Form 3CD - A Detailed Analysis

FORM NO. 3CD
[See rule 6 G(2)]

Statement of particulars required to be furnished under section 44AB of the Income Tax Act, 1961

PART - A

1. Name of the assessee

(Here the name of the assessee is to be mentioned, and in case such audit is carried in respect of any branch, name of that branch is to be mentioned)

2. Address

(In this Clause, address of the assessee is to be mentioned (that were furnished to IT Department) or Registered Address is to be mentioned (in case of the company).

3. Permanent Account Number (PAN)

(In this clause, Permanent Account Number (PAN) allotted by the department shall be furnished)

4. 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

(In this clause, any other identification number allotted by concerned department i.e., Sales Department, Excise Department etc, shall be furnished)

5. Status

(In this clause, Status of the assessee is to be mentioned as defined in Sec 2(31) of the act)

6. Previous year from……………..to ……………

(In this clause, previous year has to be mentioned)

7. Assessment year

(In this clause, Assessment year of the above previous year has to be mentioned)

Indicate the relevant clause of section 44AB under which the audit has been conducted

8. Following are the clauses, under which audit has to be conducted:

a. If the assessee is carrying Business and total sale or turnover form that business exceeds one crore rupees (1crore);
b. If the assessee is carrying Profession and gross receipts form that profession exceeds twenty five lakhs (25 Lacs);
c. If the audit is being conducted due to the requirements of:

i) Sec 44AE – Business of plying, hiring or leasing of goods carriages
ii) Sec 44BB - Business of exploration etc. of minerals oils
iii)Sec 44BBB - Foreign companies engaged in the business of civil construction etc.

PART - B

9. (a) If firm or association of persons, indicate names of partners/members and their profit sharing ratios.

(In this clause, name of the partners/ members and their profit sharing ratio is to be mentioned)

(b) If there is any change in the partners or members or in their profit sharing ratio since the last date of the preceding year, the particulars of such change

(If there is any reconstitution in the firm with change in their profit sharing ratio, such changes is to be mentioned under this clause)

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

(In this clause, nature of the business and principal line of each business is to be mentioned)

(b) If there is any change in the nature of business or profession, the particulars of such change.

(If there is any major change in the nature of the business (i.e, manufacturer to trader or vice versa) or change in the principal line of the business, such changes is to be mentioned under this clause)

11.(a) Whether books of account are prescribed under section 44AA, if yes, list of books so prescribed.

(In this clause, only applicability of the Sec 44AA (Books of accounts prescribed to the specific assessee whose gross receipts is exceeding Rs.1,50,000 in all the 3 preceding years relevant to the PY) is to be checked, and answer should be given in Yes/ No)

(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.

12. (If the answer is affirmative to the clause 10a), List of the all the books and accounts is to be mentioned here, and the Full address at which such books are kept is to be mentioned here)

List of books of account and nature of relevant documents examined.

(In this clause, List of all the books of accounts, documents and all other relevant evidences should be mentioned here)

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, and 44BBB, Chapter XII-G, First Schedule or any other relevant section.)

(In this clause, where profits include any any income which were calculated on presumptive basis under the following sections, needs to indicated here)

44AD-   Eligible business
44AE-   Transport business
44B-   Shipping business of a non-resident
44BB-   Business of exploration etc. of minerals oils
44BBA-  Operation of aircraft by non-resident
44BBB-   Foreign companies engaged in the business of civil construction etc

Or any other relevant section or provisions

Audit Checklist

Auditor needs to check the compliance of the above sections (if any) and report such amount

13. (a) Method of accounting employed in the previous year

(The two methods of accounting as prescribed by the Sec 145 of the Finance act, 1995 for PGBP and Income from Other Sources, i.e., Cash or Mercantile Basis, one of the above method is to be opted by the assessee, same shall be mentioned here)

Note: The Hybrid system of accounting (Mixture of Cash and Mercantile Basis) is strictly restricted to be followed.  

