Tax Audit Jkv

8/6/2019 Tax Audit Jkv

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JAIN K. VRIND & CO.Chartered Accountants

Tax Audit(or)Taxing Audit!!...

By:- CA. Krishan Vrind Jain

[email protected]


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Profits and Gains of Business or

Profession

Tax audit report signed on or after 10-8-2006 whether in respect of AY 2006-07 or

earlier AYs should be in the revised format.

Annexure-less IT return regime Vs. Tax Audit Report.

Turnover Vs. AS-7

Accountant (Para 9.3 of ICAIs G.N on Tax Audit)

Tax consultants may be tax auditor.

CA writing / maintaining books of the assessee/any partner of such CA / the

firm in whom such CA is a partner should not accept tax audit assignment.

If a relative of a director is appointed as tax auditor of a company, such

appointment attracts the provisions of S. 314 of the Companies Act. This is

because tax auditor is an office of profit for the purposes of S. 314.

If a CA gives a tax audit report for a concern in which he or his relatives issubstantially interested, the interest must be disclosed in his report.

Tax audit of a firm of CAs cannot be done by any partner / employee of the

firm


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Profits and Gains of Business orProfession

Chargeability U/S. 28

Profits from business or profession [S.28(i)]

Compensation on termination of a contract of managing agency / vesting inthe Government / management of any property or business [S. 28(ii)]

Trade / professional association Income from services for its members. [S. 28(iii)]

Profits on sale of REP license/ Exim scrip, Cash Assistance, Duty Drawback ofcustoms or excise against exports [S. 28(iiia), (iiib) & (iiic)]

Profit on transfer of DEPB Scheme or DFRC [S.28 (iiie)]

Perquisite arising from business or in exercise of a profession [S. 28(iv)]

Interest, salary, bonus, commission or remuneration of a partner of a firm [S. 28(v)]

Interest, salary, etc. disallowed u/s 40(b shall be adjusted in partners income [S. 28 (v) Proviso]Interest, salary, etc., disallowed in the assessment of firm U/s 185 shall not be taxable u/s 28(v) [S. 185]

Income under an agreement for not carrying activity [S. 28(va)]

Amount received from Keyman Insurance Policy referred to u/s 10(10D)[S. 28(vi)]


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Loss, expenditure or trading liability allowed as deduction earlier andsubsequently received or remission or cessation of the liability.

Liability unilaterally written off in the accounts is deemed as remission orcessation of liability [S. 41(1), Expl.1]

Profits on sale of a capital asset for scientific research which was allowed U/s35 earlier [S. 41(3)]

Bad debts allowed u/s 36(1)(vii) in an earlier year. [S. 41(4)]

Note:

(1) Profits from transaction not undertaken in the regular course are taxable as casualincome under the head IOS.

(2) Profits from speculation business should be kept distinct from other business. [S. 28, Expl.2]

(3) Share income of a partner, in the total income of the firm, is exempt u/s 10(2A)


Chargeability U/S. 28


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Expenses Deductible

Rent, rates, taxes, repairs (excluding capex) & insurance of buildings [S. 30]

Repairs (excluding capex) and insurance of P&M and furniture [S. 31]

Depreciation

Additional Depreciation @ 20% -New P&M used for manufacture.

Assets used for < 180 days depreciation restricted to 50%.

Business of growing and manufacturing tea or coffee or rubber = Deductionlower of Amount deposited in Tea/Coffee/Rubber Development Account or

40% of its profits from business [S.33AB]

Expenditure on scientific research related to business, (including capex less

land cost) [S. 35(1)(i) and (iv)]

125% of amount paid to approved scientific research association, university,

college or other institution for scientific research / research in social science

or statistical research.[S.35(1)(ii) and (iii)]



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125% of s i to a National laborator or a Uni rsit or an IIT it a s ifiir tion t at it s all be used for s ientifi resear under a program approved

in t is behalf by the pres ribed authority [ . 3 ( AA)]

Company in business of bio-technology or manufacture of drugs,pharmaceuticals, electronic equipments, computers, telecommunicationequipments, chemicals or other notified articles. eduction upto 125% ofexpenditure incurred (upto 31.3.2012) on scientific research (excluding land orbuilding) / on in-house R& D facility [ . ( )]

Capex on acquisition on right to operate telecommunication services allowed asa deduction over the license period [ . ] Then no deduction allowed u/s 32

Expenditure for promoting the social and economic welfare or upliftment of the

public paid to PSU, local authority or an approved association. Specified projectsinclude drinking water projects in rural areas and urban slums, construction ofdwelling units or schools for the EWS, projects of non-conventional and

renewable source of energy systems, bridges, public highways, roads, promotionof sports, pollution control, etc. [ . C Rul (k)]

Expenditure on payment to association and institution for carrying out ruraldevelopment programmes or to a n otified rural development fund, or theNational Urban Poverty Eradication Fund. [ . CC ]


Expenses Deductible


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Preliminary expenses - Deductible in 5 EYI upto a max of 5% of COP or capital

employed.

Expenditure upto 31.3.1998 allowable in 10 EMI upto a maximum of 2.5% of COP or capital employed. [S. 5D]

Expenditure incurred on amalgamation or demerger in 5 EYI [S. 35DD]

VRS Expenditure allowable in 5 EYI [S. 35DDA]

Deduction for expenditure on prospecting, etc., for certain minerals [S. 35E]

Insurance premium for stocks or stores. [S. 36(1)(i)]

Insurance premium paid on employees health by any mode other than Cash

to GIC or any other insurer and approved by IRDA. [S.36(1)(ib)]

Bonus or commission to employees, irrespective of the limit under the Payment

of Bonus Act. [S. 36(1)(ii)]

Interest on borrowed capital. [S. 36(1)(iii)]

Interest paid on borrowing for acquisition of new asset for extension of existing business or

profession from the date of borrowing till the date on which such asset is first put to use, shall notbe deductible.

Provident and superannuation fund contribution. [S. 36(1)(v), les 87 & 88]

Approved gratuity fund contributions. [S. 36(1)(v), les 103&104]

Sum received from employees and credited to their account in the relevant

fund before due date. [S. 36(1)(va)]


Expenses Deductible


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Loss on death or becoming permanently useless of animals. [S. 36(1)(vi)]

Bad debt actually written off (Excluding provision for bad debts). [S. 36(1)(vii)]

Family planning expenditure. [S. 36(1)(ix)]

Contributions towards Exchange Risk Administration Fund set up by PFI [S. 36(1)(x)]

BCTT [S.36(1)(xiii)]

Expenditure (Other than Capex or personal or for a purpose which is an offence or

is prohibited by law) incurred in furtherance of trade. [S.37(1)]

Following expenditures can also be claimed u/s 37(1), if inc rred in f rtherance ofb siness and is not of personal or capital nat re:

Entertainment expenditure.

Expenditure on presentation articles,

Expenditure on advertisement outside India, incurred in foreign currency,

Travelling expenditure,

Expenditure on maintenance of guest house.


Expenses Deductible


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Payment of salary to working partner subject to specified limits and interest on capital(max 12%) to partners - authorized by partnership deed [S. 40(b)]

1. Partnership deed will not have retrospective effect.2. Deduction for remuneration shall not be allowed unless the partnership deed either specifies

the amount of remuneration payable to each individual working partner or lays down themanner of quantifying such remuneration.

Expenses deductible on actual payment only- 43B

Provision made for payment of contribution to an approved gratuity fund, or forpayment of gratuity payable during the year. [S. 40A(7)]

Advertisement in any souvenir, brochure, etc. of political party. [S. 37(2B)]

Interest, royalty, fees for technical services or other sums payable outside Indiaor to NRI, foreign company in India on which TDS is not made or not depositedwithin the time limit. [S. 40(a)(i)]

Salaries payable outside India or to a non-resident on which TDS is not paid ordeducted [S. 40(a)(iii)]

Interest, commission or brokerage, rent, royalty, fees for professional or technicalservices to resident on which TDS is not deducted or paid within the due date.

For the above cases, where TDS is deducted or paid in any subsequent year,

then such sum is deductible in the PY in which TDS is paid [S. 40(a)(ia)]


Expenses NOT Deductible


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STT [S. 40(a)(ib)]

FBT [S. 40(a)(ic)]

Tax on profits/ gains of business/ profession [S. 40(a)(ii)]

Wealth Tax [S. 40(a)(iia)]

Payment to a PF or other fund established for employees benefit, unless

proper arrangements of TDS on any taxable payment out of such fund are

made [S. 40(a)(iv)]

Income Tax paid by employer on Perquisites of employee [S. 40(a)(v)]Interest, salary, bonus, commission or remuneration made by AOP/BOI to its

members.

Expenditure > Rs. 20,000 paid otherwise than by account payee cheque/

bank draft (Exception Rule 6DD) [S. 40A(3)]

Where deduction is claimed on accrual basis and payment (exceeding Rs. 20,000) is made in a

subsequent year, the payment shall be deemed as profit of the assessee for the year in which the

payment is made. Upto A.Y.2007-08, the income was being recomputed and rectification was made

u/s154




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Annual listing fee paid to stock exchange.

Expenditure incurred by way of stamp paper, underwriting commission,

registration fees, lawyer fees etc., for raising debenture issue.

Initial expenditure on installation of fluorescent light.

Expenses on defending any proceedings for breach of any law relating to

sales tax.




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Form No. 3CD - Part A

1. Name of the assessee2. Address

3. Permanent Account Number

4. Status

Status refers to assessee-status-i.e.

Individual/HUF/Firm/Company/AOP/BOI/AJP

5. Previous yearended

6. Assessment year


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7 (a) If firm or Association of Persons, indicate names of

partners/members and their, profit sharing ratios.(b) If there is anychange in the partners or members or in their

profit sharing ratio since the last date of the preceding year,

the particulars of such change

Clause 7(a)

No need to furnish remuneration or interest to partners. [Para 18.1]

Clause 7(b)

The word particulars includes the date/s of change/s also. Dates

of changes in salary to partners are also to be mentioned.

Admitting a minor to the benefits of partnership is also a change in

the partners.

Form No. 3CD - Part B


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8

(a) Nature of business or profession (if more than one businessor profession is carried on during the previous year, nature of

every business or profession)

(b) If there is any change in the nature of business or profession

the particulars of such change.

Form No. 3CD Part B

Change after the balance sheet date should be ignored.

Instances of change in business or profession that is to

be reported


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9. a. Whetherbooks of account are prescribed u/s 44AA, ifyes, list of books so prescribed.

b. Books of account maintained (In case books of account are

maintained in a computer system, mention the books of

account generated by such computer system.)c. List ofbooks of account examined.

orm o. Part

T has prescribed books of account only for specified

professionals

Accountancy

Architectural

Authorized

representative

ompany secretary Engineering

ilm artist

Information Technology

Interior decoration

Legal

Medical

Technical consultancy

ompany cannot be a professional


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Form No. 3CD Part B

Books of Account to be maintained

By Specified professionals IFFgross receipts > Rs.1,50,000

Cash book , Journal, Ledger;

Carbon copies ofbills and receipts serially numbered, where sum exceeds Rs.25,

Original bills and receipts for exp. incurred or, where such bills and receiptsare not issued and the expenditure incurred < Rs. 50, payment vouchersprepared and signed by the person, unless the cash book contains adequateparticulars in respect of the expenditure;

For medical profession, apart from the above books, a daily case register inForm No.3C and an inventory of stock of drugs, medicines etc. should bemaintained. [Rule 6F]

By Businessmen and other professionals (not specified above):

a) Income > Rs. 1.20 Lacs or

b) Total sales, turnover or gross receipt > Rs. 10 Lac

No account books have been prescribed by CBDT in case of above.

Besides, where an assessee is covered U/S.44AD, S.44AE, S.44AF, S. 44BB orS. 44BBB & he claims his income is lower than that computed under therespective Sections, he shall compulsory maintain the aforesaid books ofaccount.

Penalty for failure to maintain account books, u/s. 271A - Rs. 25,000.


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Form No. 3CD Part B

10.Whether the profit and loss account includes any Profits

and gains assessable on presumptive basis, if yes,

indicate the amount and the relevant section (44AD,

44AE, 44AF, 44B, 44BB, 44BBA, 44BBB or any otherrelevant section.)

Form No. 3CD Part B

S. 44AD: Civil contractor

8%of gross receipts or any higher amount [NA if gross receipts > Rs.40 lac]

S 44E: Business ofPlying, hiring or leasing goods carriages

Rs.3,500 PM for heavy goods vehicle and Rs.3150 PM for other vehicles or any higher

amount [NA if assessee owns > 10 goods carriages any time during PY]

S 44AF:Retail Business

5% of Turn-over or any higher amount [NA if gross receipts > Rs.40 lacs]

S 44BBB:Foreign cos. Engaged in the Business of civil Construction, etc.,in certain

turnkey Power projects

10 % of amount for specified activities


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11.

(a) Method of accounting employed in the previous year

(b) Whether there had been any change in method of accounting

employed vis-a-vis the method employed in the immediately

preceding previous year

(c) If answer to (b) above is in the affirmative, give details of such

change, and the effect thereof on the profit or loss

(d) Details of deviation, if any, in the method of accounting employed

in the previous year from accounting standards prescribed under

section 145 and the effect thereof on the profit or loss.

Form No. 3CD Part B


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Clause 11(a)

Method of Accounting Mercantile or Cash

Clause 11(b)

Only non-corporate assessees can change their method of accounting from

cash to mercantile orvice-versa.

Clause 11(c) Effect thereof on the profit or loss refers to the effect on the profit or loss as per

the P&L a/c. It does not refer to the effect on taxable income.

Non-disclosure of a change in accounting policy will have to be reported under

clause 11(d) and not under this clause.

Clause 11(d)

S.145 (1) requires the assessees to comply with the AS notified u/s 145(2).

NAS(IT)- I - Disclosure of Accounting Policies and

NAS(IT)-II - Disclosure of prior period items and extraordinary items and

changes in accounting policies.

