LUNAWAT& CO. CA. PRAMOD JAINlunawat.com/Uploaded_Files/Presentation/NewTaxAudit... · 2015. 5....

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.


�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.


�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.


�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.


�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.


�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.


�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.



�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.


�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.


�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.


�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.


�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.


�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.


�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.


�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. CA. PRAMOD JAINlunawat.com/Uploaded_Files/Presentation/NewTaxAudit... · 2015. 5....

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Transcript of LUNAWAT& CO. CA. PRAMOD JAINlunawat.com/Uploaded_Files/Presentation/NewTaxAudit... · 2015. 5....