Tax Audit – Documentation &
Checklist
Roopali J, CA
Partner akasam and associates
Chartered Accountants
Tax Audit Objective
To assist Income Tax Department to assess correct income of
assessee and give information on compliance prescribed under
the Act
Main report
Form 3CA: Applies where accounts of business or profession of
assessee have been audited under any other law
Form 3CB Applies in cases where accounts are not required to be
audited by any other law
Annexure in Form 3CD to main report giving particulars of
compliance
Applicability of Tax Audit – S. 44AB
Every person carrying on business whose Gross Turnover,
Receipts Or Total Sales exceed Rs.1 Crore
Every person carrying on profession whose Gross Receipts exceed
Rs.25 Lakhs
Where profits & gains of person from business are taxable on
estimated basis u/s 44AD, 44AE, 44BB or 44BBB & such person
claims his income to be lower than profits & gains so estimated
Tax Audit Procedures
Primary responsibility is of assessee to ensure compliance, prepare
and submit relevant information
Tax Auditor (TA) to verify compliance
TA to-
• Use professional skill & expertise
• Apply Generally Accepted Auditing Procedures as applicable for
other audits
• Apply techniques of reasonable test audit checks & compliance
tests depending upon internal controls of assessee
• Follow principles of Materialit , Prude e & Su sta e Over
For
Tax Audit Procedures
Refer to following publications issued by ICAI-
• Standards on Audit (SAs)
• Guidance Notes (GNs) on Audit Reports & Certificates for Special
Purposes
• GN on Tax Audit , Supplementary GN on Tax Audit, GN on
section 145A considering VAT & GN on section 14A
• Issues on Tax Audit
• SA 700 - Auditor s report on financial statements
• Statement on qualifications in Auditor s report
Documentation and Checklist
Permanent File
PAN, TAN, registered office, branch office details, other taxes
registration o s and relevant supporting documents, partnership
deed/COI along with MOA, AOA etc.
Working File
All the working papers collected while doing the audit for that
particular year starting with appointment letter
Annexure to Tax Audit Report (Form - 3CD)
Part - A
Clauses 1-8
Name of the assessee
Address
Permanent Account Number
Applicability of indirect taxes
along with registration numbers
Status
Previous Year Ended
Assessment Year
Relevant clause of 44AB to be
mentioned
Permanent Audit file
Working audit File
Relevant Clauses – Impacted by
Management decisions
Part - B
Clause 9
Is applicable to Firms & Association of Persons
Names of partners / members & their profit-sharing ratios [Sub-
Clause (a)]
Changes in the constitution, or profit-sharing, of Partnership/
Association & the particulars of change [Sub-Clause (b)]
Clause 10
Nature of Business / Profession (If more than one business/
profession is carried out, then nature of every business/
profession) [Sub-Clause (a)]
Particulars of change in business / profession [Sub-Clause (b)]
Relevant Clauses – Impacted by
Management decisions Clause 11
Whether books of accounts are prescribed as per S. 44AA? [Sub-
Clause (a)]
Books of Accounts maintained (In case of computerized system of
accounting, mention books of account generated by such system)
along with details of each location wherein these are
maintained[Sub-Clause (b)]
List of books and nature of relevant documents examined [Sub-
Clause (c)]
Clause 12
Mention profit assessable on presumptive basis which is included
in profit & loss account and relevant section under which it is
assessable
Clause 13
Method of Accounting followed in P.Y [Sub-Clause (a)]
Any change in method of accounting in relation to last P.Y [Sub-Clause
(b)]
Details of such change and its effect on profit / loss to be mentioned
in tabular form [Sub-Clause (c)]
Details of deviation in method employed from accounting standards
prescribed u/s. 145 & effect on profit / loss [Sub-Clause (d)]
Clause 14
Method of Valuation of Closing Inventory employed in P.Y [Sub-Clause
(a)]
Details of deviation of such method of valuation from method
prescribed u/s. 145A & effect on profit / loss [Sub-Clause (b)]
Relevant Clauses – Impacted by
Management decisions
Relevant Clauses – Impacted by
Management decisions
Clause 15
Give following particulars of Capital Asset converted into Stock-in-
Trade-
Description of Capital Asset [Sub-Clause (a)]
Date of Acquisition [Sub-Clause (b)]
Cost of Acquisition [Sub-Clause (c)]
Amount at which asset is converted into Stock-in-Trade [Sub-
Clause (d)]
Relevant documentation to be checked In case of Company
• Memorandum of Association
• Articles of Association
• Minutes of the meetings conducted by the Board of Directors
• Directors Report
• Notes to the audited Financial Statements
• Previous Year ROI
• Accounting policies and procedures
• Documents filed with ROC
In case of a Firm
• Obtain a true copy of the partnership deed signed by all the
partners
• Obtain a true copy of the amendment / admission / retirement deed
and get a declaration stating that there has been no change in the
profit sharing ratios during the year by all the partners
Relevant documentation to be checked
• The nature of business stated in partnership deed/ MoA & AoA, can
be cross checked with Sales Tax Registration Certificates, Shop Act
Licence, Service tax registration certificates etc.
