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

C.R. Sharedalal & Co. www.crsharedalalco.com


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


Tax Audits – History and Brief Background


Tax Audits – History

• 1984 – Tax Audit provisions introducedMemorandum 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”


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


Tax Audits – Brief Background

Sr. No. Assessment Year *Limits – Business

*Limits – Profession

1. 1985-86 to 2010-11 40,00,000 10,00,000

2. 2011-12 & 2012-13 60,00,000 15,00,000

3. 2013-14 1,00,00,000 25,00,000

• Specified Limits u/s 44AB read with Rule 6G:

* Limits = sales/turnover/gross receipts exceeds


Tax Audits – Brief BackgroundTax Audit Applicability

(Broadly)

Businesses u/s 44AD, AE, BB, BBB

Limits exceeded (1 crore):Tax Audit

Limits not exceeded:Minimum Deemed Income or Tax Audit

Profession or Other businesses

Limits exceeded (1 crore/25 lakhs):

Tax Audit

Limits not exceeded:No Tax Audit


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


Notification No. 33/2014 dated 25.7.2014


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?


News on e-filing portal dated 29.7.2014


News on e-filing portal dated 29.7.2014 - validity

•What about reports filed between 25.7.2014 & 29.7.2014?


Important changes in Tax Audit Report Forms


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


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


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


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


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?


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


Form 3CD

• Particulars which are required to be furnished under section 44AB shall be in Form No. 3CD


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


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


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. )


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


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


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.


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 property2. Consideration received or accrued3. Value adopted or assessed or assessable



• 43CA:(i) 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

(ii) AS – 9 to be considered for time of transfer(iii) Date of agreement is relevant (43CA(3))(iv) Leasehold Rights – Not ‘land’ or ‘building’ in terms of

Section 43CA and 50C.(v) Form 1 - stamp duty, details of property, consideration

received.



• 50C:(i) Section 2(47)(v) – transfer – deemed accrual on

possession in part performance(ii) Leasehold right – not ‘land’ or ‘building’(iii) “Though FSI and TDR is “immovable property” as held in

Chedda Housing Development vs. Babijan Shekh Farid 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.


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


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



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



Clause 21(b): Amounts inadmissible under section 40(a):-

(i) 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



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



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



Clause 21(d):Disallowance/deemed income under section 40A(3):Details:

i. Serial No., ii. Date, Nature, Amount of paymentiii. Name & PAN of the payee, if available



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



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.


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.


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


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.


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


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.


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


Form 3CD – Clause 28/29 – 56(2)(viia)/(viib)

56(2)(viia) & (viib) – Caution points:Particulars 56(2)(viia) 56(2)(viib)Accountant Expl to 288(2) FCA other than Tax

Auditor or Statutory Auditor

Balance Sheet Audited Balance Sheet as on Valuation date

Last Audited Balance Sheet approved at AGM

Valuation Date Receipt of Shares Receipt of Consideration for issue of shares


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

Particulars 56(2)(viia) 56(2)(viib)Valuation Method

Breakup Value Breakup Value or DCF


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


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


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


Form 3CD – Clause 34(a) – TDS/TCS ChartWhether 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


Form 3CD – Clause 34(a) – TDS/TCS ChartWhether 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(vi) Total amount on which tax actually deducted or collected(vii) Total amount of tax actually deducted or collected on above(viii) Total amount on which tax actually deducted or collected at less than specified rate(ix) Total amount of tax actually deducted or collected at less than specified rate(x) Amount of tax deducted or collected but not deposited


Form 3CD – Clause 34(b) – Late filing of return

whether the assessee has furnished the statement of tax deducted or tax collected within the prescribed time. If not, please furnish the details

• If TDS/TCS return is filed late• Entire late filed return will have to be verified:

Whether the statement of tax deducted or collected contains information about all transactions which are required to be reported


Form 3CD – Clause 34(c) – Interest - TDS/TCS

whether the assessee is liable to pay interest under section 201(1A) or section 206C(7). If yes, please furnish:

• TAN• Amount of interest payable• Amount paid• Date of payment• Auditor to recheck calculation


Form 3CD – Clause 36 – 115O – DDT

Dividend Tax u/s 115O:• Reductions:

115O(1A)(i) - Dividend received by domestic company or foreign company from its subsidiary

• Domestic Subsidiary should have paid tax u/s 115O

• Tax should be payable u/s 115BBD on foreign subsidiary’s dividend received


Form 3CD – Clause 37 – Cost audit

Clause 37: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.


Form 3CD – Clause 38 – Excise Audit

Clause 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.


Form 3CD – Clause 39 – Service Tax Audit

Clause 39:Whether any audit was conducted under section 72A 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.

• 72A(i) deals with valuation aspect.• 72A(ii) & (iii) deal with credits and accounts.


Form 3CD – Clause 40 – Ratios

Clause 40:Details regarding turnover, gross profit, etc., for the previous year and preceding previous year:

• Total turnover is to be reported for the previous year as well as for preceding financial year

• Other ratios to be reported for preceding FY• (the details required to be furnished for principal

items of goods traded or manufactured or services rendered) - Whether item-wise or consolidated?


Form 3CD – Clause 41 – Any Tax Laws

Clause 41:Please furnish 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 along with details of relevant proceedings.

• VAT, Excise, Service Tax, Customs, Municipal Tax, Luxury Tax, STT, CTT, Central Sales Tax, Octroi, Stamp Duty, Toll Tax, RTO/Road Tax, Electricity Duty, Professional Tax.

• Can you think of more taxes?• Details of proceedings to be given


Form 3CD – Removal of Annexure I

Welcome change:Annexure I removed.


Important points for Tax Auditors


Important Points for Tax Auditors

• Maintain detailed working papers (SA 230): Work Sheets / Time Sheets Query Sheets /Explanatory Notes /Checklists Materiality factor calculation Relevant Standards on Auditing Judicial Pronouncements relied upon Certificates – 269SS/T, 40A(3), 40A(2)(b) Management Representation Letter


Fees need to be increased in line with work:


Old vs. New

Falls on the Floor Falls on the Floor

Breaks Floor - simple & rugged

Breaks Screen- complex and expensive

Thank you!