Form No. 3CD Part B


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Form No. 3CD Part BForm No. 3CD Part B

12.Method of valuation of closing stock employed in the previous

year(a) Details of deviation, if any, from the method of valuation

prescribed u/s 145A, and the effect thereof on the profit or loss

12A. Give the following particulars of the capital asset converted

into stockin-trade:-

(a) Description of capital asset;

(b) Date of acquisition;(c) Cost of acquisition;

(d) Amount at which the asset is converted into stock-in-trade.

Form No. 3CD Part B

Clause 12(a):

Raw material at cost:

Finished goods at cost or NRV, whichever is lower.


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COST

Cost of inventories should include cost of purchase, cost of conversion

and all cost incurred to bring the inventories to their present location and

condition.

Cost of conversion to include fixed factory overheads also (i.e.

Absorption costing basis). Direct costing (marginal costing or variable

costing) basis is not allowed

Cost of inventories of items that are not ordinarily interchangeable and

goods or services produced and segregated for specific projects shouldbe assigned bySpecific identification of their individual cost. However,

when there are large number of items of inventory which are ordinarily

interchangeable, specific identification of costs is inappropriate since, in

such circumstances, an enterprise could obtain predetermined effects on

the net profit or loss for the period by selecting a particular method of the

ascertaining the items that remain in inventories.

The cost of inventories, other than those specified above, should be

assigned by using the FIFO or weighted average cost formula.

Form No. 3CD Part B


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NET RELISABLE VALUE: (NRV)

NRV should be estimated at each balance sheet date.

Estimates of NRV should take into consideration fluctuations of price or

cost directly relating to events occurring after the B/S date to the extent that

such events confirm the conditions existing at the B/S date.

Estimate of NRV- when based on contract price- Estimates of NRV must

also take into consideration the purpose for which the inventory is held.

For example, the NRV of the quantity of inventory held to satisfy firm salesor service contracts is based on the contract price.

Estimate of NRV-when based on general selling prices- If the sales

contracts are for less than the inventory quantities held, the NRV of the

excess inventory is based on general selling prices.

COMPARISON BETWEEN COST AND NRV:

Item-by-item basis or on group of similar or related items basis.

Aggregate comparison is not permissible.

Form No. 3CD Part B


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Clause 12(b)

S. 145A. Notwithstanding anything to the contrary contained in S.145, the

valuation of purchase and sale of goods and inventory for the purposes of

determining the income chargeable under the head PGBP shall be-

1. in accordance with the method of accounting regularly employed by theassessee: and

2. further adjusted to include the amount of any tax, duty, cess or fee (by

whatever name called) actually paid or incurred by the assessee to bring the

goods to the place of its location and condition as on the date of valuation.

Clause 12A:

1. The particulars of clause 12A have to be furnished with reference to the

previous year in which the capital asset was converted into stock-in-trade.

2. Though the purpose of reporting is keeping in view the provisions ofS. 45(2),

the tax auditor is not required to compute to market value, capital gain,

business profit etc.3. He has to disclose the date of acquisition of asset and cost acquisition.

4. He has to report the amount at which the asset is converted into stock-in-

trade (as per books of account). If the conversion value is at the book value

of asset, he has to report the fact under this clause.

Form No. 3CD Part B


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13. Amounts not credited to the profit and loss account,

being, -

(a) the items falling within the scope of section 28;

(b) the proforma credits, drawbacks, refund of duty of

customs or excise orservice tax, or refund of sales taxor value added tax where such credits, drawbacks or

refunds are admitted as due by the authorities

concerned;

(c) escalation claims accepted during the previous year;

(d) any other item of income;(e) capital receipt, if any

Form No. 3CD Part BForm No. 3CD Part BForm No. 3CD Part BForm No. 3CD Part B

Clause 13:

Sub-clause (b) and (c) will not apply to an assessee following the cashbasis of accounting.

According to ICAI, If the letter admitting the amount is dated say 28-3-

2007 and received by the assessee on 2-4-2007, it is admitted by the

authorities within the previous year.


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Applicability of clause 14 -

Regular Depreciation u/s 32(1)(i)/(ii) Addition depreciation u/s 32(1)(iia)

Available in respect of tangible assets

(buildings, machinery, plant and furniture)

and intangible assets.

Available only forplant and machinery items excluding the

following:

Ships and aircrafts.

Machinery/ plant installed in any office,

premises/residential, accommodation in the nature of

guest house.

Office appliances/road transport vehicles.

Any plant/machinery whose 100% of actual cost has been

allowed as deduction.

Available in respect of new as well as

second-hand items

Available only in respect ofnew item.

Rates will be prescribed % on WDV

[as perS.32(1)(ii) prescribed % of actual cost]

Rate is 20% of actual cost if acquired and installed on or after

1-4-2005 and 15% of acquired and installed on or after 1-4-

2002 but before 1-4-2005.

Available to all assesses across the board Available only to assesses who manufacture or producearticles/things.

Assessee will be allowed depreciation

irrespective of whether he claims it or not.

Same

Is additional depreciation available to an assessee engaged in production of computer software?

Form No. 3CD Part B


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15. Amounts admissible under sections

33AB, 33ABA, 33AC, 35, 35ABB, 35AC, 35CCA, 35CCB,

35D, 35DD, 35DDA, 35E

(a) debited to the profit and loss account (showing the

amount debited and deduction allowable under eachsection separately);

(b) not debited to the profit and loss account

Form No. 3CD Part B

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(a) Any sum paid to an employee as bonus or commission for servicesrendered, where such sum was otherwise payable to him as profits or

dividend. [Section 36(1)(ii)]

(b) Any sum received from employees towards contributions to any provident

fund or superannuation fund or any other fund mentioned in section2(24)(x); and due date for payment and the actual date of payment to the

concerned authorities u /s 36(1) (va)


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17. Amounts debited to the profit and loss account, being :-

(a) expenditure of capital nature;

(b) expenditure of personal nature;

(c) expenditure on advertisement in any souvenir, brochure, tract, pamphlet or the

like, published by a political party;

(d) expenditure incurred at clubs, -

(i) as entrance fees and subscriptions

(ii) as cost for club services and facilities used

(e) (i) expenditure by way of penalty or fine for violation of any lawfor the time

being in force;

(i) any other penalty or fine:

(ii) expenditure incurred for any purpose which is an offence or which is

prohibited by law;

(f) amounts inadmissible under section 40(a);

(g) Interest, salary, bonus, commission or remuneration inadmissible under section

40(b)/40(ba) and computation thereof;

(h) (A) whether a certificate has been obtained from the assessee regarding payments

relating to any expenditure covered under section 40A(3) that the payments were

made by account payee cheques drawn on a bank or account payee bank draft, as

the case may be

(B) amount inadmissible under section 40A(3), read with rule 6DD [with break-up of

inadmissible amounts]

(i) provision for payment of gratuitynot allowable under section 40A(7);

(j) any sum paid by the assessee as an employer not allowable under section 40A(9);

(k) particulars of any liability of a contingent nature

(l) amount of deduction inadmissible in terms of section 14A in respect of the

expenditure incurred in relation to income which does not form part of the total

incomeForm No. 3CD Part B


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Clause 17(b)

The specified % of FBT expenses are deemed to represent an element of personal

benefit to the employees and not to the assessee.

The existence of that private advantage does not necessarily preclude the exclusivity of

the business purposes.

The word personal is confined to and attached with the assessee. It does notnecessarily extend to persons other than the assessee (e.g. employees).

Clause 17 (c)

Expenditure incurred in publishing an advt. in newspaper or magazine or journal

published by a political party need not be disclosed under this clause. Based on the rule

of ejusdem generis under interpretation of statues by which the words or the like

appearing the clause will necessarily have to derive its meaning from the words souvenir,

brochure, tract or pamphlet only.

Clause 17(d)

Payments to service organizations such as Rotary, Lions, Jaycees, Giants would not

necessarily be treated as payment to clubs [Para 31.2 of G.N].

Payments in respect of both employees as well as directors/partners/proprietors

should be reported under this clause in case of companies.

If any portion of expenditure incurred on clubs of a personal nature, the same should be

shown separately under clause 17(b). [Para 31.1 of G.N].

Form No. 3CD Part B


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Clause 17(e)

The tax auditors opinion on deductibility or non-deductibility of penalty/fine/expenditure

incurred for offence/purpose prohibited by law is not required. [Para 32.1].

Payments for breach of contract of payments for redressal of contractual wrongs are notrequired to be reported under this clause.

If the impost is purely compensatory in nature, the same is not required to be reported

under clause 17(e).

Lachmandas Mathurdas Vs CIT (2002) 254 ITR 799 (SC) Interest on arrears of sales tax

was considered as not being penal but compensatory in nature.

Clause 17(h)

If an amount is disallowed u/s 40(b) and the same has been paid in cash in violation ofS.

40A(3), can such expenditure be disallowed under both sections?

It has been held that disallowance u/s Section 40A(3) cannot be made when net profits are

computed estimated basis. [CIT Vs Purushothamalal Tamrakar(2004) 270 ITR 314 (MP)],

[ACIT Vs Padamchand Bhansali 86 IIJ 215 (Jd)].

Clause 17(i)

If provision for gratuity is not made in accordance with GAAP, tax auditor will have to

qualify his report in Form NO.3CB. Non-allowability underS. 40A(7) is no excuse for not

making a provision in accordance with GAAP.

Form No. 3CD Part B


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Form No. 3CD Part B

Clause 17 (f):

Provisions of S. 40(a)

S. 40(a) disallows the following.

i. Interest, royalty, fees for technical services or other sum chargeable under this Act, which ispayable.