• For businesses falling in presumptive taxation category take a
declaration that the activity is the same & no other activity is being
conducted
Steps – Verification of Books of Accounts • Detailed ledger scrutiny to be conducted
• Expenses and income heads should also be checked for comparing with
the previous year accounting method.
• Check the year end entries in journal for the expenses provided and see
the method of providing expenses is as same as of earlier year. Similarly
payment entries in the beginning of the year should also be checked for
checking the way of dealing with expenses and provisions.
• Pl check for the applicability of Accounting Standards and CBDT
circulars wherever applicable
• Wherever supporting documentation is not completely available,
confirmation from management in the form of management
representation letter (MRL) to be obtained
Verification of Books of accounts
Clause 16
Amounts not credited to Profit / Loss Account, being -
items falling within scope of S. 28 [Sub-Clause (a)]
Verify the reserves account, or any other account, capital account
of the proprietor/partner, credits in the other balance sheet items
to identify if any item is directly credited to the same.
pro forma credits, drawbacks, refunds of customs or excise duties or service
tax, sales tax or VAT, where same are admitted as due by concerned
authorities [Sub-Clause (b)]
Check for the claims lodged and admitted by authorities.
escalation claims accepted during P.Y [Sub-Clause (c)]
any other items of income [Sub-Clause (d)]
capital receipt [Sub-Clause (e)]
Verification of Books of accounts
Clause 17
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 then details of Property actual consideration received or
accrued versus value adopted or assessed or assessable is to be
mentioned in tabular form
Verification of Books of accounts Clause 18
Particulars of depreciation as per Income Tax Act, 1961 for each block of assets in
following form-
description of asset / block of assets [Sub-Clause (a)]
rate of depreciation [Sub-Clause (b)]
actual cost / WDV [Sub-Clause (c)]
Additions (along with date of asset being put to use) / deductions made to
block along with following adjustments [Sub-Clause (d)]-
• CENVAT claimed & allowed
• Change in exchange rates
• Subsidy, grant or reimbursement
Depreciation allowable [Sub-Clause (e)]
WDV at end of P.Y [Sub-Clause (f)]
Verification of Books of accounts
Clause 18: continued
• ascertain date of asset being put to use - an e pert s opinion if
necessary or certificate from assessee
• Any interest paid on money borrowed for purchase/construction of asset,
upto the date on which asset is put to use, be capitalized to the cost of asset –
loan papers
• subsidy documentation if any received for acquiring the asset –be reduced
from the cost of acquisition.
• Section 43A – Any asset purchased from outside India – out of borrowing in
foreign currency – the foreign exchange fluctuation ( only to the extent of
amount actually repaid) be considered as part of the cost of the asset.
• Lease agreement to be verified to ascertain whether the asset is on a finance
lease or operating lease. Operating lease – dep available to lessor, Finance
lease – dep available to lessee.
Verification of Books of accounts
Clause 19
Amounts admissible u/s. 32AC, 33AB, 33ABA, (wherever
applicable), 35(1)(i) to 35(1)(iv), 35(2AA), 35(2AB), 35ABB, 35AC,
35AD, 35CCA, 35CCB, 35CCC, 35CCD, 35D, 35DD, 35DDA & 35E-
Debited to Profit / Loss Account (showing amount debited &
deduction allowable under each section) [Sub-Clause (a)]
Compliance with all the conditions, if any specified under the
relevant provisions of the Act or Rules or any other guidelines,
circular etc., issued in this behalf needs to be verified and
reported in tabular manner
Verification of Books of accounts
Clause 20
Sum paid to employee as bonus or commission, where same
was payable as profits or dividend [Sub-Clause (a)]
Sums received from employees as contributions to any
provident or superannuation funds or any other fund u/s.
2(24)(x); due date for payment & actual date and amount of
payment to concerned authorities u/s. 36(1)(va) [Sub-Clause
(b)] in tabular form
Verification of Books of accounts Clause 21
Amounts debited to Profit / Loss, being-
capital expenditure [Sub-Clause (a)]
personal expenditure [Sub-Clause (b)]
expenditure on advertisement in any publication of political party
[Sub-Clause (c)]
expenditure incurred at clubs [Sub-Clause (d)]-
• as entrance fees & subscription
• as cost for club services & facilities used
penalty or fine for violation of any law [Sub-Clause (e)(i)]
any other penalty or fine [Sub-Clause (e)(ii)]
expenditure incurred for an offensive purpose or that which
prohibited by law [Sub-Clause (e)(iii)]
Clause 21 continued….
