Changes in Form 3CD of Tax Audit Report Presented by CA. Alok Gupta (S.S. Kothari Mehta & Co.) 1

Due Date Has Been Extended  On 20 August, 2014, The CBDT has extended the due date for tax audits to 30th November by issuing a notification u/s. 119  Question mark over due date for filing return of income u/s. 139(1)  Notification refers only to 44AB and not 139(1) 2

History  Introduced for the first time w.e.f. 1st April, 1985  Prior to latest amendment, there were 34 clauses and 2 annexures  Now, after the amendment, there are 41 clauses and no annexures 3

Clauses of 3CD that remained Unchanged New ClauseDescription 1Name of the Assessee 2Address 3PAN 5Status 7Assessment Year 9Partnership firm related general information 10Business related general information 11(a)Whether books of account are prescribed & if yes, list 11(c)List of books examined 4

Clauses of 3CD that remained unchanged…. Contd… New Clause No.Description 13(a)Method of accounting employed 13(b)Change in method of accounting 13(d)Details of deviation from AS prescribed under IT Act 14(a)Method of valuation of closing stock 15Details of capital asset converted into stock in trade 16(a)Amounts not credit to P&L – items falling within scope of S (b)Amounts not credit to P&L – Performa credits, duty drawbacks etc 16(c)Amounts not credit to P&L – Escalation claims 5

New ClauseDescription 16(d)Amounts not credit to P&L – Any other income 16(e)Amounts not credit to P&L – Capital Receipt 18(a)(b)(c)(e)(f)Depreciation 20(a)Bonus / Commission paid to employees S.36(1)(ii) 2340A(2)(b) 25Profit chargeable u/s B 30Details of amount borrowed on Hundi 31269SS / 269T 35Ratios 6 Clauses of 3CD that remained unchanged…. Contd…

New Clauses Introduced 7 S.No.Clauses (c) 732(d) 832(e) (b) 1236(c) 1334(c)

Clause 4 Registration no. in case of Indirect Tax Liability 8 Clause Reiterated ; “Whether the assessee is liable to PAY indirect tax like excise duty, service tax, sales tax, customs duty,etc. if yes, please furnish the registration number or any other identification number allotted for the same” Interpretation  Tax Auditor now has to check under what other statue assessee is liable to pay taxes and has to report accordingly.  Auditor may also obtain such list from his client.  Purpose – To obtain data for cross verification from other Indirect Tax Dept.

Clause 8 Relevant Clauses of Section 44AB 9 Clause Reiterated ; “Indicate the relevant clause of section 44AB under which the audit has been conducted” Interpretation  Now Auditor has to report under which clause of Tax Audit the Audit is been conducted.  Auditor has to report if the Audit is of Business or Profession or under Presumptive taxation scheme.

Clause 17 Transfer of Land/Building for Less than Stamp Duty Value 10 Clause Reiterated ; Where any land or building or both is transferred during the previous year for a consideration less than value adopted or assessed or assessable by any authority of a State Government referred to in section 43CA or 50C, please furnish: Details of property Consideration received or accrued Value adopted or assessed or assessable Interpretation  Any Land or Building or both are covered ( incl. rural agricultural land ).  Extensive reporting required in case of Real Estate Sector.  In case of installment, reporting is to be made in the year in which property is transferred.

Clause 28 For Shares acquired without/inadequate consideration 11 Clause Reiterated ; “Whether during the previous year the assessee has received any property, being share of a company not being a company in which the public are substantially interested, without consideration or for inadequate consideration as referred to in section 56(2)(viia), if yes, please furnish the details of the same.” Interpretation  For Shares of a Pvt. Ltd Company  Valuation to be done as per Rules 11U & 11UA  Purpose – To report transaction of briefcase companies and to strengthen Sec 56(2)(viia) for reporting.

