and 39: Disclosure required for details of any disqualification or disagreement on any matter / item / value / quantity as reported / identified by: • Cost auditor • Auditor that conducted audit under the Central Excise Act, 1944 • Auditor that conducted audit under section 72 A of the Finance Act, 1994 in relation to valuation of taxable services. 19

Amendments In The Tax Audit Reports New clauses/Change in clauses in Form No. 3 CD: Clause 40: The accounting ratios of preceding financial year are additionally required to be disclosed. Moreover, the total turnover for the current financial year as well as for the preceding financial year is required to be reported Clause 41: Details of demand raised or refund issued under any tax laws other than Income-tax Act, 1961 and Wealth tax Act, 1957, along with details of relevant proceedings are required to be reported. 20

Amendments In The Tax Audit Reports Clause No. as per old as per new Form 3 CD Contents of relevant clause 1– 3 - 4 4– 6 5– 7 - 8 Indicate the relevant clause of section 44 AB under which the audit has been conducted 7 9 (a) If firm or association of persons, indicate names of partners/members and their profit sharing ratios. (b) If there is any change in the partners or members or in their profit sharing ratio since the last date of the preceding year, the particulars of such change 8 21 1– 3 Name, address and PAN of the assessee 10 (a) Nature of business or profession (if more than one business or profession is carried on during the previous year, nature of every business or profession) (b) If there is any change in the nature of business or profession, the particulars of such change. Whether the assessee is liable to pay indirect tax like excise duty, service tax, sales tax, customs duty, etc. if yes, please furnish the registration number or any other identification number allotted for the same. Status of the assessee, previous year and assessment year

Amendments In The Tax Audit Reports Clause No. as per old Form 3 CD Clause No. as per new Form 3 CD Contents of relevant clause 9 Details vis-à-vis books of accounts and relevant documents maintained 10 12 Whether the profit and loss account includes any profits and gains assessable on presumptive basis, if yes, indicate the amount and the relevant section (44 AD, 44 AE, 44 AF, 44 BB, 44 BBA, 44 BBB, Chapter XII-G, First Schedule or any other relevant section. ) 11 13 (a) Method of accounting employed in the previous year (b) Whethere had been any change in the method of accounting. (c) If answer to (b) above is in the affirmative, give details of such change, and the effect thereof on the profit or loss. (d) Details of deviation, if any, from accounting standards prescribed under section 145 and the effect thereof on the profit or loss. 12 14 (a) Method of valuation of closing stock employed in the previous year. (b) In case of deviation from the method of valuation prescribed under section 145 A, and the effect thereof on the profit or loss, please furnish details of increase / decrease in profit. 12 A 22 11 15 Details of the capital asset converted into stock-in-trade

Amendments In The Tax Audit Reports Clause No. as per old as per new Form 3 CD Contents of relevant clause 13 Amounts not credited to the profit and loss account, being, (a) the items falling within the scope of section 28; (b) the proforma credits, drawbacks, refund of duty of customs or excise or service tax, or refund of sales tax or value added tax where such credits, drawbacks or refunds are admitted as due by the authorities concerned; (c) escalation claims accepted during the previous year; (d) any other item of income; (e) capital receipt, if any. - 23 16 17 Where any land or building or both is transferred during the previous year for a consideration less than value adopted or assessable by any authority of a State Government referred to in section 43 CA or 50 C, please furnish: Details of property, Consideration received or accrued and value adopted or assessable.

Amendments In The Tax Audit Reports Clause No. as per old as per new Form 3 CD Contents of relevant clause 15 19 Amounts admissible u/s. 32 AC, 33 ABA, 35(1)(i), 35(1)(iia), 35(1)(iii) 35(1)(iv), 35(2 AA), 35(2 AB), 35 ABB, 35 AC, 35 AD, 35 CCA, 35 CCB, 35 CCC, 35 CCD, 35 DD, 35 DDA, 35 E alongwith amount debited to the P&L A/c. and amounts admissible as per the Income-tax Act, 1961. 16 20 (a) Any sum paid to an employee as bonus or commission for services rendered, where such sum was otherwise payable to him as profits or dividend. [Section 36(1)(ii)] (b) Details of contributions received from employees for various funds as referred to in section 36(1)(va) in the given format. 17(a) – 17(e) 21(a) Details of amounts debited to the profit and loss account, being in the nature of capital, personal, advertisement expenditure, expenditure incurred at clubs being cost for club services and facilities used, expenditure by way of penalty or fine for violation of any law for the time being force, expenditure by way of any other penalty or fine not covered above, expenditure incurred for any purpose which is an offence or which is prohibited by law. 24

Amendments In The Tax Audit Reports Clause No. as per old as per new Form 3 CD Contents of relevant clause 17 (f) Amount inadmissible u/s. 40 (a) 17 (g) 21 (c) Amounts debited to profit and loss account being, interest, salary, bonus, commission or remuneration inadmissible u/s. 40(b)/40(ba) and computation thereof. 17 (h) 21 (d) Disallowance / deemed income u/s. 40 A(3) 17 (i) 21 (e) Provision for payment of gratuity not allowable u/s. 40 A(7) 17 (j) 21 (f) Any sum paid by the assessee as an employer not allowable u/s. 40 A(9) 17 (k) 21 (g) Particulars of any liability of a contingent nature 17 (l) 21 (h) Amount of deduction inadmissible in terms of section 14 A in respect of the expenditure incurred in relation to income which does not form part of the total income. 17(m) 25 21 (b) 21 (i) Amount inadmissible under the proviso to section 36(1)(iii).

Amendments In The Tax Audit Reports Clause No. as per old as per new Form 3 CD Contents of relevant clause 17 A Amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006. 18 23 Particulars of payments made to persons specified u/s. 40 A(2)(b) 19 24 Amounts deemed to be profits and gains u/s. 32 AC or 33 ABA or 33 AC. 20 25 Any amount of profit chargeable to tax u/s. 41 and computation thereof. 21 26 Disallowance u/s. 43 B 22 27 (a) Amount of Central Value Added Tax credits availed of or utilized during the previous year and its treatment in the P&L Account and treatment of outstanding Central Value Added Tax credits in the accounts. (b) Particulars of income or expenditure of prior period credited or debited to the P&L Account. - 26 22 28 Whether during the previous year the assessee has received any property, being share of a company not being a company in which the public are substantially interested, without consideration or for inadequate consideration as referred to in section 56(2)(viia).

Amendments In The Tax Audit Reports Clause No. as per old as per new Form 3 CD Contents of relevant clause - Whether during the previous year the assessee received any consideration for issue of shares which exceeds the fair market value of the shares as referred to in section 56(2)(viib). 23 30 Details of any amount borrowed on hundi or any amount due thereon (including interest on the amount borrowed) repaid, otherwise than through an account payee cheque. [Section 69 D] 24 27 29 31 Particulars of each loan or deposit in an amount exceeding the limit specified in section 269 SS taken or accepted during the previous year.

Amendments In The Tax Audit Reports Clause No. as per old as per new Form 3 CD Contents of relevant clause 25 (a) Details of brought forward loss or depreciation allowable in the prescribed format (b) Whether a change in shareholding of the company has taken place in the previous year due to which the losses incurred prior to the previous year cannot be allowed to be carried forward in terms of section 79. (c) Whether the assessee has incurred any speculation loss referred to in section 73 during the previous year, If yes, please furnish the details of the same. (d) Whether the assessee has incurred any loss referred to in section 73 A in respect of any specified business during the previous year, if yes, please furnish details of the same. (e) In case of a company, please state that whether the company is deemed to be carrying on a speculation business as referred in explanation to section 73, if yes, please furnish the details of speculation loss if any incurred during the previous year. 26 28 32 33 Section-wise details of deductions, if any, admissible under Chapter VIA or Chapter III (Section 10 A, Section 10 AA)

Amendments In The Tax Audit Reports Clause No. as per old as per new Form 3 CD Contents of relevant clause 27 (a) Whether the assessee is required to deduct or collect tax as per the provisions of Chapter XVII-B or Chapter XVII-BB, if yes furnish requisite details. (b) whether the assessee has furnished the statement of tax deducted or tax collected within the prescribed time. If not, furnish requisite details (c) whether the assessee is liable to pay interest under section 201(1 A) or section 206 C(7). If yes, furnish requisite details. 28 35 (a) In the case of trading concern, quantitative details of principal items of goods traded (b) In the case of a manufacturing concern, give quantitative details of the principal items of raw materials, finished products and by -products 29 29 34 36 In the case of a domestic company, details of tax on distributed profits under section 115 -O in the following form : (a) total amount of distributed profits; (b) amount of reduction as referred to in section 115 -O(1 A)(i); (c) amount of reduction as referred to in section 115 -O(1 A)(ii); (d) total tax paid thereon; (e) dates of payment with amounts

Amendments In The Tax Audit Reports Clause No. as per old as per new Form 3 CD Contents of relevant clause 30 Whether any cost audit was carried out, if yes, give the details, if any, of disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the cost auditor 31 38 Whether any audit was conducted under the Central Excise Act, 1944, if yes, give the details, if any, of disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the auditor - 39 Whether any audit was conducted under section 72 A of the Finance Act, 1994 in relation to valuation of taxable services, if yes, give the details, if any, of disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the auditor 32 40 Details regarding turnover, gross profit, etc. , for the previous year and preceding previous year 30 37 41 The details of demand raised or refund issued during the previous year under any tax laws other than Income-tax Act, 1961 and Wealth tax Act, 1957 alongwith details of relevant proceedings.

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