Amount inadmissible u/s. 40(a) [Sub-Clause (f)]
as payment to non resident referred to in sub clause (i)
as payments to residents referred to in sub-clause (ia)
as payments referred to in sub-clause (ic)/(iia)/(iib)/(iii)/(iv)/(v)
For non/short deduction or non/short payment of TDS including
variation in rates
All details of the payments/Payee need to be reported in tabular
form
Verification of Books of accounts
Verification of Books of accounts Clause 21 continued….
Amounts debited to Profit / Loss, being-
Amounts inadmissible u/s. 40(b) / 40 (ba) paid by way of Interest, Salary, Bonus,
Commission or remuneration
On The basis of examination of books of accounts and other relevant
documents/evidence, whether the expenditure covered u/s 40A(3) r.w.r 6DD or
u/s 40A(3A) were made by account payee cheque drawn on a bank or account
payee bank draft. If not the details need to be furnished in tabular form
Provision for gratuity not allowable u/s. 40A(7) [Sub-Clause (i)]
Any sum paid as employer not allowable u/s. 40A(9) [Sub-clause (j)]
Particulars of contingent liability [Sub-Clause (k)]
Deduction inadmissible as per S. 14A relating to expenditure pertaining to Income
not forming part of Total Income [Sub-Clause (l)]
Amount inadmissible under proviso to S. 36(1)(iii) [Sub-Clause (m)]
Verification of Books of accounts
Clause 22: Amount of interest inadmissible under S. 23 of Micro, Small &
Medium Enterprises Development Act, 2006
Micro Enterprise:
• In case of enterprise engaged in manufacture or production of goods
pertaining to any industry specified in SCH I Industries (Development
and Regulations) Act 1951. Investment in Plant and Machinery does
not exceed Rs. 25.00 Lacs
• In case of Service Enterprise, investment in equipment does not
exceed Rs. 10.00 Lacs
Small Enterprise:
• In case of enterprise engaged in manufacture or production of goods
pertaining to any industry specified in SCH I Industries (Development
and Regulations) Act 1951. Investment in Plant and Machinery is
more than Rs.25 Lacs but does not exceed Rs.5 Crore
• In case of Service Enterprise, investment in equipment is more than
Rs.10 Lacs does not exceed Rs.2 Crore
Verification of Books of accounts
Medium Enterprise :
• In case of enterprise engaged in manufacture or production of
goods pertaining to any industry specified in SCH I Industries
(Development and Regulations) Act 1951. Investment in Plant
and Machinery is more than Rs.5 Crore but does not exceed Rs.10
Crore
• In case of Service Enterprise, investment in equipment is more
than Rs.2 Crores but does not exceed Rs.5 Crore
MSME Act lays down that an interest payable or paid by the buyer,
under or in accordance with the provisions Sec 23 of the Act, shall
not for the purpose of the computation of income under Income Tax
Act,1961 be allowed as a deduction.
Verification of Books of accounts
Clause 23
Particulars of payments made to persons specified u/s 40A(2)(b) –
related parties
Clause 24
Amounts deemed to be Profits and Gain under Section 32AC
(investment in new P&M) )or 33AB (Tea/coffee/rubber development
account) or33ABA (site restoration fund) or 33AC (reserves for
shipping business)
Clause 25
Amount of profit chargeable to tax u/s. 41 & computation thereof
Verification of Books of accounts
Clause 26
In respect of any sum referred to in Clauses (a), (b), (c), (d), (e) or (f) of
S. 43B, liability for which-
Pre-existed on first day of PY but was not allowed as deduction
preceding PY & was paid during PY or not paid during PY [Sub-Clause (i
A)]
Was incurred in P.Y & was paid on or before due date for furnishing
returns of P.Y u/s. 139 (1) or not paid on or before due date [Sub-
Clause (i B)]
State whether sales tax, customs duty, excise duty or any other indirect
tax, levy, cess, impost etc. is passed through profit / loss account
Verification of Books of accounts
Clause 27
Amount of CENVAT Credit utilized during P.Y. & treatment in profit / loss
account & treatment of CENVAT Credit outstanding [Sub-Clause (a)]
Particulars of prior period Income / Expenditure credited / debited to
Profit / Loss Account [Sub-Clause (b)]
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 for the same.