(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.

(In this clause, if any change in the method of accounting since the last preceding year needs to be reported here, answer shall be given in YES/ NO)

(c) If answer to (b) above is in the affirmative, give details of such change, and the effect thereof on the profit or loss.

(In this clause, if there is any change in the method of accounting, then impact of such change on profit is to be mentioned here)

(Auditor has to obtained a written confirmation from the assessee regarding method of accounting and compliance of AS (IT) is to be checked)

(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.

(If there is any deviation in the method adopted by the assessee from as prescribed in Sec 145, such deviation needs to be reported here and impact of such deviation on profit shall also be reported)

14. (a) Method of valuation of closing stock employed in the previous year.

(In this clause, the method adopted by the assessee shall be reported here)

(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:

(If there is any deviation in the method adopted by the assessee from as prescribed in Sec 145, such deviation needs to be reported here and impact of such deviation on profit shall also be reported)

15. Give the following particulars of the capital asset converted into stock-in 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.

(Under this clause, if during the previous year any capital asset is converted into stock, in that case description, date, cost and amount at which such asset is converted is to be mentioned)

Audit Checklist

Auditor needs to check out the nature of asset, its reason for conversion and also ensure the date and cost of such asset.

16. Amounts not credited to the profit and loss account, being, -

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

1. The profits and gains of any business or profession,
2. Any compensation received on termination of employment
3. Cash assistance against exports
4. Custom duty or excise repaid or repayable as drawback against  export
5. The value of any benefit or perquisites arising from business of   the exercise of  profession
6. Any interest , salary, remuneration or whatever is called received by the partner from the partnership firm
7. Any sum received under the key man  insurance policy

(b) the pro forma credits, drawbacks, refund of duty of customs or excise or service tax, or refund of sales tax or value added tax where such credits, drawbacks or refunds are admitted as due by the authorities concerned;

Audit Checklist

(a) The tax auditor has to examine all relevant correspondence, records and evidence in order to determine whether any claim has been admitted as due within the relevant previous year.

(b) If cash system is followed, even if it is admitted within the previous year, but not actually received during the previous year, it need not be reported here.

To remove the practical difficulties in verifying the information in regard to refunds and credits, auditor needs to scrutinize the relevant files or records relating to such refunds or credit

(c) escalation claims accepted during the previous year;

(Escalation claims would normally arise pursuant to a contract. Only those claims, to which the other party has signified unconditional acceptance could constitute accepted claims)

(d) any other item of income;

(It covers such items which the auditor considers as an income of the assessee based on the verification of records and other documents checked or verified) capital receipt, if any

Audit Checklist

Capital receipt which has not been credited to the profit and loss account has to be stated the tax auditor use his professional expertise and judgment in order to determining whether such receipt is of capital nature or of revenue

17. Where any land or building or both is transferred during the previous year for a consideration less than value adopted or assesseed or assessable by any authority of a State Government referred to in section 43CA or 50C, please furnish:

(where the assessee has transferred an asset  and the value of such an asset is less than the value adopted or assesseed or assessable by any authority for the purpose of payment of stamp duty. In such a case the value so adopted or assesseed or assessable shall be deemed to be the full value of consideration for the purpose of 43CA and for purpose of section 48, the value so adopted or assesseed or assessable by stamp duty authority shall be deemed to be the full value of consideration)

Audit Checklist

a. The nature of property i.e. whether the property transferred by him is land or a building along with the address of such property.

b. The amount of consideration received or accrued, during the relevant previous year of audit, in respect of land/building  transferred during the year as disclosed in the books of account of the assessees.

c. Copy of the registered sale deed in case, the property is registered should be obtained.