A. outsideIndia; or

B. In India to a non-resident, not being a company or to a foreign company and if the tax has

not been paid thereon nor deducted there from under chapter XVII-B;

ii. STT;

iii. FBT;

iv. Amount of tax levied on the PGBP or assessed at a proportion of, or otherwise on the basis of,

any such profits or gains.

v. Wealth-tax.

vi. Payment to a PF or other fund established for employees benefit, unless proper arrangements of

TDS on any taxable payment out of such fund are made

vii. Income Tax paid by employer on Perquisites of employee [S. 40(a)(v)]

viii. Interest, commission or brokerage, rent, royalty, fees for professional or technical services toresident on which TDS is not deducted or paid within the due date.

ix. Any payment which is chargeable under the head Salaries. if it is payable

A. outsideIndia; or

B. to a non-resident, and if the tax has not been paid thereon nor deducted there from under

chapter XVII-B;


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MSMEDA 2006

Micro, Small & Medium Enterprises Development Act

Obligations of buyer under the Act:

Pay within agreed time which cannot exceed 45 days from date of

acceptance/date of deemed acceptance. If no time for payment has been

agreed then payment should be made on or before the appointed time i.e. 15

days from acceptance.Otherwise - pay compound interest at 3 times of bank rate notified by RBI.

Interest will apply even if contract states otherwise.

Not to claim deduction (under the IT Act) of the interest paid/payable.

Particulars Invesment

Plant & Machinery(Manufacturing) Equipment(Service)

Micro Enterprises * Upto 25 Lacs Upto 10 Lacs

Small Enterprises * 25 Lacs to 5 Crores 10 Lacs to 2 Crores

Medium Enterprises 5 Crores to 10

Crores

2 Crores to 5 Crores*S

uppliers to file a memorandum

Form No. 3CD Part B


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MSMEDA 2006

According to S. 22 of MSMEDA, where any buyer is required to get his annual accounts

audited nder any law for the time being in force, s ch b yer shall f rnish the following

additional information in his ann al statement of acco nts.

The principal amo nt and the interest d e thereon remaining npaid to any s pplier as

at the end of each acco nting year;

Interest paid by the b yer in terms of S. 16, along with payment amo nt made to the

s pplier beyond the appointed day d ring each acco nting ear;

Interest d e and payable for the period of delay in ma ing payment

Interest accr ed and remaining npaid at the end of each acco nting year; and

The amo nt of f rther interest remaining d e and payable even in the s cceeding years,

ntil s ch date when the interest d es as above are act ally paid to the small enterprise,

for the p rpose of disallowance as a ded ctible expendit re /s 23.

Tax Auditors dutiesThe Interest liability/payment nder S. 16 if debited to P&L a/c will have to be mentioned

by the tax a ditor in his tax a dit report under clause 17(e) as this amo nt is inc rred for a

p rpose which is contravention of law.

Form No. 3CD Part B


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18. Particulars of payments made to persons specified under section

40A(2)(b)

Form No. 3CD Part B

Clause 18:

The tax auditor is only required to give particulars of payment to personsspecified underS. 40A(2)(b) under this clause.

He is not required to give his opinion on the

unreasonability/excessiveness of the payments. That is the AOs

prerogative.


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22 (a) Amount ofModified Value Added Tax credits (now Cenvat credits) availed

of or utilised during the previous year and its treatment in the profit and loss

account and treatment of outstanding Modified Value Added Tax credits in the

accounts

(b) Particulars of income or expenditure ofprior period credited or debited to the

P&L account

Form No. 3CD Part B

23. Details ofany amount borrowed on hundi orany amount due thereon (including

interest on the amount borrowed) repaid, otherwise than through an account

payee cheque. [Sec.69D]

24 *(a) Particulars of each loan or deposit in an amount exceeding the limit specified in section269SS taken or accepted during the previous year :-

(i) name, address and permanent account number (if available with the assessee) of the

lender or depositor;

(ii) amount of loan or deposit taken or accepted;

(iii) whether the loan or deposit was squared up during the previous year;

(iv) maximum amount outstanding in the account at any time during the previous year;

(v) whether the loan or deposit was taken or accepted otherwise than by an account payee

cheque or an account payee bank draft

*(These particulars needs not be given in the case of a Government company, a banking

company a corporation established by a Central, State or Provincial Act.)


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Form No. 3CD Part B

24.

(b) Particulars of each repayment of loan or deposit in an amount exceeding the limit

specified in section 269T made during the previous year :-

(i) name, address and permanent account number (if available with

the assessee) of the payee;

(ii) amount of the repayment;

(iii) maximum amounts outstanding in the account at any time during

the previous year;

(iv) whether the repayment was made otherwise than by account payee

cheque or account payee bank draft

(c) Whether a certificate has been obtained from the assessee regarding taking or

accepting loan or deposit, or repayment of the same through an account payee

cheque or an account payee bank draft. [Yes/No]

The particulars (i) to (iv) at (b) and the Certificate at (c) above need not be given

in the case of a repayment of any loan or deposit taken or accepted from

Government, Government company, banking company or a corporation

established by a Central, State or ProvincialAct


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Clause 24(a)

Sale proceeds collected by the selling agent (on behalf of his principal) is not a

loan or deposit.

