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LUNAWAT & CO.Chartered AccountantsLUNAWAT & CO.Chartered Accountants CA. PRAMOD JAIN
FCA, FCS, FCMA, LL.B, MIMA, DISA
CA. PRAMOD JAINFCA, FCS, FCMA, LL.B, MIMA, DISA13th October 201413th October 2014
WHAT IS TAX AUDIT??
� S. 10 (23C) (iv), (v), (vi) or (via),
� Section 10A,
� Section 12A(1)(b),
� Section 44AB
� Section 80-IA,
� Section 80-IB,
� Section 80-IC,
� Section 80-ID,
� Section 80JJAA,
� Section 80LA,
� Section 92E
� Section 115JB
Lunawat & Co.
LEGISLATION ON TAR
•Business – exceeds 1 Crore
•Profession – exceeds 25 Lacs
•Business u/s 44AD; deemed profit < 8% and TI >ANCT
•Business u/s 44AE / 44BB / 44BBB; income is < deemed profits
S. 44AB
•Prescribing the Forms for Report u/s 44ABRule 6G
• Report in case of a person who is required to get his A/cs audited under any law
Form 3CA
•Report in any other caseForm 3CB
•Particulars as required u/F 3CA or 3CBForm 3CD
Lunawat & Co.
INTERNAL AUDITOR
�Earlier – Not if he was an employee of
the assessee. If he was working in a
professional capacity (not being an
employee of assessee) - could have
conducted tax audit.
�Now - Internal auditor of the assessee
cannot conduct tax audit if he is internal
auditor whether he is an employee of the
assessee or not.
�Effective from 12-12-2008.
Lunawat & Co.
TAR CEILING
� ICAI clarified in 2011 that audit prescribed
under any statute (like DVAT, 2004), not
covered
� 44AD / 44AE audit not covered in limit
Lunawat & Co.
3045
60
HISTORY OF TAR GUIDANCE NOTE
19851989
1998
1999
2005
2013
2014
Lunawat & Co.
AS (IT)
�If accounting on cash basis, what
to be done?
�2 AS(IT)
1. Disclosure of Accounting Policies
�True & Fair vs. True and Correct
�Prudence, Substance over Form &
Materiality
2. Prior Period, Extraordinary items &
Changes in Accounting Policies
Lunawat & Co.
POLICY VS. ACCOUNTING
�Change in Accounting Policy is not
change in method of Accounting.
�Change in method of valuation of stock
is change in AP and not change in
method of Accounting
�When can a Accounting policy can be
changed?
� Required by statute
� Change would result in a more appropriate
presentation of FS
Lunawat & Co.
SUMMARY OF CHANGES
�Form 3CA & Form 3CB amended
�Form 3CD also amended
�No annexures in Form 3CD now
�Total 41 points as compared to 34 earlier
�Part A – now 8 points earlier 6
�Part B – now 33 points earlier 28
� 7 New clauses
�More than 20 clauses amended / extended
�Applicable w.e.f. 25.07.2014 even if report is
to be filed for earlier AYs
Lunawat & Co.
FORM 3CA�Reporting period for PL amended from 31st
March to period wise.
�Examination of books by auditor included
before giving opinion
�Opinion now to be given subject to
observations / qualifications, no annexures
�Stamp / Seal of auditor required
�Name of signatory to be given. FRN??
�To be signed by person eligible as per s.
44AB (earlier CA, auditor as per Companies
Act, other person entitled to audit
Lunawat & Co.
FORM 3CB�Same as Form 3CA except
examination of books
�Opinion subject to observations /
qualifications to be given:
�Financial Statements – 3(a)
�Form 3CD – 5
�SA 700?
Lunawat & Co.