Clause 29 Issue Of Share Above FMV 12 Clause Reiterated ; “Whether during the previous year the assessee received any consideration for issue of shares which exceeds the fair market value of the shares as referred to in section 56(2)(viib), if yes, please furnish the details of the same.” Interpretation  If a Pvt. Company issues shares more than its NAV then difference has to be reported.  It also covers issue of shares at premium

Clause 32(c) Speculation Losses u/s Clause Reiterated ; “Whether the assessee has incurred any speculation loss referred to in section 73 during the previous year, If yes, please furnish the details of the same.” Interpretation  Reporting of Speculation Loss  Commodity Loss from agriculture produce is

14 Clauses Changed in the Form 3CD

Clause 11(b)& 11(c) Location of Books of accounts 15 Old Clause 9(b) & 9(c) Reiterated ; (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 of books of account examined. New clause 11(a) & 11(b) Reiterated; (b) List of books of account maintained and the address at which the books of accounts are kept. (In case books of account are maintained in a computer system, mention the books of account generated by such computer system. If the books of accounts are not kept at one location, please furnish the addresses of locations along with the details of books of accounts maintained at each location.) (c) List of books of account and nature of relevant documents examined.

Impact of the change  Books of accounts includes Ledgers, daybooks, cash books and any other books.  Place of business includes where books of accounts are kept and if more than one place then give detail of all the places.  Information is useful for department for the purpose of survey u/s 133(A). 16

Clause 13(c) & 14(b) Change in method of Accounting/Stock Valuation 17 Old Clause Reiterated ; Clause 11: “(b) Whether there has been any change in the 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.” Clause 12: “(b) Details of deviation, if any, from the method of valuation prescribed under section 145A, and the effect thereof on the profit or loss.”

Clause 13(c)& 14(b) 18 New clause Reiterated; Clause 13: (b) Whether there had been any change in the 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. Clause 14: (b)In case of deviation from the method of valuation prescribed under section 145A, and the effect thereof on the profit or loss, please furnish: Serial numberParticularsIncrease in profit (Rs.)Decrease in profit (Rs.) Serial numberParticularsIncrease in profit (Rs.)Decrease in profit (Rs.)

Impact of the Changes  Tabular format has been inserted for proper reporting.  Self Explanatory. 19

Clause 19 Deduction allowable u/s 32AC to 35AD 20 Old Clause Reiterated ; Clause 15: Amounts admissible under sections - (a) 33AB (b) 33ABA (c) 33AC (wherever applicable) (d) 35 (e) 35ABB (f) 35AC (g) 35CCA (h) 35CCB (i) 35D (j) 35DD (k) 35DDA (l) 35E:- (a) debited to the profit and loss account (showing the amount debited and deduction allowable under each section separately); (b) not debited to the profit and loss account.

Clause New clause Reiterated; Clause 19 : Amounts admissible under sections : Section Amount debited to profit and loss account Amounts admissible as per the provisions of the Income Tax Act, 1961 and also fulfils the conditions, if any specified under the the conditions, if any specified under the relevant 14provisions of Income Tax Act, 1961 or Income Tax Rules,1962 or any other guidelines, circular, etc., issued in this behalf. 32AC To 35AD

Impact of the Changes  Some more sections like 32AC,35AD,35CCC and 35DDD are also required to be reported in the revised form.  Investment in new Plant and Machinery w.e.f (Section 32C)  Deduction in respect of expenditure on specified business. (Section 35AD)  Amortization of certain preliminary expenses (Section 35D)  No major changes in reporting. 22

Clause 20(b) Contribution from employees for various funds 23 Old Clause Reiterated ; Clause 16(b): (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). New clause 20(b) Reiterated; Clause 20(b): ( b) Details of contributions received from employees for various funds as referred to in section 36(1)(va): Serial numberNature of fund Sum received from employees Due date for payment The actual amount paid The actual date of payment to the concerned authorities

Impact of the Changes  Tabular format has been inserted for proper reporting.  Self Explanatory. 24

Clause 21(a),(b)&(c) Disallowances 25 Clause 17: Clause 17:

Clause 21(a),(b)&(c) 26 New Clause ; Clause 21(a),(b)&(c): New Form 3CD requires reporting of following disallowable payments, even if they are not debited to profit and loss account[clause 21 of Part B]: (i) Disallowance for TDS default under Section 40(a) (ii) Disallowance for cash payments under section 40A(3) iii) Disallowance for provision for gratuity under section 40A(7) (iv) Disallowance under Section 40A(9) (v) Particulars of any liability of a contingent nature (vi) Amount of deduction inadmissible under section 14 (vii) Interest inadmissible under the proviso to section 36(1)(iii)

Impact of the Changes  Tabular format for all the sub clauses has been given in revised Form 3CD..  Self Explanatory. 27