18. Particulars of depreciation allowable as per the Income Tax Act, 1961 in respect of each asset or block of assets, as the case may be, in the following form :-

(a) Description of asset/block of assets.
(b) Rate of depreciation.
(c) Actual cost of written down value, as the case may be.
(d) Additions/deductions during the year with dates; in the case of any addition of an asset, date put to use; including adjustments on account of –

i) Central Value Added Tax credits claimed and allowed under the Central Excise Rules, 1944, in respect of assets acquired on or after 1st March, 1994,
ii) change in rate of exchange of currency, and
iii) subsidy or grant or reimbursement, by whatever name called.

(e) Depreciation allowable.
(f) Written down value at the end of the year

Audit Checklist

a. Auditor should ensure the classification of Asset, block of asset, date of put to use, applicable of depreciation.
b. In case of addition and deletion, date of such change, value or WDV as the case may be.
c. Adjustment of subsidies, grant and foreign exchange difference should be incorporated properly.

19. Amounts admissible under sections: 32AC, 33AB, 33ABA, 35, 35ABB, 35AC, 35AD, 35CCA, 35CCB, 35CCC, 35CCD, 35D, 35DD, 35DDA, 35E

Clause19 (a):  Debited to the profit and loss account (showing the amount debited and   deduction allowable under each section separately;

Clause19 (b):  Not debited to the profit and loss account

Audit Checklist

a. Tax auditor should ensure that the whether conditions for availing the deduction have been fulfilled or not, if it so then state the amount debited in Profit and Loss account and amount admissible in case of sub clause a), moreover, he should verify the working of the amount debited.

b. In sub clause (b), the amount not debited to the profit and loss account and admissible as a deduction under any of the above sections is to be stated.

c. If assessee is eligible for deduction under one or more of the above sections, the tax auditor has to state the deduction allowable under each of the above sections separately.

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)]

Audit Checklist

a. The requirement is only in respect of disclosure, the tax auditor is not expected to express an opinion about the allow ability or otherwise

b. Ascertain from books whether any bonus/commission paid/payable to employees is shown.

c. The tax auditor should verify the contract with the employees, to verify the nature of payments.

(b) Details of contributions received from employees for various funds as referred to in section 36(1)(va):

Audit Checklist

a. Auditor doesn’t have to verify that whether the amount of PF/ESI have been deducted or not, he has to report only whether such amounts were deducted and deposited to the government on or before the due date or not.

b. For this purpose, he can verify such dates from challans, documents and any other evidences relating to such contribution.

21. (a) Please furnish the details of amounts debited to the profit and loss account, being in the nature of capital, personal, advertisement expenditure etc

Audit Checklist

1. Auditor should ensure that no expense of capital and personal nature should debited in the Profit and Loss Account.

2. Auditor should also ensure that, expenditure incurred for subscription of club and any other expenses incurred to avail the facilities of club should not debited to Profit and Loss Account.

3. Auditor should also ensure that, expenditure incurred by the assessee as fine or penalty for the violation of any law for the time being force or any other fine or penalty in addition to the above have not been debited in Profit and Loss A/c. He also ensure that no expenditure have been debited to Profit and Loss Account for the purpose which is offensive under law.

(b) Amounts inadmissible under section 40(a):-

(i) As payment to non-resident referred to in sub-clause (i)

(A) Details of payment on which tax is not deducted:

(I) Date of payment
(II) Amount of payment
(III) Nature of payment
(IV) Name and address of the payee

(B) Details of payment on which tax has been deducted but has not been paid during the previous year or in the subsequent year before the expiry of time prescribed under section 200(1)

(I) date of payment
(II) Amount of payment
(III) Nature of payment
(IV) Name and address of the payee
(V) Amount of tax deducted

(ii) As payment referred to in sub-clause (ia)

(A) Details of payment on which tax is not deducted:

(I) Date of payment
(II) Amount of payment
(III) Nature of payment
(IV) Name and address of the payee

(B) Details of payment on which tax has been deducted but has not been paid on or before the due date specified in sub- section (1) of section 139.