SA 700� “Assessee’s Responsibility for the Financial
Statements and the Statement of Particulars
in Form 3CD
1. The assessee is responsible for the preparation of
the aforesaid financial statements that give a
true and fair view of the financial position and
financial performance (if applicable) in
accordance with the applicable Accounting
Standards issued by the Institute of Chartered
Accountants of India. This responsibility includes
the design, implementation and maintenance of
internal control relevant to the preparation and
presentation of the financial statements that give
a true and fair view and are free from material
misstatement, whether due to fraud or error.
Lunawat & Co.
SA 7002. The assessee is also responsible for the
preparation of the statement of particulars
required to be furnished under section
44AB of the Income-tax Act, 1961 annexed
herewith in Form No. 3CD read with Rule
6G(1)(b) of Income Tax Rules, 1962 that give
true and correct particulars as per the
provisions of the Income-tax Act, 1961 read
with Rules, Notifications , circulars etc that
are to be included in the Statement.
Lunawat & Co.
SA 700�Tax Auditor’s Responsibility
3. My/ Our responsibility is to express an
opinion on these financial statements based
on my/our audit. I/We have conducted this
audit in accordance with the Standards on
Auditing issued by the Institute of
Chartered Accountants of India. Those
Standards require that we comply with
ethical requirements and plan and perform
the audit to obtain reasonable assurance
about whether the financial statements are
free from material misstatement.
Lunawat & Co.
SA 7004. An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to
fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the preparation and
fair presentation of the financial statements in order to
design audit procedures that are appropriate in the
circumstances but not for the purposes of expressing an
opinion on the effectiveness of the entity’s internal control.
An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of the
accounting estimates made by management, as well as
evaluating the overall presentation of the financial
statements.
Lunawat & Co.
SA 7005. I/We believe that the audit evidence I/we have
obtained is sufficient and appropriate to provide a
basis for my/our audit opinion.
6. I/We are also responsible for verifying the
statement of particulars required to be furnished
under section 44AB of the Income-tax Act, 1961
annexed herewith in Form No. 3CD read with Rule
6G (1) (b) of Income-tax Rules, 1962. I/ We have
conducted my/our verification of the statement in
accordance with Guidance Note on Tax Audit
under section 44AB of the Income-tax Act, 1961,
issued by the Institute of Chartered Accountants
of India.”
Lunawat & Co.
QUALIFICATIONS IN REPORT -1�Proper books of account, to enable reporting in form 3CD, have not been maintained by the assessee.
�All the information and explanations which to the best of my/our knowledge and belief were necessary for the purpose of my/our audit has been provided by the assessee.
�Documents necessary to verify the reportable transaction were not made available.
�Proper stock records are not maintained by the assessee.
Lunawat & Co.
QUALIFICATIONS IN REPORT - 2�Valuation of closing stock is not possible.
�Yield/percentage of wastage is not ascertainable.
�Records necessary to verify personal nature of expenses not maintained by the assessee
�TDS returns could not be verified by with the books of account.
�Records produced for verification of payments through account payee chequewere not sufficient
�Amount of expense related to exempted income u/s 14A of Income tax Act, 1961 could not be ascertained
Lunawat & Co.
QUALIFICATIONS IN REPORT - 3
�Creditors under Micro, Small and Medium
Enterprises Development Act, 2006 are not
ascertainable
�Prior period expenses are not ascertainable
from books of account
�Fair market value of shares u/s 56(2) (viia) /
(viib) is not ascertainable.
�Reports of audits carried by Excise/Service
tax Department were not made available
�GP ratio is not ascertainable from the
financial statements prepared by the
assessee.
Lunawat & Co.
QUALIFICATIONS IN REPORT - 4
� Information regarding demand raised or
refund issued during the previous year
under any tax laws other than Income-tax
act, 1961 and Wealth tax Act, 1957 were
not made available
�Others
�Mandatory that observations in 3CD on
which opinion cannot be given be
reported in Form 3CA / Form 3CB
Lunawat & Co.
FORM 3CD – NEW CLAUSE - 4
�Indirect Tax Registration Nos to
be given if liable to pay i.e.,
�Central Excise Duty,
�Central Customs Duty,
� Service Tax,
� Sales Tax /VAT – State Wise,
� State Excise Duty – State Wise
�Others Indirect tax.
