ISSUES ON TAX AUDIT

….. H. N. Motiwalla

1 E filing of Tax Audit report is mandatory

a) Vide Notification No. 34 dated 1st May 2013, rule 12 has been amended and efiling of

Tax Audit report is made mandatory from the assessment year 2013-14 onwards. As per

Rule 6G, tax audit report is to be furnished in Form 3CA & Form 3CB and the particulars

required to be furnished along with these tax reports should be in Form 3CD.

Whether by the above amendment, issuance tax audit reports in 3CA/3CB/3CD in

physical form have been done away with and only efiling will be required? Whether

eTAR is in substitution of the existing physical TAR?

Whether it will be advisable to issue tax audit report in physical form as per

prevalent practice and then only upload data in efiling?

In case of any controversy/discrepancy between the two, which will have binding

force and prevail over other?

b) Can it be revised TAR?

2

Multiple Business and Multiple Branches.

Whether it will be possible to file multiple tax audit report for different business/branches

audited by different CA’s in Online for one assessee since now online filing will be based

on PAN which will one per assessee. Whether now tax audit will be qua Business/ branches

or qua assessee? Whether one consolidated tax audit needs to be obtained and uploaded?

3 Is ICAI Guidance Note & Issues on Tax audit published by ICAI are binding on CA?

Whether Guidance Note and `Issues on Tax audit’ are binding on CA? Whether CA can

take a different view?

4. Appointment of Tax Auditor:

Who can appoint Tax Auditor?

Dis-qualification for tax auditor.

S. 141(3) of the Co’s Act Vs. Explanation to S.288 of Income tax Act.

2

2

5 Maximum Allowable Number of Tax Audits:

A Chartered Accountant in full time practice can NOT accept more than ‘specified number

of Tax Audit Assignments’ (i.e. 60). The aforesaid limit of 60 does include audits

conducted under Section 44AD, 44AE of the Income-tax Act 1961. Whether now online

filing track the count of 60 Tax Audits and will not allow uploading once the limit is

exhausted?

5. Penalty u/s. 271B

Can penalty u/s. 271B be imposed when books of account not maintained?

Surajmal ParsuramTodi Vs. CIT [1996] 222 ITR 691 (Gau)

K.V. Ramachandran32 Taxmann.com 200 (Cochin - Trib.)

Whether penalty for non-maintenance of books of account U/s. 271A & penalty for

non-filing of TAR u/s. 271B be levied simultaneously?

Assessee’s Turnover during F.Y. 2012-13 is Rs. 99 lakhs. Assessing officer assess the

Turnover at Rs.101 lakhs and levy taxes, interest and penalty. Assessee does not

contest the levy to buy peace of mind and informed the A.O. accordingly. Whether

Assessee will be liable to pay penalty for non-filling of Tax Audit Report u/s 271B?

The Assessee is Investor in Shares and filed return of Income showing Capital Gain

but during the assessment proceeding, the assessing officer has considered the said

Shares transactions as business considering volume of transactions and number of

days i.e. almost 75% days of working of Stock Exchange, initiated penalty

proceeding for not carrying on Audit?

6

(1) Section 44AD(5)

.This Sub-section is very much important for very small businessmen, however it has

created lots of confusion.

Section 44AD (1) provides deemed income @ 8 % or more of turnover of eligible business

in case of eligible assessee. Eligible business and Eligible assessee have been defined in

Explanation to this section.

3

3

Sub section 5 of S. 44AD provides for exception to this section. It provides as below.

(5) Notwithstanding anything contained in the foregoing provisions of this section,

an eligible assessee who claims that his profits and gains from the eligible business

are lower than the profits and gains specified in sub-section (1) and whose total

income exceeds the maximum amount which is not chargeable to income-tax, shall

be required to keep and maintain such books of account and other documents as

required under sub-section (2) of section 44AA and get them audited and furnish a

report of such audit as required under section 44AB

There are 3 conditions in this sub-section:

1) Profit to be lower than 8 %

2) Total Income to exceed maximum amount not chargeable to tax i.e. 2.50 lacs etc.