(I) date of payment
(II) Amount of payment
(III) Nature of payment
(IV) Name and address of the payer
(V) Amount of tax deducted
(VI) Amount out of (V) deposited, if any

(iii) Under sub-clause (ic) [Wherever applicable]
(iv) Under sub-clause (iia)
(v) Under sub-clause (iib)
(vi) Under sub-clause (iii)

(A) Date of payment
(B) Amount of payment
(C) Name and address of the payee

(vii) Under sub-clause (iv)
(viii) Under sub-clause (v)

Audit Checklist for 21(b)

1. Under clause 21(b)(i)(A), and 21(b)(i)(B) the auditor is required to check payments to non-residents on which tax is required to be deducted but not deducted or if deducted not deposited within prescribed time.

2. Under clause 21(b)(ii)(A), and 21(b)(ii)(B) auditor is required to report payments to residents on which tax is required to be deducted but not deducted or if deducted not deposited within prescribed time under Chapter XVII-B of the Income Tax Act.

3. Since Fringe benefit tax was abolished by the Finance (No.2) Act, 2009 with effect from 1-04-2009, the tax auditor will be required to verify information under this item only if the audit report relates to an assessment year to which the provisions of chapter XII H were applicable.

4. The amount of Wealth Tax paid is not allowed as a deduction u/s. 40(a)(iia) and thus is required to be reported under clause 21(b)(iv).

5. The Tax auditor should verify any inadmissible expenditure made by State Government undertaking to the State Government and should report under clause 21(b)(v).

6. The amount of salary which is paid outside India or to a non-resident in respect of which tax has not been deducted or tax has not been paid after deduction, the same is not allowed as a deduction u/s. 40(a)(iii) and the same is required to be reported under clause 21(b)(vi).

7. Section 40(a)(iv) provides that any payment to a provident or other fund established for the benefit of employees of the assessee shall be disallowed, unless the assessee has made effective arrangements to secure that tax shall be deducted at source from any payments made from the fund . The auditor is also required to report the same under item (vii) of this sub-clause.

8. The tax paid by the employer on non-monetary perquisites provided to employees shall not be deductible in computing profits and gains from business or profession. The tax auditor is required to report the amount of such tax paid by the employer, in case it is debited to the profit and loss account under clause 21(b)(viii).

21(c) Amounts debited to profit and loss account being, interest, salary, bonus, commission or remuneration inadmissible under section 40(b)/40(ba) and computation thereof;

(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);

(e) Provision for payment of gratuity not allowable under section 40A(7);

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

(g) Particulars of any liability of a contingent nature;

(h) 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 income;

(i) Amount inadmissible under the proviso to section 36(1)(iii).

22. Amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006.

(In this clause, Interest paid by the buyer to the seller under section 23 of MSME shall be not allowed to debit while calculating income under business and profession)

Audit Checklist

Auditor should verify that whether the assessee is registered under Micro, Small and Medium Enterprises Development Act, 2006, if so then he has verify that the whether any such interest have been paid under section 23 and verify the relevant documents accordingly.

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

Audit Checklist

Auditor should obtain the complete list of persons mentioned above and check the nature of payments made to such persons, and report the payment which exceed the permissible limit mentioned under 40A (2)(b).

24. Amounts deemed to be profits and gains under section 32AC or 33AB or 33ABA or 33AC.
32AC – Allows additional 15% deduction in respect of new Plant and Machinery installed by manufacturing concern
33AB – Allows deduction for development of Tea, Rubber and Coffee
33ABA – Allows deduction in respect of Site Restoration Fund
33AC – Allows deduction in respect of reserve created out of the profit from the shipping business

Audit Checklist

Auditor needs to verify the compliance to the conditions of the provisions of Section 32AC, subsection 4, 5, 7 and 8 of Sec 33AB, 5, 7 and 8 of Sec 33ABA and 3&4 of Section 33AC and report the claim accordingly.

