Seminar on Tax Audit @ SIRC of ICAI

Tax Audit Report – Issues For Discussion

CA K.Gururaj Acharya, Bangalore
General Issues
1. Considering the limit of 60 TAs per partner, if a Firm has A & B as Partners and Partner A
signs 120 reports & B doesn’t sign any TAR, Is it OK?

2. In case of LLP should reporting for Tax Audit be in Form 3CA or 3CB?

3. What are the various observations or qualifications that could be given under Clause 3 of
Form 3CA or Clause 5 of Form 3CB?

4. While filling Form 3CD what are the general principles to be kept in mind wrt the
following items -
- Where there are judicial pronouncements
- When there are conflicting judicial opinions and
- The role of AS, G/N, SAs issued by ICAI?

5. Can ‘Test Check’ be used for giving details in Form 3CD, in cases of huge vol. of
transactions, esp. w.r.t. 40A(3), 269 SS / T & TDS reporting under cl.34 of 3CD reg.
TDS/TCS?

6. Accountant U/s 288

What are qualifications & disqualifications for a person to be appointed as a “Tax
auditor”?

7. Partnership firm engaged in Cement trading whose turnover is Rs. 80 lacs having a net
loss of Rs. 5,00,000/ for FY 2016-17.
a) Is this firm required to get the accounts audited under S. 44AB r/w S. 44AD ?
b) Are provisions of Chapter XVIIB (TDS), 40(a)(ia), 40A(3) etc applicable to such firm
?

Tax Audit – Clause related

8. Clause 4:
What if the assessee is NOT registered under Indirect tax Acts, but is liable to pay tax
therein?

9. Clause 11(c):
What must be reported under: Nature of relevant documents.

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10. Clause 12:

a. Assessee carries on 3 business i.e Grocery with turnover Rs.160 Lakhs, Civil Contract
Rs.20 Lakhs and Textiles Rs.30 Lakhs. He opts to declare income at 8%.
Is Audit mandatory for FY 2016-17, considering that total turnover > Rs.2 Crore?

b. Assessee carries on 2 business i.e Grocery with turnover Rs.250 Lakhs and Textiles
Rs.80 Lakhs. Is TA mandatory for both the business?

11. Clause 17:

Whether leasehold rights, development rights, TDR, FSI, etc. would fall under this
provision?

12. Clause 17:

Transfer of immovable property done during FY 2016-17 at the guidance value prevailing on
the “agreement to sell” date & thereafter there is an increase in the guidance value at the
time of registration.

12.1 What is the tax effect from the perspective of the seller if the seller is in the
business of real estate or otherwise?
12.2 What is the tax effect from the perspective of the buyer if the buyer is an
individual or if the buyer is a Company?
13. Clause 18:
What is the rate of Depreciation
- For software embeded in CNC machines?
- For Computers & Books for AY 2017-18 & 2018-19.

14. Clause 18:

Whether improvements on 2nd hand machines are eligible for Addl. Depn of 20%
U/s.32(iia)?

15. Clause 20(b):

The current status of requirements for disclosure in clause 20(b) –ESI/PF vis a vis clause
26-section 43b, as several changes and court rulings regarding disallowance under this
head have been reported.

16. Clause 20(b):

In case of clause 20 (b) regarding details of contributions received for employees for
various fund [sec. 36 (1)(va)]
Whether details are to be provided full year month wise or only for those cases
deposited after a delay.

17. Clause 21(a):

What disclosures are to be made WRT Clause 21(a) being
- 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
18. Clause 21(a):
What will be the reporting requirements in the following cases?
18.1 Penalty for a traffic offence.
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18.2 Interest for delayed payment of sales tax

18.3 Penal interest to banks / LD
18.4 CSR Expense
18.5 Freeby Exp incurred by pharma Cos. On Doctors
18.6 Gifts to customers
18.7 Payment to antisocial elements / police for protection to construction site
19. Clause 21(a):
Asset partly used for personal purpose
What are the expenditures that would be shown as incurred for “Personal purpose” with
respect to Motor Car under clause 21(a) of tax audit report:
Clause 21(a): Please furnish the details of amount debited to the P&L account, being in the
nature of personal expenditure.
20. Clause 21(d):
a) Whether Rule 6DD for the purpose of S. 40A(3) allows journal entry as a
acceptable mode of payment?
b) What is the remedy when goods have to be purchased through Cash payment?
[Which is supreme – Business or Income Tax!!]

21. Clause 21(h):

Disallowance u/s 14A: Is any qualification or disclaimer or Emphasis report required,
when rule 8D is not applied?
22. Clause 22:
What are the provisions with respect to MSME creditors as per –
a) Micro Small & Medium Enterprises Development Act, 2006
b) Companies Act
c) IT Act Vis-à-vis Tax Audit Report.

23. Clause 26 of Form 3CD – Reg. Sec 43B- what is the answer to the Query
“State whether Sales tax, Custom duty, E.D or any other indirect tax levy, cess, import etc.,
is passed through the P&L A/C”
0 Yes 0 No?
What could be the implication for the answer, if it is Yes or No?

24. Clause 26:

43B Expenses disallowed in year 1 – Paid before due date
Does the assessee have an option of not claiming it as a deduction in year 1?

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25. Clause 27(a):

What is the answer for the Question in Cl. 27 (a) in Form 3CD on CENVAT?
The e-filing portal requires reporting in the following format:

Amount of CENVAT Credit is availed of or utilized during the previous year and its treatment
in the P&L A/C.

0 Yes 0 No
Amount Treatment in Profit & Loss Account

Treatment of outstanding CENVAT Credits in the accounts.

Amount Treatment of outstanding CENVAT Credits in the accounts

26. Clause 28:

Whether the receipt of shares, wherein the allotments were made by the Company on
Private placement or preferential allotment rights issue, to be considered?

27. Clause 31(a/b):

a) Loan taken or repaid by way of journal entry.
- Whether auditor is required to report such journal entry transaction as
violation of S 269SS/T in its tax audit report?
- Whether Penal Provisions u/s 271D/E gets attracted?

b) Full cash paid at the time of registration of Immovable Property without any
advance payment – Whether this transaction is in contravention of S.269SS?

28. Clause 34(a):

Are the following assessees’ liable to TDS provisions under Chapter XVII B and are they
liable for disallowance U/s 40a(ia):
- The assessee opts to pay tax on 8% of the turnover U/s.44AD.
- The assessee wants to declare lower than 8% profits and get his books audited.

29. Clause 34(c):

Whether the concept of materiality can be followed, while reporting under this clause?

30. Clause 34(c):

Till when is interest required to be calculated U/s 201(1A) to be reported in 3CD?

31. Clause 41:

a. What precautions to be taken by Auditor, to ascertain the demands raised under
various tax laws?

b. Whether adjustment of refund, for some demand, is to be disclosed?

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32. Clause 34(a): What should be the disclosure in the following case:
a) Total Interest as per Profit & Loss Account Rs.10,00,000/- (including interest as mentioned in
item 2 to 15 below)
b) Interest to Partners Rs. 1,20,000
c) Interest to Bank Rs.70,000
d) Interest paid to Government Rs.30,000 (Section 196)
e) Interest to others: less than Rs.5,000 Rs.50,000
f) Interest covered under Form 15G/15H or Certificate of non deduction Rs.1,50,000
g) Int. covered under Certificate of deduction at lower rate @ 2% (instead of 10%) on Rs.50,000/-
h) Interest covered under Certificate of deduction at Nil rate (instead of 10%) on Rs.25,000/-
i) Interest to Non Residents –covered u/s 195 Rs.1,25,000 (TDS Rs.37,500 u/s 195)
j) Interest on which tax deducted at Normal rate ie. 10% Rs.60,000 (TDS Rs.6,000)
k) Int. on which tax deducted at Higher Rate (15% instead of 10% by mistake) Rs.40,000 (TDS
Rs.6,000)
l) Int. on which tax deducted at lower rate (5% instead of 10% by mistake) Rs.30,000 (TDS
Rs.1,500)
m) Interest on which tax deducted at lower rate, but remitted at specified rate Rs.90,000 (TDS
made Rs.4000 but remitted Rs.9,000)
n) Interest on which tax deducted, but not remitted Rs.35,000 (TDS Rs.3,500)
o) Interest on which tax deductible, but not deducted Rs.45,000
p) Amount on which tax is not deducted but Resident Payee has complied all 4 conditions in Proviso
to S. 201(1) & therefore deductor not deemed as “Assessee in Default” Rs. 80,000.
Where should the following be disclosed:
Interest paid to person who does not Possess PAN –
TDS Deducted @ 20%
TDS Deducted @ 10%
Total
Total Total Amount of
TAN amount on
amount on amount on tax deducted
Total which tax
which tax Amount of which tax or collected
amount of was Amount of
was Tax was not deposited
Section payment or deducted tax
required to Deducted deducted or to the credit
Query Amount receipt of or deducted or
be or collected at of the
the nature collected collected on
deducted collected less than Central
specified in at (8)
Nature of or out of (6) specified Government
column (3) specified
Payment collected rate out of out of (6) &
rate out of
out of (4) (7) (5) (8) (7) & (9)
(5)
(1)(2)(3) (4) (5) (6) (7) (8) (9) (10)
Total Interest TAN / 194A
10,00,000
/ Interest
8,75,000 4,55,000 3,80,000 25,500 30,000 1,500 3,500
as per P&L
Good Bad Ugliest

Amount of Tax Deducted @ specified rate

+
25,500

Amount of Tax Deducted @ lower than the specified rate + 1,500

Amount of tax deducted but not deposited to CG - 3,500
TDS remittance Challan to match 23,500
Expenditure on which Tax deducted but not remitted 35,000
Expenditure on which Tax deductible but not deducted 45,000
Disallowance U/s 40(a)(ia) 80,000

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