Issues in Tax Audit CA Avinash Gupta Acclaim Management Solutions Private Limited

Issues in Tax Audit Finance Act, 1984 Hon. Finance Minister “ Tax Audit intented to ensure that the books of account and other records are properly maintained and faithfully reflect the true income of the taxpayer ”

Acclaim Management Solutions Private Limited Issues in Tax Audit Applicability of Section 44AB Applicable to every person- –Carrying on business having turnover > Rs 60 Lacs –Carrying on profession having gross receipts > Rs 15 Lacs Limits increased by Finance Act, 2010 to Rs60 lacs & Rs15 lacs respectively wef In case the assessee claims income to be less than the presumptive basis provided u/s 44AD, 44AE, 44AF, 44BB, 44BBB

Acclaim Management Solutions Private Limited Issues in Tax Audit Liability of Tax Audit Income exempt from tax Trust carrying on business Income below taxable limits Non-residents

Acclaim Management Solutions Private Limited Issues in Tax Audit Business v Profession Section 2(13) - Business includes any trade, commerce or any adventure or concerning the nature of trade, commerce or manufacture; Profession means –Architectural –Authorised Representative –Company Secretary –Engineering –Film Artists, etc –Interior Decoration –Legal and Medical –Technical Consultancy –Information Technology

Acclaim Management Solutions Private Limited Issues in Tax Audit Business v Profession Advertising agent Clearing, forwarding and shipping agents Couriers Insurance agent Nursing home Stock and share brokers Travel agents Dealing in shares Derivatives Jobbing Speculation Sale of Capital Assets

Acclaim Management Solutions Private Limited Issues in Tax Audit Turnover or Gross Receipts Speculative transactions:- Sum total of positive and negative differences Derivatives, futures and options:- Total of favourable and unfavourable differences + premium received on sale of options Delivery based transactions:- Total value of sales

Acclaim Management Solutions Private Limited Issues in Tax Audit Turnover or Gross Receipts Sales returned Trade discount Scrap credited to misc. income Service / installation charges Excise duty / sales tax Cash discount Sale proceeds of fixed assets Sale of investments

Acclaim Management Solutions Private Limited Issues in Tax Audit Applicability of Sec 44AD The amended provisions of this section are applicable with effect from 1stApril, 2011 and will accordingly apply in relation to assessment year 2011 ‐ 12 and subsequent assessment years. Brief eligibility –Individuals, HUFs & partnerships firms (not being a LLP) –Any business except the business covered unde Sec.44AE. –Gross Receipts should not exceed Rs 60 lakhs –No requirement of payment of advance tax –8% of Gross Receipts or such higher as may be earned by the assessee

Acclaim Management Solutions Private Limited Issues in Tax Audit Applicability of Sec 44AD Issues Whether 44AD is optional or mandatory ? If the total income is not chargeable to tax, audit u/s 44AB is to be conducted or not? Whether speculative business is covered or not?

Acclaim Management Solutions Private Limited Issues in Tax Audit Issues in 3CEB report

Acclaim Management Solutions Private Limited Issues in Tax Audit Issues in 3CEB report Essentially comments : - whether the tax payer has maintained the transfer pricing documentation as required by the legislation, - whether as per the transfer pricing documentation the prices of international transactions are at arm’s length, and - certifies the value of the international transactions as pert he books of account and as per the transfer pricingdocumentation are “true and correct”

Conclusion to be given International transactions - goods - services - intangibles - loans Independent entity Resident Associated enterprise Resident Transfer price Arm’s length price

Acclaim Management Solutions Private Limited Issues in Tax Audit How to arrive at the ALP Choice to be made from the following methods (Section 92C): (a)comparable uncontrolled price method (CUP Method); (b)resale price method (RPM); (c)cost plus method (CPM); (d)profit split method (PSM); (e)transactional net margin method (TNMM); (f)such other method as may be prescribed by the Board.

Acclaim Management Solutions Private Limited D – 10, Kailash Colony New Delhi: Ph: Fax: W: Avinash Gupta: