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Revised Tax Audit Report Form Nos. 3CA, 3CB, 3CD: Important Changes

Revised Tax Audit Report Form Nos. 3CA, 3CB, 3CD: Important Changes. CA Anuj J. Sharedalal At Income Tax Bar Association, Ahmedabad. Contents. Tax Audits – History and Brief Background Notification No. 33/2014 dated 25.7.2014 News on e-filing portal dated 29.7.2014 - validity

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Revised Tax Audit Report Form Nos. 3CA, 3CB, 3CD: Important Changes

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  1. Revised Tax Audit Report Form Nos. 3CA, 3CB, 3CD:Important Changes CA Anuj J. Sharedalal At Income Tax Bar Association, Ahmedabad C.R. Sharedalal & Co. www.crsharedalalco.com

  2. Contents • Tax Audits – History and Brief Background • Notification No. 33/2014 dated 25.7.2014 • News on e-filing portal dated 29.7.2014 - validity • Important changes in Tax Audit Report Forms: • 3CA • 3CB • 3CD • Important points for Tax Auditors C.R. Sharedalal & Co. www.crsharedalalco.com

  3. Tax Audits – History and Brief Background C.R. Sharedalal & Co. www.crsharedalalco.com

  4. Tax Audits – History • 1984 – Tax Audit provisions introduced Memorandum explaining the provisions of the Finance Bill, 1984: “the compulsory audit is intended to ensure proper maintenance of books of account and other records, in order to reflect the true income of the tax payer and to facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities. This would also save the time of the Assessing Officers considerably in carrying out the verification” C.R. Sharedalal & Co. www.crsharedalalco.com

  5. Tax Audits – History • 1984 – Tax Audit provisions introduced • 1997 – Tax Audit provisions applicable to 44AD • 1999 – All Forms and Rule 6G revised. Form 3CC and 3CE done away with • 2003 - Tax Audit provisions applicable to 44BB and 44BBB • 2004 – All Forms revised • 2006 – Form 3CD revised • 2008 – requirement to furnish report with return done away with • 2011 – cases of fake membership numbers • 2013 – e-filing of tax audit reports made mandatory C.R. Sharedalal & Co. www.crsharedalalco.com

  6. Tax Audits – Brief Background • Specified Limits u/s 44AB read with Rule 6G: • * Limits = sales/turnover/gross receipts exceeds C.R. Sharedalal & Co. www.crsharedalalco.com

  7. Tax Audits – Brief Background C.R. Sharedalal & Co. www.crsharedalalco.com

  8. Tax Audits – Brief Background Rule 6G of Income Tax Rules, 1962: • 6G(1) - Report of Audit – Form Nos. 3CA & 3CB • 6G(2) - Particulars to be furnished in Form No. 3CD • True & Correct vs. True & Fair • Appendix – II contains the forms C.R. Sharedalal & Co. www.crsharedalalco.com

  9. Notification No. 33/2014 dated 25.7.2014 C.R. Sharedalal & Co. www.crsharedalalco.com

  10. Notification No. 33/2014 dated 25.7.2014 • Notification published on website on 28.7.2014 (26th & 27th was weekend) • Comes into force on the date of publication in the Official Gazette • Whether this is applicable to tax audit reports of any previous AYs not filed till 25.7.2014? C.R. Sharedalal & Co. www.crsharedalalco.com

  11. News on e-filing portal dated 29.7.2014 C.R. Sharedalal & Co. www.crsharedalalco.com

  12. News on e-filing portal dated 29.7.2014 - validity • What about reports filed between 25.7.2014 & 29.7.2014? C.R. Sharedalal & Co. www.crsharedalalco.com

  13. Important changes in Tax Audit Report Forms C.R. Sharedalal & Co. www.crsharedalalco.com

  14. Form 3CA • Applicable in the case of a person who carries on business or profession and who is required by or under any other law to get his accounts audited C.R. Sharedalal & Co. www.crsharedalalco.com

  15. Form 3CA Open Period: 1(a) the audited *profit and loss account / income and expenditure account for the period beginning from ----------------------to ending on -----------------------------. 1(b) the audited balance sheet as at, _____; and • Period instead of year • 31st March removed. • New business or business discontinued C.R. Sharedalal & Co. www.crsharedalalco.com

  16. Form 3CA Space for Observations - Qualifications: 3. 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. • Space provided to mention observations/qualifications C.R. Sharedalal & Co. www.crsharedalalco.com

  17. Form 3CB • Applicable in the case of a person who carries on business or profession, but not being a person who is required by or under any other law to get his accounts audited C.R. Sharedalal & Co. www.crsharedalalco.com

  18. Form 3CB Open Period: 1. *I / we have examined the balance sheet as on, ____, and the *profit and loss account / income and expenditure account for the period beginning from ----------------------to ending on -----------------., attached herewith, • Period instead of year • 31st March removed – new or discontinued business 3(c)(i) in the case of the balance sheet, of the state of the affairs of the assessee as at 31st March, ;and • Not removed in (c)(i) - Typing error? C.R. Sharedalal & Co. www.crsharedalalco.com

  19. Form 3CB Space for qualifications/observations: 5. In *my/our opinion and to the best of *my / our information and according to explanations given to *me / us, the particulars given in the said Form No.3 CD are true and correct subject to following observations/qualifications, if any: a. b. c. • Space provided to mention observations/qualifications C.R. Sharedalal & Co. www.crsharedalalco.com

  20. Form 3CD • Particulars which are required to be furnished under section 44AB shall be in Form No. 3CD C.R. Sharedalal & Co. www.crsharedalalco.com

  21. Form 3CD - Clause 4 – Registration Nos. 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 • Any Registration number or identification number under indirect tax laws like Excise, Service Tax, Customs, Sales Tax etc. to be given C.R. Sharedalal & Co. www.crsharedalalco.com

  22. Form 3CD – Clause 8 – Relevant clause of 44AB Indicate the relevant clause of section 44AB under which the audit has been conducted • Relevant clause of 44AB: (a) business (b) profession (c) 44AE, 44BB, 44BBB (d) 44AD C.R. Sharedalal & Co. www.crsharedalalco.com

  23. Form 3CD – Clause 11(b) – address – books List of books of account maintained and the address at which the books of accounts are kept. (If the books of accounts are not kept at one location, please furnish the addresses of locations along with the details of books of accounts maintained at each location. ) C.R. Sharedalal & Co. www.crsharedalalco.com

  24. Form 3CD – Clause 11(b) – address – books Books defined u/s 2(12A) – includes ledgers, day-books, cash books, account-books and other books whether kept in written form or ….. • Books are maintained in Cloud based software • Location of data entry and location of storage are different. – e.g. cloud based software • Name and address of cloud service provider • Invoicing at depot = document and not books of account C.R. Sharedalal & Co. www.crsharedalalco.com

  25. Form 3CD – Clause 11(c) – Relevant documents List of books of account and nature of relevant documents examined. • Documents – 2(22AA) read with 2(1)(t) of the IT Act, 2000 (amended in 2008) – scope very wide – electronic records covers even sound, digital media, film etc. • Nature of documents vs. exact documents • Deeds, Agreements, Registrations, Returns, Challans, Invoices, BRS, Bank Statements, Salary Register, CENVAT Register etc. • All documents relied upon in giving the report C.R. Sharedalal & Co. www.crsharedalalco.com

  26. Form 3CD – Clause 13(c) – Change in method Whether there had been any change in the method of accounting employed vis-a-vis the method employed in the immediately preceding previous year. If answer to (b) above is in the affirmative, give details of such change, and the effect thereof on the profit or loss. • Data to be given in Tabular Format now – Sr. No., Particulars, Increase in profit, Decrease in profit • E.g. Change in method of depreciation, stock valuation etc. C.R. Sharedalal & Co. www.crsharedalalco.com

  27. Form 3CD – Clause 17 – Sale of imm. property Where any land or building or both is transferred during the previous year for a consideration less than value adopted or assessed or assessable by any authority of a State Government referred to in section 43CA or 50C, please furnish: 1. Details of property 2. Consideration received or accrued 3. Value adopted or assessed or assessable C.R. Sharedalal & Co. www.crsharedalalco.com

  28. Form 3CD – Clause 17 – Sale of imm. property • 43CA: • Transfer - Ashaland Corporation 133 ITR 55 (Guj) – Income accrues in the year in which title passes i.e. execution of registered sale deed – even though advance may be received earlier • AS – 9 to be considered for time of transfer • Date of agreement is relevant (43CA(3)) • Leasehold Rights – Not ‘land’ or ‘building’ in terms of Section 43CA and 50C. • Form 1 - stamp duty, details of property, consideration received. C.R. Sharedalal & Co. www.crsharedalalco.com

  29. Form 3CD – Clause 17 – Sale of imm. property • 50C: • Section 2(47)(v) – transfer – deemed accrual on possession in part performance • Leasehold right – not ‘land’ or ‘building’ (iii) “Though FSI and TDR is “immovable property” as held in Chedda Housing Development vs. BabijanShekhFarid 2007 (3) MLJ 402 (Bom), it is not “land or building” and so cannot be the subject matter of s. 50C.” - ITO .v. Prem Rattan Gupta (Mum.) (Trib.) (iv) Form 1 – Stamp duty, consideration received, description of property. C.R. Sharedalal & Co. www.crsharedalalco.com

  30. Form 3CD – Clause 19 – Deductions • Deductions allowable under sections 32AC, 35AD, 35CCC etc. are required to be reported • Conditions have been fulfilled or not to be checked – Amounts debited vis-à-vis Amounts admissible as per the provisions of the Income-tax Act, 1961 and also fulfils the conditions, if any specified • Checklist – Working paper • Section wise chart to be given C.R. Sharedalal & Co. www.crsharedalalco.com

  31. Form 3CD – Clause 21 – Inadmissible amounts Clause 21(a): Please furnish the details of amounts debited to the profit and loss account, being in the nature of capital, personal, advertisement expenditure etc • Should be debited to Profit & Loss Account - only for 21(a) • Unlike preceding 3CD where it was for entire Clause 17 C.R. Sharedalal & Co. www.crsharedalalco.com

  32. Form 3CD – Clause 21 – Inadmissible amounts Clause 21(a): • 37(1) – Personal or Capital Expenditure • Expl to 37(1) – offense or prohibited by law – 344 ITR 476 – Kap Scan, 322 ITR 401 Millennia, 254 ITR 495 Tarini Tarpaulin Prod. – against assessee • 37(2B) - advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party • Contractual damages covered - Expenditure by way of any other penalty or fine not covered above C.R. Sharedalal & Co. www.crsharedalalco.com

  33. Form 3CD – Clause 21 – Inadmissible amounts Clause 21(b): Amounts inadmissible under section 40(a):- • as payment to non-resident referred to in sub-clause (i) (A) Details of payment on which tax is not deducted: (B) Details of payment on which tax has been deducted but has not been paid during the previous year or in the subsequent year before the expiry of time prescribed under section 200(1) • Date, amount, nature of payment, name & address of payee, amount of tax deducted C.R. Sharedalal & Co. www.crsharedalalco.com

  34. Form 3CD – Clause 21 – Inadmissible amounts Clause 21(b): Amounts inadmissible under section 40(a):- (ii) as payment referred to in sub-clause (ia) (A) Details of payment on which tax is not deducted: (B) Details of payment on which tax has been deducted but has not been paid on or before the due date specified in sub-section (1) of section 139. • Date, amount, nature of payment, name & address of payee, amount of tax deducted C.R. Sharedalal & Co. www.crsharedalalco.com

  35. Form 3CD – Clause 21 – Inadmissible amounts Clause 21(b): Inadmissible if tax not deducted • 40(a)(i) read with 200(1) (139(1) from AY 2015-16) : Non-resident • 40(a)(ia) read with 139(1) (Salary from AY 2015-16) : Resident • 40(a)(iii) : Salary paid to Non-resident or outside India • Even if not be debited to Profit & Loss Account – Typing Error or Intentional? – OLD vs. NEW – Fixed Assets C.R. Sharedalal & Co. www.crsharedalalco.com

  36. Form 3CD – Clause 21 – Inadmissible amounts Clause 21(d): Disallowance/deemed income under section 40A(3): Details: • Serial No., • Date, Nature, Amount of payment • Name & PAN of the payee, if available C.R. Sharedalal & Co. www.crsharedalalco.com

  37. Form 3CD – Clause 21 – Inadmissible amounts Clause 21(d): • Rule 6DD(d) – JV adjustment with same party vs. adjustment with third party • Drawn on a bank (40A(3)/(3A) vs. drawn in the name of the person who has made the loan (269T) • Section 40A(3A) – allowance made in past year and payment made in PY – deemed income • Even if not be debited to Profit & Loss Account – Typing Error or Intentional? – OLD vs. NEW – Fixed Assets C.R. Sharedalal & Co. www.crsharedalalco.com

  38. Form 3CD – Clause 21 – Inadmissible amounts Clause 21(g): particulars of any liability of a contingent nature; • Details of contingent liabilities not debited to profit and loss account • AS 29 - Unless the possibility of any outflow in settlement is remote, an enterprise should disclose for each class of contingent liability at the balance sheet date a brief description of the nature of the contingent liability and, where practicable: (a) an estimate of its financial effect, (b) an indication of the uncertainties relating to any outflow; and (c) the possibility of any reimbursement. C.R. Sharedalal & Co. www.crsharedalalco.com

  39. Form 3CD – Clause 24 – sale of asset u/s 32AC Amounts deemed to be profits and gains under section 32AC or 33AB or 33ABA or 33AC. • “32AC” added • deemed income which results from sale or transfer of new asset, (deduction claimed u/s 32AC) within a period of five years from the date of its installation • Amalgamation or demerger is not sale or transfer. • Above income is in addition to Capital Gains, if any. C.R. Sharedalal & Co. www.crsharedalalco.com

  40. Form 3CD – Clause 27(a) – CENVAT Amount of Central Value Added Tax credits availed of or utilised during the previous year and its treatment in the profit and loss account and treatment of outstanding Central Value Added Tax credits in the accounts. • MODVAT replaced by CENVAT • Opening, Closing balance of CENVAT Credit • Availed value and utilized value of CENVAT C.R. Sharedalal & Co. www.crsharedalalco.com

  41. Form 3CD – Clause 28 – 56(2)(viia) 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. C.R. Sharedalal & Co. www.crsharedalalco.com

  42. Form 3CD – Clause 28 – 56(2)(viia) • 56(2)(viia) Inserted by the Finance Act, 2010 w.e.f. 1-6-2010 • Receiver - Firm / company not being a company in which public are substantially interested (CNCPSI) • Property - shares of CNCPSI (from anyone) • Without Consideration – Entire taxable • With Consideration – FMV - Consideration = Taxable • FMV = Rule 11U and 11UA • Shall not apply to – Section 47(via) / (vic) / (vicb) / (vid) / (vii) , 50000 C.R. Sharedalal & Co. www.crsharedalalco.com

  43. Form 3CD – Clause 29 – 56(2)(viib) 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. C.R. Sharedalal & Co. www.crsharedalalco.com

  44. Form 3CD – Clause 29 – 56(2)(viib) • 56(2)(viib) Inserted by the Finance Act, 2012 w.e.f. 1-4-2013 • Recevier - Company not being a company in which public are substantially interested (CNCPSI) • Consideration received - for issue of shares that exceeds face value (from Resident person only) • Consideration received – FMV = Taxable i.e. excess share premium • FMV = Rule 11U/UA or as substantiated to the satisfaction of the officer w.e. higher • Shall not apply to – VCU from VCC/VCF, C.G. notified class of persons C.R. Sharedalal & Co. www.crsharedalalco.com

  45. Form 3CD – Clause 28/29 – 56(2)(viia)/(viib) 56(2)(viia) & (viib) – Caution points: C.R. Sharedalal & Co. www.crsharedalalco.com

  46. Form 3CD – Clause 28/29 – 56(2)(viia)/(viib) 56(2)(viia) & (viib) – Caution points: • Report of Valuer to be obtained • Rough calculation should be done on ones own as a check – Excel working C.R. Sharedalal & Co. www.crsharedalalco.com

  47. Form 3CD – Clause 32(c) – Speculation Loss 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. • Section 73 - Speculation Loss – Explanation - Units are not shares (SC) • Speculative transaction – Section 43(5) – trading in commodity derivatives excluded if on recognised association – AY 2013-14 • Finance Act 2014 – AY 2014-15 – CTT should be paid + Recognised association C.R. Sharedalal & Co. www.crsharedalalco.com

  48. Form 3CD – Clause 32(d) – loss in specified busi. whether the assessee has incurred any loss referred to in section 73A in respect of any specified business during the previous year, if yes, please furnish details of the same. • 35AD – specified businesses – loss to be reported C.R. Sharedalal & Co. www.crsharedalalco.com

  49. Form 3CD – Clause 33 – Chaper III deductions Section-wise details of deductions, if any, admissible under Chapter VIA or Chapter III (Section 10A, Section 10AA) • Amounts admissible as per the provisions of the Income-tax Act, 1961 and fulfils the conditions, if any, specified under the relevant provisions of Income-tax Act, 1961 • Auditor to verify the conditions of Chap. III - 10A/10AA – whether they are fulfilled or not? • Various sub-sections – prepare checklist C.R. Sharedalal & Co. www.crsharedalalco.com

  50. Form 3CD – Clause 34(a) – TDS/TCS Chart Whether the assessee is required to deduct or collect tax as per the provisions of Chapter XVII-B or Chapter XVII-BB, if yes please furnish: • Tabular information of TDS/TCS (i) TAN (ii)  Sections under which TDS or TCS deducted or collected (iii) Nature of Payment (iv) Total Amount of payment (including non-tax deductible or collectible portion) (v) Total amount on which tax was to be deducted or collected C.R. Sharedalal & Co. www.crsharedalalco.com

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