�Is it indirect tax audit?
Lunawat & Co.
FORM 3CD – NEW CLAUSE - 8
�Relevant clause u/s 44AB under which audit is done to be given
a) Business – exceeds Rs. 1 Cr.
b) Profession – exceeds Rs. 25 Lacs
c) Lower deemed profits u/s
1) 44AE,
2) 44BB,
3) 44BBB
d) Lower deemed profits u/s 44AD and income exceeds maximum amount not chargeable to tax
Lunawat & Co.
APPLICABILITY OF 44AB ONMR. A
•Yes
Mfg. - Turnover – 120L; NP -5L; 80-IC – 3 L; TI-1.90L
•Yes
Trading- Turnover – 110L; NP -3L; Architect – Fee – 30 L NP- 5 L; TI-7L
•Yes
Doctor - Trading; Turnover –80L -NP – 3L; Fee – 27 L – NP 5 L TI- 8 L
•Yes
Trading – TO – 150 L; NP 1.5 L – Does not file ITR
Lunawat & Co.
APPLICABILITY OF 44AB ONMR. A
•No
Trading; Turnover – 50L; NP – 3L; TI-(-)1.5L. Files ITR
•No
Manufacturing; TO – 80L; NP -5L; 80-IC-2L; TI-4L
•Yes
Mfg – TO – 40 L, NP – 1 L; Trading-TO – 40 L, NP-1 L; Exports – TO – 50 L, NP – 1 L
•No
Trading; TO -60L; Commission - 2L; NP- 3L; TI 4L
Lunawat & Co.
APPLICABILITY OF 44AB ONMR. B
Manufacturing – 80L ; NP – 8L
Trading – 25 L ; NP- 3 L
Commission –2 L;
NP- 1L
Profession – 21 L ; NP –5 L
Lunawat & Co.
E-FILING UTILITIES
�Now different filing utilities on
website:� Form 3CA-3CD
� Form 3CB-3CD
� Common Utility for
�Form 3CEB
�Form 29B
�Form 6B
�Form 10B
�Form 10BB
� Form 64
Lunawat & Co.
FORM 3CD – NEW CLAUSE - 17
�Land or building or both transferred
at less that the circle rate u/s 43CA or
50C.
�Detail to be given:
� Detail of property with complete address
� Consideration received or accrued
� Value adopted or assessed / assessable
�Builders
Lunawat & Co.
FORM 3CD – NEW CLAUSE - 28�Details of shares received without / inadequate consideration u/s 56(2)(viia). Is it for assesses?� Take care of transactions not regarded as trf for this purpose – 47 (via), (vic), (vicb), (vid) & (vii)
�Not stated in Form, required in Utility –� Name of the person from whom shares are received
� PAN, if available
� Name of company whose shares are received
� CIN
� No. of Shares
� Amount of consideration paid
� FMV of shares
� If without consideration, it may not be accounted in books. Reporting to be made.
�Reporting only difference exceeds Rs. 50K
Lunawat & Co.
FORM 3CD – NEW CLAUSE - 29
�Details of consideration received in excess of fair value for issue of shares u/s 56(2)(viib) – only for companies
�Details not given in Form, but in Utility:� Name of the person from whom consideration received for issue of shares
� PAN, if available
� No. of Shares received
� Amount of consideration received
� FMV of shares
�Would anything be reported under this?
�Use SA 620 – Using the work of an Auditor’s Expert
Lunawat & Co.
FORM 3CD – NEW CLAUSES
�39 - Details, if any, of
disqualification or disagreement
on any matter / item / value /
quantity as may be reported /
identified by the auditor in audit
under s. 72A – service tax
�41 - Details of demand raised /
refund issued under any tax laws
other than IT & WT with relevant
proceedings
Lunawat & Co.
