Assessment.bose

Common Mistakes in Assessments Common Mistakes in Assessments

& &

Analysis of Various Reports and Analysis of Various Reports and

Notes of AuditorNotes of Auditor

Shankar Bose, IITShankar Bose, IIT

MSTU, PuriMSTU, Puri

PricewaterhouseCoopers

Agenda

Section A – Common Mistakes in Assessments

Section B – Analysis of Various Reports and Notes of Auditors


Section A

• Meaning of Assessment

• Purpose of Assessment

• Common Mistakes in Assessments

• Constitutional Provisions with regard to taxation in India

• Key Points


Section A

Meaning of Assessment


Section A -

As per Macmillan dictionary, Assessment means -

“the process of making a judgment or forming an opinion, after considering something or someone carefully”

Meaning of Assessment


Section A

Purpose of Assessment


Section A - Purpose of Assessment

Tax Officers are revenue administrators and revenue collectors of the Govt.;

Purpose of Assessment is to assess the correct income:

By analysing the facts ,

Applying correct accounting standards

Applying appropriate legal provisions

Passing speaking and legally sound assessment orders.

To collect taxes due on assessed income;


Section A

Common Mistakes

in Assessme

nt


Section A – Common Mistakes in Assessment

Selection of Case for Scrutiny

• Violation of Internal guidelines and Instructions;

• Cases selected under CASS / AIR Information not

dealt properly



Issuing Questionnaires

• Non – verification of return of income and non

application of mind while issuing questionnaires

• Stereo typed questionnaires are issued without any

focused approach



• Assessments completed hastily and hurriedly

without appreciation of facts of the case and

application of mind;

• Lack of in-depth inquiry carried out leading to

increased litigation like 263 etc.



• Technical breaches in carrying out the assessment

resulting in High Court intervention and loss of

revenue like not seeking approval for 148 / 153A

etc.

• Issuing summons / notices without jurisdiction

leading to tax leakages



• Inconsistent approach is followed in completing the

assessments;

• Deviation from last years stands

• Not following the orders of appellate authority

wherever decided in earlier years



• Non compliances of CBDT Circulars / Notifications

• Non compliance of directions issued like 144 A,

263 / 264 etc.

• Disregard to the settled legal position like not

following the Supreme Court decision resulting in

unnecessary litigation



• Timelines not adhered in several cases like 148

cases

• Allowing set off losses against the exempt income

• Incomes from other sources allowed deductions u/s

80 IB etc.

• Items subject to depreciation allowed in full i.e.

considered as revenue in nature



Common Mistakes in Survey Operations

• Conducting surveys without proper approvals;

•Delay in submitting the preliminary survey reports;

•Non verification of return filed subsequent to survey

w.r.t. income disclosed in survey



Common Mistakes in Search Operations

• Disclosures not backed by seized material

•Delay in sending the appraisal reports

•Non appreciation and investigation of evidences

seized during the search proceedings

•Appraisal report not properly analysed and leads

contained therein not followed


Section A

Constitutional provisions

with regard to Income Tax

Act


Section A – Constitutional Constitutional Provisions Provisions

• In India Cement Ltd. vs. State of Tamil Nadu [188 ITR 690] [SC], seven member bench of Apex Court held that

“Constitution is the mechanism under which the laws are to be made and not merely an act whish declares what the law is to be”

• Article 265 of the Constitution – No tax shall be levied or collected except by the authority of law

• Article 14 must be adhered to


Section A – Constitutional Constitutional Provisions Provisions • “audi alteram partem” rule must be followed in

true spirit – as held by Apex Court:

• a person against whom an order to his prejudice

may be passed should be informed of the charges

against him;

• Such person should be given an opportunity of

submitting his explanation;

• Witnesses who are to give evidence against him

be examined in his persons with right to cross

examine them;


Section A

Key Points


Section A – Key pointsKey points

• Strict compliances of procedures laid down by

Supreme Court in GKN Driveshafts case in 148

matters;

• Give assessees reasonable opportunity of being

heard;

• Evidences to be used against the assessees must

be put for cross examination;

• Give proper reasoning for each disallowances;


Section A – Key pointsKey points

• In case a ruling is relied by the assessee and the same is not followed, give proper reasoning for same;

• Be specific in drafting the assessment orders – avoid vague language


Section B – Analysis of Various Reports and Notes of Auditors


Section B - Reports filed with the return of income

• Tax Audit Report u/s 44 AB

• Auditor’s Report

• Schedules forming part of Accounts

• 3CEB Report - TP Report

• Other Forms / Certificates


Section B - Key points in Tax Audit Report u/s 44 AB

• Whether there is any change in the nature of

business;

• Books of accounts maintained by the assessee;

• Any change in method of accounting during the

year;

• Method of valuation of closing stock;

• Duty drawbacks claimed etc.



• Amounts debited to PL account being capital in

nature;

• Expenditure of personal nature;

• Sum paid by way of penalty / infraction in law;

• Other penalties / fines (if any)

• Disallowances u/s 40(a)



• Disallowances under section 40 A (3);

• Sum not allowable under section 40 A (7) / (9);

• 14A expenditure if any paid;

• Sum paid and claimed u/s 43B disallowances

• Ratio Analysis – GP / NP / Stock / FG



• Whether there is any change in the nature of

business;

• Books of accounts maintained by the assessee;

• Any change in method of accounting during the

year;

• Method of valuation of closing stock;

• Duty drawbacks claimed etc.


Section B - Key points in Auditors Report / Schedules

• Compliances of Accounting Standards and

Guidance Notes;

• Check if any qualifications made by the Auditor –

Its impact and analysis on financial accounts;

• Provisions and Contingencies note

• Revenue recognition


Section B - Key points in Auditors Report / Schedules

• Transactions with Related parties – whether

domestic / international;

• Any subsequent event having bearing on financials


Section B - Key points in 3CEB – T P Certificate

• Certificate contains list of all related party

transactions;

• Check all transactions are also captured in

Auditor’s Report;

• In case where the transaction limit exceeds the

statutory limit, refer to Transfer Pricing Officer


Section B - Other Forms / Certificates

Form No. Description

Form 3 CE Applicable for foreign companies receiving income from royalty of FTS

Form 10CCAD Audit Report in respect of assesses engaged in business of hotel / travel agents / tour operators

Form 10 CCB/BB

For assessees claiming deduction u/s 80 IA / 80 IB of the Act

Form 10 CCBBA

For assessees claiming deduction u/s 80 ID of the Act

Form 15 CA / CB

For assessees remitting money outside India u/s 195 of the Act

Form 15 G Declaration u/s 197A of the Act


Thank You

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