3) To keep books of accounts and get the same audited.

All the above conditions are to be cumulatively complied with to be covered by this sub-

section. If any of these conditions are not satisfied, the eligible assessee would not be

covered by this Sub-section. This means that any assessee not covered by this section

would have to declare 8 % income from business.

The above interpretation gets support from the old provisions which provides for exception

in case of lower business income which reads as below.

Sub section 6 of earlier S. 44AD (Before 01.04.2011) reads as below.

6) Notwithstanding anything contained in the foregoing provisions of this section,

an assessee may claim lower profits and gains than the profits and gains specified

in sub-section (1), if he keeps and maintains such books of account and other

documents as required under sub-section (2) of section 44AA and gets his accounts

audited and furnishes a report of such audit as required under section 44AB.

From comparing provisions of Sub-section 5 of new 44AD with Sub-section 6 of earlier

44AD, it is evident that there is no such condition in earlier 44AD like total income to

exceed maximum amount not chargeable to tax as in new 44AD.

4

4

Whether above understanding is correct? Whether eligible assessee having lower business

income than 8 % of turnover and total income below maximum limit is not covered by S.

44AD? Whether he is covered by Sub-section 1 of 44AD and will have to declared deemed

business income @ 8 %?

Examples :

(a) Turnover- Rs.101 lakhs

Net Profit is 3% of Turnover

Income from other sources-nil

Whether tax audit is applicable?

(b) Turnover- Rs.101 lakhs

Net Profit is 4% of Turnover

Income from other sources-nil

Chapter VI - A deduction is Rs. 1.50 lakhs

Whether tax audit is applicable?

2. Whether 44AD Tax Audit Report also needs to be e-filed?

3. Mr. X is engaged in the business of supplying labour. He receives Rs. 100/- Lacs

(subject to TDS u/s. 194C) . During the year from parties to whom labour is

supplied and distributes Rs. 95/- Lacs as wages to labour. Thus his net earnings are

less than 8% of gross receipt and his total income exceeds taxable limit. Whether

Mr. X is liable to get his accounts audited?

4. A firm M/s. XYZ owns several motor cars used for the purpose of its business.

During the year ended 31/03/2015 it has paid Rs. 3/- Lacs for repairs and

maintenance. The said bills include labour charges amounting to Rs. 1,10,000/-,

however charged separately in bills. Whether section 194C is applicable.

5. Whether TDS is deductible on interest paid on deposits of members with

Patsansta? Whether exemption from TDS as provided in S, 194A(3)(v)/(vii) is

available to Patsansta?

5

5

7 Tax Audit Liability –Turnover -Gross Receipts-Business-Profession

1. Assessee is engaged in the business of on-line derivative trading where there is no

physical delivery of shares/ commodities given or taken.

Guidance note suggest that in such case of derivative transactions sum total of

differences, whether +ve or –ve and premium on sale of options to be considered for

the purpose of calculating Turnover.

However in Growmore Exports Ltd. v. 78 ITD 95 (Mum) & BanwariSitaramPasari

HUF 29 taxmann.com 137 (Pune - Trib.) it was held that in such cases there was no

'sale' or 'turnover' effected by the assessee in the legal sense and hence not required

to get the accounts audited u/s 44AB of the Act

Please guide whether there is any element of 'turnover' in such activity? Whether

assessee is liable to tax audit?

2. Export Sales- Rs. 95 Lacs – on the basis of bills booked as per rate of foreign

currency as on the date of export. As at year end Foreign Exchange gain is Rs. 10

Lacs – Whether Tax Audit required?