FORM 3CD - AMENDMENTS
�10(a) – Nature of Business – select –code
�11(b) - Address of each location where books are kept to be given
� HO / Branch
� Different books different addresses
� Address along with state & PIN
�11 (c) - Apart from list of books [s. 2(1) (12A)] examined, nature of relevant documents examined also to be given…… Utility says – books examined only
Lunawat & Co.
FORM 3CD - AMENDMENTS
�12 – To mention if PL also includes
presumptive income under:
� Chapter XII-G (shipping Business)
� First Schedule (Insurance Business)
�13 (C) – detail for change in
method of accounting to be given:
� Particulars
� Increase in profit
� Decrease in profit
Lunawat & Co.
FORM 3CD - AMENDMENTS
�14 (b) - Detail for change in method
of valuation of closing stock to be
given:
� Particulars
� Increase in profit
� Decrease in profit
�18 (d)(i) & 27(a) – change of words from
MODVAT to CENVAT
�18 – Depreciation schedule can be
imported in the new utility – CVS file
Lunawat & Co.
CLAUSE 15�Conversion of capital asset into
stock in trade
�Accounting of inventories in
books?
� At Carrying cost
� FMV
�If other than carrying cost then
qualification regarding non-
compliance of AS-2
Lunawat & Co.
FORM 3CD – AMENDMENTS - 19�Amounts admissible. Details:
� Amounts debited to PL
� Amounts admissible under IT provisions
and also fulfils conditions
� S. 32AC (investment in new Plant & Mach)
added
� S. 35AD(specified business) added
� S. 35CCC (agricultural extension project)
added
� S. 35CCD (skill development project) added
Lunawat & Co.
FORM 3CD – AMENDMENTS - 19� S. 33AC (reserve shipping business) deleted
� S. 35 (scientific research) bifurcated into –
�35(1)(i) – revenue expenditure
�35(1)(ii) – 175% of amount paid to University, etc
�35(1)(iia) – 125% of amount paid to company…
�35(1)(iii) – 125% of amount paid for research in
social science or statistical research…..
�35(1)(iv) – Capital expenditure
�35(2AA) – 200% of sum paid to National
Laboratory….
�35(2AB) – Company in bio technology or Mfg..200%
Lunawat & Co.
FORM 3CD – AMENDMENT – 20(B)
�Contributions received from
employees for all funds as referred to
in s. 36(1)(va) covered.
� PF
� Superannuation
�Gratuity
� ESI
� Other Welfare fund
Lunawat & Co.
�Details to be given for:
�Nature of fund
� Sum received from employees
�Due date for payment
� Actual amount paid
� Actual date of payment to
authorities
Lunawat & Co.
FORM 3CD – AMENDMENT – 20(B)
FORM 3CD – AMENDMENT– 21(A)
�Amounts debited to PL. Details now in
tabular form -
� Particulars and Amount
� Capital Expenses
� Advertisement of all kinds to be given??
� Personal Exp.
� Club entrance fee & subscription not
required by English version of Rule. – but
given in Utility
� Expenditure incurred at clubs being cost for
club services and facilities used to be given
Lunawat & Co.
FORM 3CD – AMENDMENT-21(B)� S. 40(a) bifurcated into (i), (ia), (ic), (iia), (iib), (iii),
(iv), (v). Other clause?? – (ii) - tax
� 40(a)(i) (can be imported from CVS file) - details:
�Payment on which tax not deducted
� Payment on which tax has been deducted but
has not been paid during P.Y. or in subsequent
year before the expiry of time prescribed u/s
200(1)
�Apart from date, amount and nature of
payment, name & address of payee, PAN if
available also to be given
�Also amount of tax deducted (when deducted)
also to be given
Lunawat & Co.
�S. 40(a)(ia) - Details of:
�Payment on which tax not deducted
� Payment on which tax has been deducted
but has not been paid on or before the due
date specified in s. 139(1).
�Apart from date, amount and nature of
payment, name & address of payer also to
be given
�Also amount of tax deducted (when
deducted) also to be given
�Detail of amount deposited out of deducted
also to be given
Lunawat & Co.