Clause 21(d) Additional Reporting of disallowance u/s 40A(3A) 28 Clause 17 (h) Reiterated: “ (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;”

Clause 21(d) 29 New Clause ; Clause 21(d): Disallowance/deemed income under section 40A(3): (A)On the basis of the examination of books of account and other relevant documents/evidence, whether the expenditure covered under section 40A(3) read with rule 6DD were made by account payee cheque drawn on a bank or account payee bank draft. If not, please furnish the details (B)On the basis of the examination of books of account and other relevant documents/evidence, whether the payment referred to in section 40A(3A) read with rule 6DD were made by account payee cheque drawn on a bank or account payee bank draft If not, please furnish the details of amount deemed to be the profits and gains of business or profession under section 40A(3A); Serial numberDate of paymentNature of paymentAmount Name and Permanent Account Number of the payee, if available

Impact of the Changes  Earlier Auditor had to report only the cash payment for expenses incurred during the year in excess of prescribed limit but now the CBDT has casted additional responsibility on auditor to report the cash payment made during the year in respect of expenses incurred in earlier years exceeding the prescribed limit U/s. 40A(3A). Now auditor has to verify all the cash payments in excess of prescribed limits to report under section 40A(3) and 40A(3A). In addition to this auditor also needs to report Cash payment under section 269T if the same relates to any loan or deposit exceeding the limit prescribed under section 269T.  Clause has further removed the reporting requirement of certificate if any been obtained by the Auditor from the Assessee U/s. 40A(3). 30

Clause 31(c) Non Reporting of Certificate u/s 269SS and 269T 31 Old Clause 24 (c) Reiterated; “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”. New Clause 31(c) Reiterated; Whether the taking or accepting loan or deposit, or repayment of the same were made by account payee cheque drawn on a bank or account payee bank draft based on the examination of books of account and other relevant documents

Impact of the Changes  Requirement of obtaining certificate from the assessee has been removed.  Now reporting to be made on the basis of examination of books and other relevant documents. 32

Clause 33 Deductions 33 Old Clause Reiterated: Clause 26: Section-wise details of deductions, if any, admissible under Chapter VIA. New Clause 33 Reiterated; Section-wise details of deductions, if any, admissible under Chapter VIA or Chapter III (Section 10A, Section 10AA). Section under which deduction is claimed Amounts admissible as per the provision of the Income Tax Act, 1961 and fulfils the conditions, if any, specified under the relevant provisions of Income Tax Act, 1961 or Income Tax Rules,1962 or any other guidelines, circular, etc, issued in this behalf.

Impact of the Changes  Tabular format has been inserted for proper reporting.  Self Explanatory. 34

Clause 34(a)&(b) 35 Old Clause Reiterated: Clause 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 the Central Government. (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 New Clause 34 (a) and (b) ; Tabular format for all the sub clauses has been given in revised Form 3CD which is Self Explanatory.

Impact of the Changes  Old Form 3CD required reporting on compliance with TDS provisions only. However, New Form No. 3CD requires reporting on compliance with TCS provisions as well[clause 34(a)].  The tax auditor shall report on the compliance by the assessee with the provision of furnishing of TDS or TCS statement within prescribed time[clause 34(b)]. 36

Clause 36 Dividend Distribution Tax 37 Old Clause Reiterated: Clause 29: In the case of a domestic company, details of tax on distributed profits under section 115-O in the following form :— (a)total amount of distributed profits; (b)total tax paid thereon; (c)dates of payment with amounts. New Clause 36 Reiterated; In the case of a domestic company, details of tax on distributed profits under section 115-O in the following form :- (a) total amount of distributed profits; (b) amount of reduction as referred to in section 115-O(1A)(i); (Newly Inserted) (c ) amount of reduction as referred to in section 115-O(1A)(ii); (Newly Inserted) (d) total tax paid thereon; (e) dates of payment with amounts.

Clause 40 Ratio Analysis 38 Old Clause Reiterated: Clause 22: 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. New Clause 40 Reiterated; Details regarding turnover, gross profit, etc., for the previous year and preceding previous year: 1. Total turnover of the assessee 2. Gross profit/turnover 3. Net profit/turnover 4. Stock-in-trade/turnover 5. Material consumed/finished goods produced

Impact of the Changes  Ratio Analysis to be given for PY and preceding PY.  Total Turnover comparison has been added.  Annexure – A has been deleted 39

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