3. Whether following needs to considered for determining Turnover/gross receipts for

determining applicability of provisions of section 44AB

Whether Share of Profit received by partner will be considered as Gross

Receipt for determining turnover limits

Sale proceeds form Agricultural Activities

Sales proceeds of Depreciable Assets

Sales proceeds of other non-depreciable assets/Investments

Surrendered of Stocks:

4. Partner of a professional firm received remuneration / interest from firm exceeding

Rs. 25/- Lacs pa. – whether tax audit u/s. 44AB necessary

6

6

5. A survey was conducted during the financial year 2014-15 and the assessee

surrendered stocks worth of Rs. 25 lakhs. During the financial year 2014-15 the

assessee is having a turnover of Rs. 76 lakhs. Should the value of surrendered stock be

included in the turnover for determining the applicability of section 44AB?

6. Whether assessee is liable to get its account Audited in following cases

(a) An individual assessee has three business sources namely:

Turnover from retail trade is Rs.50 lakhs opting for sec 44AD

Civil construction is Rs.40 lakhs

Retention amount in Civil Construction business Rs. 15 lakhs

Agency commission is Rs.50 lakhs

(b) An individual assessee has two business sources namely:

Architect fees Rs.20 lakhs

Turnover from Civil Construction Rs.90 lakhs

(c) With reference to Case (b) if profit in construction business is shown at 5%,

whether tax audit would also cover architect fees?

(d) How to determine whether a particular activity is business or profession?

7. In the case of Trusts and Societies, which have part of their income arising from business, a

question arises whether such other collections/gross receipts should also be included in

computing the threshold limit of Rs. 100 Lacs. Thus, a members club that provides services

to the members and has gross collection as under needs to decide its position vis-à-vis S.

44AB

It receives the following collections:

a) Membership Fees (Annual Fees) Rs. 60 Lacs

b) Service Charges recovered from Members

for use of swimming pool and sauna Rs. 30 Lacs

7

7

c) Reservation charges from Indian Olympic

Association –for occasional use of swimming

Pool for training of the Indian Water Polo Team Rs. 33 Lacs d) Royalty from Canteen Contractor Rs. 25 Lacs

e) Collections on sale of Liquor in the clubs

Permit Rooms Rs. 30 Lacs

Would you advice the said club to conduct Tax Audit u/s. 44AB? Would the position be

different if the club is Trust having 80G registration.

8. An advocate has credited Rs. 22/- Lacs to his profit and loss account and Rs. 2/- Lacs to

Client’ s account be fees received in advance. He has also interest and dividend income of

Rs. 1.5 Lacs and sale of old car worth of Rs. 1.25 Lacs. Whether turn over / gross receipt

would include (a) fees received in advance (b) interest and dividend and (c) sale proceeds

of old car for the purpose of turn over limit?

9. AK Pvt. Ltd. Is running a departmental store. There are several stalls. Each stall belongs

to different persons . According to the arrangement by the stall owners with AK Pvt. Ltd.

all sale proceeds are to be collected on printed bills of AK Pvt. Ltd. The delivery counter is

common for stall owners and the same is managed by AK Pvt. Ltd. The premise belongs to

AK Pvt. Ltd., who takes insurance and also make security arrangements. The proceeds of

all sales made by various stall owners are collected by AK Pvt. Ltd., and end of the every

makes the sales account of each stall owners and after deducting commission / charges

at agreed rate remit the balance amount to each stall owners. The total turn over on the

above basis works out to Rs. 5/- crores. However, commission / charges recovery from

stall owners is Rs. 50/- Lacs. Is AK Pvt. Ltd., liable to get its account audited u/s. 44AB?

8

8

10. M/s. XYZ a firm has a turn over /sales of 95/- Lacs though purchases are Rs. 1,05,00,000/-.

Whether the firm is liable to get its accounts audited on the basis of purchases? (CIT Vs.

Vijay Maheshwari - 228 ITR (St) 157 (SC).

11. A person is dealer in some goods say ABC. He also earns commission from sale of ABC from

Distributors / company, whether for the purpose of turnover sales plus commission to be

considered? E.g. sales Rs. 90/- lakhs, Commission Rs. 11/- lakhs

8. Clauses 1 to 3 - Name of the assessee

Address

PANo.

9. Clause 4 – Indicate Registration No. and other Identification no. under indirect tax

What is the purpose?

Whether it is include the service tax?

10. Clauses 5 to 7: Status

Previous year

Assessment year

11. Clause 8: Indicate the Relevant clause of section 44AB under which audit has been

conducted.

12.

Clause 9: Change in partners’ profit sharing ratio

Whether reporting required, in following situation:

Change in partner’s remuneration or rate of interest on Capital

Minor becoming major & opting to continue & agree to share in losses

13 Clause 10 (a): Nature of business or profession

It is important to specify exhaustive list of nature of business. Why?

How this will be possible in eTAR where there is prefixed

Whether temporary suspension may amount to change?

14 Clause 11: Books of Account

Whether stock records are books of account?

9

9

In case where stock records are not properly maintained by the assessee due to big

volume of operations e.g. particularly in case of retail trade how should the tax

auditor report on such imperfect records maintained by the assessee?

Assessee is maintaining Computerized Accounts except stock details. The Assessee

is not maintaining proper Stock Register but providing details for the clause 28 of

Form 3CD on the basis of loose stock statement sheets maintained manually.

Whether the Tax Auditor can take same as part of books of accounts for reporting

for clause no. 9 and also for reporting for clause 28. Also it is not possible for the

Tax Auditor to verify total stock transaction considering the nature and volume of

transactions, whether tax auditor can give report in F 3CB as True and Correct?

What if previous year accounts are not audited? Whether Auditor needs to audit

prior year also? If yes, how many prior years need to be audited? Whether a

Certificate from Assessee stating that opening balances are correct would be

enough?

In case of a concern where previous year’s accounts are not audited, the tax auditor

give the following note:

“Although previous year’s accounts are not audited, as per information and

explanations given to us, there is no change in the method of accounting employed”

Is the above note appropriate?

A company maintained its books of account on computer and after completion of

accounts takes a print out for Audit. The books are audited on the basis of this print

out and some post audit corrections are carried out by the company. After

correction the said company takes out another final print out on which there is no

indication that audit was carried out since there was no checking marks. The first

print carrying audit marks is not preserved by the company. How would the

auditor be able to satisfy others that the accounts are audited?

15 Clause 12: Presumptive taxation

If the profit and loss account does not include profit assessable on presumptive

basis, then, whether there is any requirement to furnish the particulars under this

clause?

10

10

Whether tax auditor is required to indicate amount assessable in respective

presumptive section?

16 Clause 13: Method of Accounting

Change in method of accounting vis a vis change in accounting policy

Scope of Section 145A. Gross Method (inclusive) vs. Net Method(exclusive)

Reconciliation is required?

Whether apply to service tax?

Effect of ICDS

If ICDS is not followed what would be the consequences?

17 Clause 14: Method of Valuation of closing stock

In cash system of accounting, whether closing stock will come

Liability of closing stock of finished goods is provided. The goods are yet in

godown. There is a fire and goods are destroyed. Is the assessee require to

include the amount of excise duty in valuation of stock for the purpose of section

145A.

18 Clause 15 : Capital assets converted in to stock in trade

Whether particulars required only with respect to the previous year in which the

asset has been converted into stock-in-trade?

Whether it is applicable to Reverse situation i.e conversion of stock in trade in

capital asset. Relevant to Builders, and stock brokers more so, in sluggish times.

19 Clause 16: Amounts not credited to Profit & loss A/c.

Whether scope is restricted to books of account only?

What if not accounted for in accounts? i.e One of the partners enjoys free foreign

tour organized by supplier on firm achieving a target turnover.

20 Clause 16 (a): Items falling within the scope of Section 28

Keyman insurance policy including the sum allocated by way of bonus on such policy, etc.

required to be disclosed?

11

11

21 Clause 16 (b): the proforma credits, drawbacks, refund of duty

Whether only undisputed credits of CED, VAT & Service Tax need be stated?

What about unilateral claims not admitted by the relevant authorities?

If cash system is followed, even if it is admitted within the previous year, but not

actually received during the previous year, is it required to be reported here?

What about Escalation claims accepted during the year? If pending determination?