FORM 3CD – AMENDMENT-21(B)
�S. 40(a)(ic) - FBT
�S. 40(a)(iia) - WT
�S. 40(a)(iib) – Royalty etc. to SG
�S. 40(a)(iii) – Salaries paid outside India
or to Non- residents if tax not paid on it
or not deducted u/C XVIIB – details to be
given
�S. 40(a)(iv) – Payment to PF or other
fund unless assessee has made effective
arrangement for TDS if chargeable
under head salaries
Lunawat & Co.
FORM 3CD – AMENDMENT-21(B)
�S. 40(a)(v) – Tax paid by employer u/s 10(10CC)
�Disallowance u/s 40A(3)� No certificate required now.
� However to be obtained and mention in 3CD & 3CB
� Detail to be given:�Date of payment
�Nature of payment
�Amount
�Name of Payee
�PAN (if available)
�40A(3A) also covered – same details
Lunawat & Co.
FORM 3CD – AMENDMENT-21(B)
FORM 3CD - AMENDMENTS
�21(g) – Particulars of any liability of
contingent nature
�24 – Deemed profits – 32AC included
�25 – (not in form but in schema) – Profit
chargeable u/s 41 – details required:
� Name of person
� Amount of income
� Section – 41(1)(a), (1)(b), (2), (3), (4), (4A), (5)
� Description of transaction
� Computation, if any
Lunawat & Co.
FORM 3CD – AMENDMENT - 25
� S. 41(1)(a) – Cessation of trading liability by
assessee
� S. 41(1)(b) - Cessation of trading liability by
successor assessee
� S. 41(2) – Balancing Charge
� S. 41(3) – Asset used u/s 35 sold – to extent of
deduction claimed
� S. 41(4) – Recovery of bad debts
� S. 41(4A) – Amount withdrawn from special
reserve u/s 36(1)(viii)
� S. 41 (5) – After closure of business if income
u/ss 1,3,4, 4A, then can be set off against loss
Lunawat & Co.
CLAUSE 26 – S. 43B� Interest converted into loan. Allowed u/s
43B??
�Conversion of interest into a loan or
borrowing or advance does not amount to
“actual payment”.
�The converted interest, by whatever
name called, in the wake of its conversion
into a loan or borrowing or advance, will
be eligible for deduction in the
computation of income of the previous
year in which the converted interest is
‘actually paid’.
Lunawat & Co.
FORM 3CD - AMENDMENTS
�30 – Loan on Hundi – no change in Form,
but detail required in Schema
�31(c) – S. 269 SS/T- certificate no longer
required
�32 (c) – Carry forward losses – exact
nature of loss to be mentioned year-wise
�32(c)- 3 sub clauses added
c) Detail of speculation loss incurred - u/s 73
d) Detail of losses in specified business u/s 73A
e) Deemed speculation loss under explanation
to s. 73
Lunawat & Co.
CLAUSE 31 - S. 269SS/T
�Loan received by NEFT / RTGS??� No
�Share application money advance??� No if adequate documents
�Sale proceeds collected by selling agent?� No
�Advance received against sale of goods??
Companies Act 2013??� No
�ABC P. Ltd receives cash from A
agriculturist?� Yes
Lunawat & Co.
CLAUSE 31 - S. 269SS/T
�Security deposit against contracts??� Yes – deposit
�Amount retained by contractee against
performance??� No as amount not received
�ABC P. Ltd repays loan payable on demand
in cash?� No
�Loan or deposit discharged by accounting
entries?� Yes
Lunawat & Co.
FORM 3CD – AMENDMENT - 33
�Deductions u/c VIA
�Chapter III (S. 10A, 10AA) added
�Detail –
�Section;
�Amounts admissible as per provision
of IT Act and fulfils conditions, if any,
specified under relevant provisions
of IT Act and Rules or any other
guidelines, circular, etc, issued in
this behalf.