Advance received against sale is not a loan or deposit.

Security deposits against contracts, etc. are deposits.

The entries that relate to transactions with a supplier and customer are not

loan or deposits accepted.

If the aggregate loans/deposits in a year (from a singly party) exceed

Rs.20,000 but each individual item is less than Rs.20,000 the information willstill be required to be given in respect of all such entries starting from the entry

when the balance reaches Rs.20,000 or more and until the balance goes down

below Rs.20,000.

The Gauhati High Court in the case of CIT Vs Bhagwati Prasad Bajoria (HUF)

(2003) 263 ITR 487 has held that where the loan transaction was genuine and

there was a immediate necessity for money, discretion used by the officer

under Section 273 B not to levy penalty underSection 271 D for violation of

the provisions ofSection 269 SS is justified.

Penalty for Contravention of 269SS/T = Amount of loan or deposit [S.

271D/E]

Form No. 3CD Part B


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25.

(a) Details ofbrought forward loss or depreciation allowance, in the

following manner, to the extent available:

SerialNumber Assessment

Year

Nature ofLoss/allowa

nce

(in Rs)

Amount asReturned

( in Rs)

Amount asAssessed

(give

Reference to

Relevant order

Remarks

(b) whether a change in shareholding of the company has taken place in

the previous year due to which the losses incurred prior to the previous year

cannot be allowed to be carried forward in terms of section 79.

Form No. 3CD Part B


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Clause 25(a)

Amount to be stated as per return and assessment orders, appellate orders, revision andrectification orders ofPast AYs.

Should be separately given under each head of income under which the loss/depreciation

remain unabsorbed.

In the Remarks column information about pending assessment /appeals / rectification /

revision proceedings or delay in filing loss returns may be given.

Clause 25(b) Applies only to Cos. in which public are not substantially interested.

Provision ofS. 79 - will not apply in the following cases where a change in the said voting

power takes place in a PY as a result of

Death of a shareholder; [first proviso to S. 79]

Gift of shares to any relative of the shareholder making such gift; and

Amalgamation or Demerger of a foreign company subject to the condition that 51%shareholder of the amalgamating or demerged foreign company continue to be the

shareholders of the amalgamated or the resulting foreign company.

Unabsorbed Depreciation u/s 32(2) & unabsorbed Scientific Research Allowance u/s 35(4) can

be carried forward, despite change shareholding > 51%.

Form No. 3CD Part B


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26. Section-wise details of deductions, if any, Admissible underChapterVIA

Form No. 3CD Part B

27.

(a) Whether the assessee has complied with the provisions of Chapter XVII-

B regarding deduction of tax at source and regarding the payment

thereof to the credit of Central Government [Yes/No]

(b) If the provisions of Chapter XVII-B have not been complied with, please

give the following details*, namely:-

(i) Tax deductible and not deducted at all

(ii) shortfall on account of lesser deduction than required to be deducted

(iii) tax deducted late

(iv) tax deducted but not paid to the credit of the Central Government

Please give the details of cases covered in (i) to (iv) above.


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Clause 27(b)(i) Tax deductible and not deducted at all

Sl. No. Relevant

Section

Particulars of the

amount credited /

paid

Amount of tax

deductible but not

deducted

Remarks

Suggested format for reporting Non-Compliances

Clause 27(b)(ii) shortfall on account of lesser deduction than

required to be deducted

Sl. No. Relevant

Section

Particulars of the

amount credited /

paid

Amount of

Tax

deductible

Amount

of tax

deducted

Remarks

Not deducting SC or Cess tantamount to short deduction.


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JAIN K. VRIND & CO.Chartered Accountants Suggested format for reporting Non-Compliances

The non-compliances required to be reported in clause 27(b)(iii) Tax deducted late may be

in the following format:

Sl.

No.

Releva

ntSection

Particulars of the

amount credited /paid

Amount of

Taxdeductible

Due date

ofdeduction

Amount of

taxdeducted

Remark

s

Clause 27(b)(iv) Tax deducted but not paid to the credit of the Central Government .

Sl.

No.

Relevant

Section

Particulars of

the amount

credited / paid

Amount of tax

Deducted

Tax Deducted

but not

deposited with

the Central

Govt.

Remarks

Report only cases where

TDS has been deducted but not paid before the last date of the previous year under

audit.


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28.