Whether disclosure needs to be made if Refund of Sales Tax declared in the last

quarter of sales tax return filed by assessee not booked as income in the final

accounts?

What will be the case, if Refund is below Rs 5 lakh which can be c/f to next year

and can be adjusted against future tax liability, though no sales tax order is passed

for the same and no refund is admitted by Dept.

What will be the case when Refund is above Rs 5 lakh but not booked as income in

the Financial year in which it is declared as due in the quarterly return filed but will

be booked as income only on completion of Sales Tax assessment order when it will

be admitted as due by Sales tax Dept which may take few years. What will be the

implication if not disclosed?

22 Clause 16 (c ) Escalation claims accepted during the previous year

23 Clause 16 (d): Any other item of income

Whether Items falling u/s10 need not be stated here?

24 Clause 16(e): capital receipt, if any.

Whether amount of capital gains or capital receipt is required to be mentioned?

Whether “Capital receipts” for this clause cover share capital or item of gift etc.?

Whether Capital Subsidy, surplus on sale of FA not passed thru P & L A/c are

includible?

25 Clause 17: Any land or building or both is transferred for a consideration less than

the stamp duty value u/s. 43CA or u/s. 50C

Difference bet. 43CA & 50C?

Whether applicable to leasehold rights / tenancy rights?

12

12

26 Clause 18: Particulars of Depreciation

Can depreciation be claimed by the company /firm when assets held in the name of

a director/partner?

Can depreciation be claimed under cash system of accounting, payment for

purchase of fixed assets is not made?

If an assessee wants to claim no or lower depreciation on an asset, what is the

responsibility of an auditor?

Whether Additional Depreciation is required to be disclosed? Whether such

particulars of additional depreciation should be given assets wise and not block

wise?

A revolver purchased in the personal name of the director of ‘H’ Security Pvt.

Ltd., for his self protection but payment is made by the company.

i) Whether it is to be capitalized or it is revenue expenditure?

ii) If it is to be capitalized, under which block of assets it will come?

Whether license fee etc., will have also to be capitalized

iii) What will be the rate of depreciation?

iv) How to determine date on which it is put to use?

Assets discarded without receipt of monetary value, how to account in the books

and for the purpose of Income tax?

27. Clause 19: Amounts admissible under sections e.g. 32AC/ 35AC/ 35D etc.

28 Clause 20: Bonus, Commission, PF recoveries etc.

Clause 20(a) : Any sum paid to an employee as bonus or commission for services

rendered, where such sum was otherwise payable to him as profits or dividend.

[Section 36(1)(ii)].

1. What exactly needs to be disclosed here in this clause?

2. Whether when commission is paid to Directors /employee of assessee company who

hold shares in company, disallowance is warranted by treating commission being

paid in lieu of dividend which is liable to tax?

3. How to deal with special bench decision in the case of Dalal Broacha Stock Broking

(P.) Ltd. v. ACIT [2011] 11 taxmann.com 426 (Mum)

13

13

4. How to demonstrate Extra services rendered and reasonable dividend declaration so

as to allow such payment as deduction?

29 Clause 20(b) : Any sum received from employees towards contributions to any

provident fund or superannuation fund or any other fund mentioned in section

2(24)(x); and due date for payment and the actual date of payment to the concerned

authorities under section 36(1)(va).

There are different legal decisions with respect to allowability of employees

contribution towards PF, EPF, etc not paid within due date.

While deductibility of the employer’s contribution is governed by section 37(1), that

of the employee’s contribution, which is deemed as income u/s 2(24)(x), is by

section 36(1)(va). It is only the former that is covered by section 43B, per clause (b)

thereof. The employee’s contribution, deduction of which is subject to s. 36(1)(va),

is not further subject to s. 43B. As such, the amendments to the said section would

have no bearing on the deductibility of the sums covered by section 36(1)(va) of the

Act. Therefore, In view of no amendment in the provision of section 2(24)(x) and

section 36(1)(va) if assessee fails to pay any PF contribution deducted from the

salary of employees within specified due date under respective Acts, whether the

deduction will be disallowed?