Lunawat & Co.
FORM 3CD – AMENDMENT - 34
�TDS – Total revamped.
� TCS added.
� Complied status of chapter XVIIB not required
to be commented upon
�34(a) if required to deduct or collect tax
as per provisions of Chapter XVIIB or
XVIIBB furnish:
1. TAN
2. Section
3. Nature of payment or receipt
Lunawat & Co.
FORM 3CD – AMENDMENT - 344. Total amount of payment or receipt
specified in 3
5. Total amount on which tax was required to
be deducted / collected under 4
6. Total amount on which tax was deducted /
collected at specified rate out of 5
7. Amount of tax deducted or collected out of 6
8. Amount on which tax was deducted /
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 but not
deposited out of 6 & 8
Lunawat & Co.
TDS EXAMPLESectio
n
(2)
Natur
e of
Payme
nt
(3)
Total
amt of
payme
nt or
receip
t
(4)
Total
amt on
which
tax
was
requir
ed to
be
deduct
ed out
of 4
(5)
Total
amt on
which
tax
was
ded. /
coll. at
specifi
ed
rate
out of
5 (6)
Amo
unt
of tax
dedu
cted
out of
6
(7)
Amt on
which
tax was
ded. /
coll/ at
< than
specifie
d rate
out of 7
(8)
Amou
nt of
tax
deduct
ed or
collect
ed on
8
(9)
Amt of
tax
ded. or
coll.
but
not
deposi
ted
out of
6 & 8
(10)
194 C Tpt. 15 Cr 0 0 0 0 0 0
194 C Cont. 25 L 15 L 10 L 10000 5 Lacs 5000 0
194A Intt. 5 Crs 6 Lacs 5 Lacs 50K 1 Lac 5000 0
194I Rent 25 L 20 L 15 L 1.5 L 5 L 10000 10000
194J FTS 1 L 1 L 0 0 0 0 0
Lunawat & Co.
FORM 3CD – AMENDMENT - 34
�34 (b) – If TDS / TCS Statement not
furnished within prescribed time,
furnish:
� TAN
� Type of Form
� Due date of furnishing
� Date of furnishing, if furnished
� Whether the TDS / TCS Statement
contains information about all
transactions which are required to be
reported – Transporters??? – yes / no??
Lunawat & Co.
FORM 3CD - AMENDMENTS
�34 (c) – If liable to pay interest u/s
201(1A) / 206C(7), furnish:
� TAN
� Interest payable u/s 201(1A)/206C(7)
� Amount paid along with date of payment
�36 – (Old 29) – 115-O- 2 more details:
� amount of reduction in s. 115-O(1A)(i) –
dividend from subs – domestic or 115BBD
� amount of reduction in s. 115-O(1A)(ii) – NPS
10(44)
Lunawat & Co.
FORM 3CD - AMENDMENTS
�37 – (Old 30) – Cost Audit – not to
attached report - details, of
disqualification or disagreement on any
matter / item / value / quantity as may be
reported / identified by cost auditor
�38 – (Old 31) – Excise Audit – not to
attached report - details, of
disqualification or disagreement on any
matter / item / value / quantity as may be
reported / identified by auditor
Lunawat & Co.
FORM 3CD – AMENDMENT - 41
�Ratios
� Previous year information also to be given
� Turnover also to be given now
� Now details to be given??? No ratios??
�Total turnover of the assessee
�Gross profit / turnover
�Net profit / turnover
�Stock-in-trade / turnover
�Material consumed / finished goods produced
� (The details to be furnished for principal items of goods
traded or manufactured or services rendered)
� Only for mfg or trading concerns??
Lunawat & Co.
Lunawat & Co.
HOW TO DO AN AUDIT
�Appointment
�Understanding of Client
�Understanding the Engagement
�Authorizations
�Confirmations
�Representations
�Certificates
�Reports
Lunawat & Co.
Lunawat & Co.
Lunawat & Co.