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
Verification of Books of accounts
Verification of Books of accounts Clause 30
Amount borrowed on hundi (including interest thereon) repaid other
than through account payee cheque (section 69D)
Clause 31
Particulars of each loan / deposit exceeding limits specified u/s. 269SS
taken or accepted during P.Y-
Name, address & PAN of lender / depositor
Amount of loan / deposit
Whether loan / deposit was squared up during P.Y
Maximum amount outstanding at any time in P.Y
Whether loan / deposit was taken / accepted otherwise than by
account payee cheque or account payee bank draft [Sub-Clause (a)]
Verification of Books of accounts Clause 31 continued…
Particulars of loan / deposit repaid exceeding limits specified u/s. 269T
during P.Y-
Name, address & PAN of payee
Amount of repayment
Maximum amount outstanding at any time during P.Y
Whether repayment was made otherwise than by account payee
cheque or account payee bank draft [Sub-Clause (b)]
Whether certificate has been obtained from assessee regarding taking
or accepting, or repayment of same through account payee cheque /
draft [Sub-Clause (c)]
Such particulars are not necessary in case of government companies,
banking companies or corporations established under Central, State or
Provincial Act
Verification of Books of accounts Clause 32
Details of brought forward loss or depreciation allowance, in following
manner [Sub-Clause (a)]-
Where change in shareholding of company has taken place in P.Y due to
which losses incurred in preceding P.Ys cannot be carried forward as per
S. 79 [Sub-Clause (b)]
Serial No
Asst Year
Nature of
Loss /
Allowance
(in Rs.)
Amount as
returned (in
Rs.)
Amount as
assessed
(refer to
relevant
order)
Remarks
Verification of Books of accounts Clause continued…
• 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.
• 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.
• 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.
Verification of Books of accounts Clause 33
Section-wise details of deductions admissible under Chapter VI-A
or Chapter III (Section 10A, Section 10AA). Details as under:
Section under which deduction is
claimed
Amount admissible as per the
provisions of the Income Tax Act
1961 and also fulfills the
conditions, if any specified under
the conditions, if any specified
under the relevant provisions of
the Act or Rules or any other
guidelines, circular etc., issued in
this behalf.
Verification of Books of accounts Clause 34
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 below mentioned in
tabular manner:-
1. TAN
2. Section
3. Nature of payment
4. Total amount of Payment or Receipt of the nature specified in Col. 3
5. Total amount on which tax was required to be deducted or collected out of (4)
6. Total amount on which tax was deducted or collected at specified rate out of
(5)
7. Amount of tax ded. Or coll. Out of (6)
8. Total amount on which tax was deducted or collected at less than specified
rate out of (7)
9. Amount of tax deducted or collected on (8)
10.Amount of tax deducted or collected not deposited to the credit of the Central
Government out of (6) and (8)
Verification of Books of accounts
Clause continued…
• Whether the assessee has furnished the statement of tax deducted
and collected within the prescribed time. If not, Please furnish the
details:-
TAN Type of
Form
Due Date for
furnishing
Date of
Furnishing, if
furnished.
Whether the statement of
Tax deducted or collected
contains information about
all transactions which are
required to be reported.
• Whether the assessee is liable to pay interest under section 201(1A) or
section 206C(7). If Yes, please furnish:-
TAN
(1)
Amount of
Interest Payable
(2)
Amount Paid out
of (2)
(3)
Date of Payment
(4)
Verification of Books of accounts Clause 35
In case of trading concern, quantitative details of principal goods traded-
1. Opening Stock
2. Purchases during P.Y
3. Sales during P.Y
4. Closing Stock
5. Short / Excess [Sub-Clause (a)]
In case of manufacturing concern, quantitative details of principal items of raw materials, finished
goods & / or by-products-
1. Opening Stock
2. Purchases during P.Y
3. Consumption / Production during P.Y
4. Closing Stock
5. Short / Excess
6. Yield of finished products
7. Percentage of yield
8. shortage / excess, if any
Verification of Books of accounts
Clause 36
In case of domestic company , details of tax on distributed profits u/s. 115-
O in following form-
Total amount of distributed profits [Sub-Clause (a)]
amount of reduction as referred to in section 115-O(1A)(i)
amount of reduction as referred to in section 115-O(1A)(ii)
Total tax paid thereon [Sub-Clause (b)]
Dates of payment with amounts [Sub-Clause (c)]
Verification of Books of accounts 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.
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.
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 the disqualification or disagreement on any matter/
item/ value/ quantity as may be reported/identified by the auditor.
Verification of Books of accounts Clause 40
Calculate following ratios:
Total Turnover
Gross Profit / Turnover
Net Profit / Turnover
Stock-in-trade / Turnover
Material Consumed / Finished Goods Produced
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.
Any Questions
Contact Details
Any queries, contact,
www.akasamandassociates.com
Thank You