- CIT Vs. Alom Extrustion Ltd. [319 ITR 306 (SC)]

30 Clause 21: Amounts debited to the profit and loss account, being:

Clause 21: Expenditure of capital nature;

Expenses on issue of shares / increase in authorized capital

Discount on Debenture CIT-225 ITR 802 (SC)

Expenses by way of stamp duty & registration for issue of bonus share

Software—ERP package—nature thereof ? ITAT Spl. Bench in case of Amway

31 Clause 21 : Expenditure of personal nature;

Whether “Personal” is confined & related with assessee only

Disallowance for personal use in case of Companies-Sayaji Iron and Engg. Co. v.

CIT[2002] 253 ITR 749(Guj.)

14

14

32 Clause 21: Advertisement in pamphlet or other publication by political party

Clause 21 : Expenditure incurred at clubs being Entrance fees & Subscription.

Clause 21 : Expenditure incurred at clubs being cost of club services and facilities

used.

Clause 21 : Expenditure by way of penalty or fine for violation of any law for time

being force.

33,

Clause 21: Expenditure by way of any other penalty or fine not covered above

Expenditure incurred in course of illegal business

Penalty by Stock Brokers to SEBI/BSE/NSE for various procedural defaults

Legal Expenses incurred for defending suits.

Amount paid/payable by assessee during the year for Set off of Disallowed amount

in respect of Purchases made form Hawala Dealers as declared by sales tax

authorities and suomoto disallowed by the party or not in respect of .:

a. Tax

b. Interest

c. Penalty

d. Purchases – debited to P&L earlier or during the year

Whether all of above will fall in sub clause (iii) or only Interest and Penalty to be

disallowed

34 Clause 21: Expenditure incurred for any purpose which is an offence or which is

Prohibited by law

35 Clause 21(b) amounts inadmissible under section 40(a)

In case of Difference of opinion with respect to TDS on any payment what is the

course of action for tax auditor?

Whether TDS is required to be deducted u/s. 194C while making the first payment

over Rs. 30,000/- ? Or when amount exceeds Rs. 75,000/- later?

36 Clause 21(b) Details of payment on which tax has been deducted but not paid within

the prescribed time u/s. 200(1)

15

15

Clause 21(c ) Amount debited to P & L A/c. being interest, salary, bonus, commission

0r remuneration inadmissible u/s. 40(b) / 40(ba)

37 Clause 21(d) Amounts inadmissible under Section 40A (3) read with rule 6DD:

What about when payment is made through wire transfer/ RTGS/NEFT/credit

card/debit card?

A builder purchased a piece of land worth Rs. 10/- Lacs whose business is to

develop construct and sale of property, paid registration fees in cash to sub

registrar, whether provisions of section 40A(3) of the Act.

Provisions for Warranty payments

Clause 21(e) Provision for payment of gratuity not allowable u/s. 40A(7)

Clause 21(f) Any sum paid by the assessee as an employer not allowed u/s. 40A(9)

Clause 21(g) Particulars of any liability of Contingent nature

38 Clause 21(h) Amount of deduction inadmissible in terms of section 14A

Whether it is primarily the responsibility of the assessee to furnish the details of

amount of deduction inadmissible in terms of section 14A? What is the

responsibility of the Tax Auditor for the same?

How to give qualified/adverse/disclaimer in eTAR?

Whether provisions of section 14A are applicable to share of profit received by

partner from a firm?

39 Clause 21(i) Amount inadmissible under the proviso to section 36(1)(iii)

40 Clause 22- Amount inadmissible under section 23 of MSME Act.

Whether Amount to be reported irrespective of whether such sum debited to Profit

and Loss Account or not?

Whether tax auditor is required to verify that the financial statements audited by

him so as to contain the information as prescribed under section 22 of the MSME

Act.

16

16

Whether tax auditor has to give an appropriate qualification in Form No.3CB, in

addition to the reporting requirement in clause 17A of Form No. 3CD, If no

disclosure is made by the auditee in the financial statements?.

41 Clause 23: Particulars of payments made to persons specified under section 40A(2)(b).

Payment to relative against purchase of fixed assets whether to be reported under section

40A(2)(b) of the Act.

42 Clause 24: Amount deemed to be profits and gains under section 32AC or 33AB or

33ABA or 33AC

43 Clause 25: Amounts chargeable u/s. 41

Whether mere time barring of liability without write back is liable u/s. 41(1)?

Waiver of principal amount of loan by bank, whether liable u/s. 41(1)?

44 Clause 26: Payments covered u/s. 43B

Rescheduling of Loans and interest unpaid being converted into Loans.

Whether Professional Tax collected from Employees is covered under 43B?

Whether emoluments in the nature of good work reward, incentives or ex-gratia

are not bonus or commission as contemplated under section 36(1)(iii) but are

deductible under section 37 of the Act as held by Delhi High Court in Shri Ram

Pistons and Rings Ltd. 307 ITR 363 and Autopins (India) Ltd. 192ITR161.

Whether Leave Encashment are governed by the provisions of section 43B(f) in

view of the fact that the said provisions were stuck down by Kolkata high court in

the case of Exide Industries Ltd. v. Union of India [2007] 292 ITR 470. Also see

Eimco Elecon (India) Ltd.[2013] 33 taxmann.com 476 (Ahmedabad Trib)

Whether tax auditor should report such expenses under this clause?

Unlike in case of superannuation and gratuity, funding leave encashment scheme

does not require formation of a trust. Many insurance companies are offering

Group Leave Encashment Schemes to help the employers in funding of their Leave

Encashment liability. The Company submits the employees' data and rules for

Leave Encashment. Insurance company makes actuarial valuation and find out the

funding requirements which shall be quoted to the company. The company will

contribute as per the advice of Insurance company. In the said policy a uniform life

17

17

cover per employee or graded cover is also provided with Group Term Assurance

Plan. A small term insurance premium will be charged in addition to contributions

for funding.

Insurance company maintains a Running Account under the scheme and the

contributions (excluding term assurance premium) will be credited to this account

and all claims except term assurance cover will be settled out of the Running

Account. Interest at the rate declared by insurance company from time to time will

be credited to the Running Account at the end of the financial year.

Query:

Amount paid to Insurance company is divided in 2 parts, one is contribution

towards running account (leave encashment premium) and term insurance premium.

Term insurance premium is allowed as business expenses u/s. 37.

45 Clause 27(a) : Amount of Central Value Added Tax credits availed & utilized and its

treatment in P & L A/c.

46 Clause 27(b): Prior period income/expenditure

Whether change in estimates is a prior period item?

The expenditure relating to any earlier year, which has crystallized during the year

can be considered as prior period item?

There was some dispute in wages for the year ended 31st March 2011. The dispute

was settled during the year ended 31st March 2015 and wages are accounted during

the year. Whether needs to be reported here?

Whether the provision made in the earlier year which is no longer required and

written back. Is a prior period Item of Income?

47 Clause 28 : Whether assessee has received any property, being share of a company not

being a company in which public are substantially interest,

without consideration or for inadequate consideration u/s. 56(2)(viia)

48 Clause 29: Whether assessee received any consideration for issue of shares which

exceeds the fair market value u/s. 56(2)(viib)

18

18

49 Clause 30: Amount borrowed on Hundi

50 Clause 31: Loans/deposits

Difference between Loan & Deposits.

Payments through RTGS, NEFT, TT,etc.

Scope of Transfer Entry/Book Adjustments

Whether Loan information needs to be provided even if it is only carried forward of

old loan and it is increase only because of Provision of Interest added in the Loan

balance?

M/s Honest Construction applies for MCGM Tender for construction of roads. Mr.

Helper paid Tender deposit of Rs.10 lakhs on behalf of M/s Honest Construction.