(a) In the case of a trading concern, give quantitative details of principal items of goods traded :

(i) Opening Stock;

(ii) Purchases during the previous year;(iv) Sales during the previous year;

(v) Closing Stock;

(vi) Shortage/excess, if any

(b) In the case of a manufacturing concern quantitative details of the principal items of raw

materials, finished products and by-products:

A. Raw Materials:

(i) Opening stock;

(ii) Purchases during the previous year;

(iii) Consumption during the previous year;

(iv) Sales during the previous year;

(v) closing stock;

(vi) * yield of finished products;

(vii) * Percentage of yield;

(viii) * Shortage/excess, if any *To the extent available.

Form No. 3CD Part B


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B. Finished products/By-products :

(i) opening stock;

(ii) purchase during the previous year;(iii) quantity manufactured during the previous year;

(iv) sales during the previous year;

(v) closing stock;

(vi) shortage/excess, if any

* information may be given to the extent available.

Form No. 3CD Part B

29. In the case of a domestic company, details of tax on distributed

profits under section 115O in the following form :-

(a) total amount of distributed profits;

(b) total tax paid thereon;

(c) dates of payment with amounts

30.Whether any cost audit was carried out, if yes, enclose a copy of the

report of such audit [See section 139(9)]

31. Whether any audit was conducted under the Central Excise Act, 1944, if

yes, enclose a copy of the report of such audit


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32.Accounting ratios with calculations as follows :-

(a) Gross profit/Turnover;

(b) Net profit/Turnover;(c) Stock-in-trade/Turnover;

(d) Material consumed/Finished goods produced

Form No. 3CD Part B

Clause32:

Numerators and denominators used for calculating the ratio should also be

specified.

Ratios have to be given for the business as a whole.

In case of a partnership firm, the net profit ratio should be calculated aftercharging such interest and remuneration as these items constitute a charge

of profit as per GAAP.

Place:Date:

Name:Address:


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Annexure - I

PART A

1. Name of the assessee2. Address

3. Permanent Account Number

4. Status

Domestic Company in which public

are not substantially interested.

5. Previous year ended

6. Assessment year

PART B

Nature of business or professionin respect of every business or

profession carried on during the

previous year

CODE

Form No. 3CD Part B


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JAIN K. VRIND & CO.Chartered Accountants Form No. 3CD Part B

Current Year Preceding Year

Sl. No. Parameters 20062007 20052006

1 Paidup share capital/capital of partner/proprietor 1099100 109910

2 Share Application Money/Current Accountof Partner or Proprietor, if any, 0 0

3 Reserves and Surplus/Profit and Loss Account 4605492 352403

4 Secured loans 6846651 42356935 Unsecured loans 862782 898589

6 Current liabilities and provisions 6107477 5642267

7 Total of Balance Sheet 14174505 10647761

8 Gross turnover/gross receipts 40625483 19071156

9 Gross profit 6912638 4102426

10 Commission received 0 0

11 Commission paid 1800 0

12 Interest received 1321 2001

13 Interest paid 879753 606905

14 Depreciation as per books of account 321410 292504

15 Net Profit (or loss) before tax as per Profitand Loss Account 1599216 258017


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Expense s.t to FBT Value of FB

1 Privilege/Service/Facility/Amenity - Directly or Indirectly by E'R to

E'E

0%

2 Any Free or Concessional ticket for private journeys 100%3 Contribution to Superannuation fund > Rs.100000Per Employee 100%1 Entertainment 20%

2 Hospitality of every kind to any person 20%

3 Conference 20%

4 Sales promotion, including publicity excluding advertisement 20%

5 Employees Welfare 20%

6Conveyance 20%

Tour and travel (including foreign travel) 5%

7 Use of Hotel, boarding and lodging 20%

8 Repair, running (incl. Fuel), maintenance of Cars and depn. thereon 20%

9 Repair, Running (incl. fuel), maintenance of aircraft and dep. thereon 20%

10 Use of Telephone including mobile phone (other than leased lines) 20%

11 Maintenance of accommodation in the nature of guest houses 20%

12 Festival celebration 50%

13 Use of health club and similar facilities 50%

14 Use of any other club facilities 50%

15 Gifts 50%

16 Scholarship 50%

Form No. 3CD Part B


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FBT requirements and Tax Audit Report:

Nature of Business:

If the assessee is carrying on multiple activities like software, hardware,

trading etc, the concessionary value of fringe benefits can be quantified

based on separate books of account maintained for each activity.

In case the assessee is not maintaining separate books of account F A QNo.41 of the circular suggests that the expenditure may be attributed to

various activities proportionate to the Wages & Salaries cost of the

assessee.

Effect of CBDT circular on Tax Auditors

CBDT Circular has answered 107 FAQs with regard to FBT. Where the

clarifications given by the Board are not in line with the Act or Rules, the

auditor and the assessee need not follow the same.

Form No. 3CD Part B


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JAIN K VRIND & COh d

Thanks for your Patient Hearing

Tax Audit Jkv

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