20_tax_audit

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Baldev Raj, FCA DISA (ICAI), S.P.Puri & Co.,

SELECTED ISSUES

IN

TAX AUDIT

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Form no 3CD information can bedivided into five segments

I. Basic information of assessee

II. Relating to Computation

III. Compliance of provision and violation

IV. Information about the health andperformance of the assessee

V. Detail of Computation of value of Fringebenefit

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I) Basic information of assessee Name , Pan , nature of business, method of accounting, list

of maintenances of books , payment to a relative etc , cost

audit and excise duty etc.

II) Relating to Computation

a) Income not an exhaustive list but the information of ;

Income not included in profit and loss account

Income under section 41

Deemed income u/s 33AB or 33ABA or 33AC

b) Admissible expenses Not an exhaustive list but the information of ;

(Clause 15)

33AB, 33 ABA, 33 AC, 35 D 35 DDA etc.

Partner salary and interest as per section 40 b

c) Inadmissible expenses Capital exp, personnel exp, due to non deduction of TDS ,income tax, wealth tax etc.

d) brought forward loss and

deprecation

e) deductions Under chapter VI A

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III compliance of provision and

violation

Loan taken and given over Rs. 20000/-

other than accounting payee cheque.

TDS Compliance

Maintenance of books as prescribedFollowing the accounting system

Deposit of divided distribution tax

IV) information about the health

and performance of the assessee

Accounting ratios, stock movements,

annexure

ICredit side of the balance sheet, interest,

commission ,Deprecation and tax paid

V) Detail of Computation of value

of Fringe benefit

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A) DEPRECIATION ( section 32)

Opening - WDV

Put to use for less than 180 days. (Assessee is eligible for 50%

of rate)180 days mean additions on or after 3rd October.

3. Additional depreciation is available on new P & M (Section 32(iia))

20% of cost of assets

conditions : - manufacturing of articles and things

i. not used before installation (means new Assets )

ii. not installed in office premises or residential

accommodationiii. not available to office appliance or road transport vehicle.

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4. Addition of building check separate value - cost ofland

Immovable Assets - when possession taken, paymentmade but registration pending (allowable depreciation).

Depreciation on vehicle in the name of partner orDirector of company, loan is being paid from firm /company and being use for business.

Section 43 A vs AS-11 (revised )Finance lease treatment in Income Tax

5. Renovation of office taken on leasehold (Deprecation

as building )6. Current repairs Vs. capital expenditure (explanation

add to Section 30 & 31 )

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BROUGHT FORWARD LOSS ANDDEPRECIATION :All loss to be reported

a) Income from house propertyb) Income from business

i. business lossii. speculation loss

iii. unabsorbed depreciationc) income from capital gain

i. short term capital gainii. long term capital gain

d) Income from other source :e) Horse maintenance for running in horse

races.

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Return filed date of return filed

Status of assessment/appeals etc. put in remarksBrought forward loss

Due date of fling of returnNot file in due date (section 139(3) and 80)

Effect oncurrent year business / capital / income from other sources lossonly

Not effecting

Earlier year business / capital / income from other sources lossesUnabsorbed depreciation u/s 32(2) (current year as well of earlieryear) Income from house property

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Change in constitution

Company shareholding more than 50 % Report as per section79

And checkChange in firm constitution section 78

Change due to

AmalgamationMergerDe-mergerTakeover

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REQUIREMENT AND PROVISION U/S269SS & 269T

269SS

Its only relate to transaction of currentyear.

If loan account payee paid directly toseller than whether it is violation ?

Security deposit adjusted by book

entries

rent/contractor ?

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43B Vs. 36(1)(va)

Employee contribution u/s 36(1) (va)Still required to pay is due date and tobe report

43B

employers contribution

may

deposit before due date of filing ofreturn.

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EXPENSES ABOVE Rs. 20,000 OTHERTHAN ACCOUNT PAYEE CHEQUE

Section 40A(3) and Rule 6DD Cross cheque Vs. Account payee

cheque

Certificate from management to beobtain as required in form No. 3CD.Regarding _- Payment made by crossedcheque and account payee cheque andfurther not maintaining record of copy ofissued cheque.

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New rule 6DD w.e.f. AY 2008-09

Permitted

Use of electronic clearing system through bank

credit card

debit card

disallowance 20% ( upto AY 07-08 ) Vs. 100%w.e.f AY 08-09

disallowance ( proviso to 40A(3)) Vs. income ( 40A(3)(a))

expenses incurred in earlier year paid during the year byother than A/c. payee cheque.

Upto A. Y. 2007-08 disallowance in the year in whichexpense claim

w.e.f. A. Y. 08-09 treated as income

Cash payment in single day- consolidate

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AMOUNT INADMISSIBLE U/S 40(a)

Disallowance on non Compliance of TDS

Except for TDS on salary to resident in India. All expenses which

are subject to TDS are covered under this clause and section Further disallowance of

income tax including deferred tax ,

wealth tax,

FBT

Reconcile the amount shown in the clause No. 27(b) with abovedisallowance

Not complied the Chapter XVII-B

not deducted

short fall not deposited

If shortfall proportionate disallowance

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INTEREST ON LOAN

Section 30(1)(iii) Vs. AS-16 (borrowing cost)

extension of business Vs. qualifying assets.

PAYMENT TO CLUB :- Only for information , no disallowance ifincurred for the business.

FINE & PENALTY :

VIOLATION OF ANY LAW

Not covered contractual breach or for redressal or for contractualwrongs.

Concept of materiality

Not to express opinion of allowability of expenses

Purely compensatory is nature allowable expenses not an fineand penalty

PRAKASH COTTON MILLS PVT.LTD. (1983) 201 ITR 684 (SC)SWADESHI COTTON MILLS (1998) 233 ITR 199 (SC)CIT Vs. AHMEDABAD COTTON MFG. CO. LTD. (1993) 205 ITR 163

(SC)MALWA VANASPATIC CHEMICALS CO Vs. CIT (1997) 225 ITR 383

(SC)

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