However, M/s Honest Construction does not get the tender and deposit amount is

returned by MCGM to M/s Honest Construction, who in turn returns to Mr. Helper.

Whether deposit amount paid on behalf of M/s. M/s Honest Construction can be

treated as unsecured loan U/s 269SS?

Whether answer would be different in case M/s Honest Construction ensures Mr.

Helper that on allotment of tender, part of the work will be subcontracted to him?

51 Clause 32 (a) : Details of brought forward loss or depreciation

Clause 32 (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 carry forward in terms of

section 79.

Clause 32 (c) : Whether the assessee has incurred any speculation loss referred to

Section 73 during the year, if yes furnish the details

Clause 32(d): Whether the assessee has incurred any loss referred to in section 73 A

in respect of any specified business during the previous year, if yes,

furnish the details for the same

19

19

Clause 32(e) : In case of a company, please state that whether the company is deemed

To be carrying on a speculation business as referred in explanation 73,

If yes, furnish the details of speculation loss if any incurred during the

Previous year.

52 Clause 33-Section wise detail of deduction admissible under Chapter VIA or Chapter

III (S.10A /S.10AA)

Payments made outside books subject to audit?

In case of proprietary concern liable for tax audit, is the tax auditor is required to

comment under this clause with respect to donation u/s. 80G, medical u/s. 80D?

Would answer defer if such income is credited in the books of account subject to tax

audit?

53 Clause 34(a) : Whether the assessee is required to deduct or collect tax as per the

Provisions of chapter XVIIB or chapter XVIIBB, furnish the details

Clause 34(b) : Whether assessee has furnished statement of TDS/TCS within the

prescribed time, furnish details

Clause 34(c ) : Whether assessee is liable to pay interest u/s. 201(1A) / 206C(7),

furnish details

54 Clause 35-Quantitaive Details

Principal Items- items which constitute more than 10% of the aggregate value of

purchase, consumption or turnover.

Whether this clause is applicable to a firm of Builders and Developments? If yes

i) whether a firm of Builders and Developers will be treated as Trading concern or

Manufacturing concern for the purpose of this clause?

ii) How the quantitative details will have to be furnished?

55 Clause 36: Details of tax on distributed profit u/s. 115-O

(a) Total amount of distributed profit

20

20

(b) Amount of reduction as referred to in section 115-O(1A)(i)

(c) Amount of reduction as referred to in section 115-O (iA)(ii)

(d) Total tax amount thereon

(e) Dates of payment with amounts.

56 Clause 37. -Cost Audit Report

Whether carried out? Disclose qualification or disagreement on any matter.

Cost audit for period other then covered by Tax Audit?

Needs to be uploaded along with Accounts & e TAR

57 Clause 38-Excise Audit

Excise audit for period other than covered by Tax Audit?

Needs to be uploaded along with Accounts & e TAR

Whether Central Excise Revenue Audit (CERA) audit conducted by C& AG is also

covered under this provision as it is audit of excise/service tax department and not

of assessee.

58 Clause 39: Audit of Valuation of taxable services u/s. 72A of the Finance Act, 1994.

59. Clause 40 – Accounting Ratios

According to ‘Guidance on Tax Audit’ issued by the Institute the ratios under this clause is

to be calculated only for assessee who is engaged in manufacturing or trading activities:

i) Whether a firm of Builders & Developers will be treated as “Manufacture” or

“Trading” for the purpose of this clause?

ii) If this clause if applicable to a firm of Builders & Developers?

a) how turnover will be determined where the construction of the building is

not completed and the assessee is estimating gross profit @18% of construction

cost and other project cost incurred during the year. The firm adds estimated

gross profit of construction cost and other project cost and carries it forward to

next year as work in progress. The entry of sale of flats will be accounted only

on completion of the building.

21

21

b) Whether work in progress as calculated above will be treated as turnover to

calculate ratios under the clause.

Clause 41: Details of demand raised or refund issued under any tax laws other than

Income tax / wealth tax alongwith details of relevant proceedings.

Whether refunds and set off under various laws are turnover?

****************