25. Any amount of profit chargeable to tax under section 41 and computation thereof.

Section 41(1) -   where any allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year the assessee obtains any amount, in respect of such loss or expenditure or some benefits in respect of trading liability the amount obtained by him or the value of benefit accruing to him is chargeable to tax as business income.

Section 41(2) – Where any asset is being used by the assessee (engaged in generation and distribution of electricity) for business and profession and claim depreciation under clause 32(1)(i) And such asset have been sold and the sale consideration together with the scrap value is more than the WDV of that asset, such excess amount (Balancing Charge) up to the cost of the asset would be chargeable to tax as business income.

Section 41(3) – Where any asset used in scientific research is sold without having being used for other purposes and the sale proceeds together with the amount of deduction claimed under section 35 exceeds the cost of that asset, such surplus or amount of deduction whichever is less would be chargeable to tax as business income.

Section 41(4) –  where any bad debt has been allowed under section 36(1)(viii) and such amount is recovered subsequently, then the difference between recovered amount and deduction so claimed would be chargeable to tax as business income.

Audit Checklist

Auditor should obtain the list of all income earned under section 41 with the relevant evidences and correspondence and report such income with the computation.

26. In respect of any sum referred to in clause (a),(b), (c), (d), (e) or (f) of section 43B, the liability  for which:-

(A) pre- existed on the first day of the previous year but was not allowed in the assessment of any preceding previous year and was

(a) paid during the previous year;
(b) not paid during the previous year;

(B) was incurred in the previous year and was

(a) paid on or before the due date for furnishing the return of income of the previous year under section 139(1);
(b) not paid on or before the aforesaid date.

(State whether sales tax, customs duty, excise duty or any other indirect tax, levy, cess, impost, etc., is passed through the profit and loss account.)

The sums specified by clause (a) to (f) of section 43B are as under:

1. Tax, duty, cess or fees: any sum for which the assessee incurred liability in the previous year, by way of tax, duty, cess or fees by whatever name called under any law for the time being in force.

2. Contributions to PF, gratuity fund etc.: Employer’s contribution to any provident fund or superannuation und or gratuity fund or any other fund for the welfare of employees.

3. Bonus/commission to employees: Bonus or commission payable by assessee to its employee.

4. Interest on loan or borrowing from public financial institution: Interest payable in accordance with the terms and conditions of the agreement of any loan or borrowing from any PFI or a state industrial investment corporation.

5. Interest on loans and advances from a scheduled bank:  Any sum payable by the assessee as interest on any loan or advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances.

6. Leave encashment to employee: Any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee.

Audit Checklist

1. To report details regarding the liability that pre-existed on the first day of the previous year.

2. Traced the closing balances of unpaid liability from the audited trial balance (current liability).

3. Distinguish payments made during the previous year that were earlier allowed from those that were allowed from those that were disallowed in earlier years.

4. Tax auditor does not require to comment on the admissibility / inadmissibility of the sums referred in the clause.

5. Verify the dates of payments from the books and documents.

6. Verify the various agreement and contract related with different sums mentioned under the clause.

7. Advice the assessee to obtain a certificate of actual payment from bank or financial institution and inspect the same.

27. (a) Amount of Central Value Added Tax credits availed of or utilized during the previous year and its treatment in the profit and loss account and treatment of outstanding Central Value Added Tax credits in the accounts.

(In this clause the factual reporting about the amount of CENVAT credits availed of or utilized during the year as well as its treatment in profit and loss account and treatment of outstanding CENVAT credits in the accounts.)

Audit Checklist

• Auditor should verify that there is a proper reconciliation between balance of CENVAT credit in the accounts and relevant excise and service tax records.

• Auditor should report the amount of CENVAT availed and utilized under this sub-clause.

• Auditor should verify that information furnished under this sub-clause is compatible with the information furnished under clause 14(b).

(b) Particulars of income or expenditure of prior period credited or debited to the profit and loss account.

• Prior period items means material charges or credit which arise in the previous year as a result of error or omissions in the preparation of financial statements of one or more previous year.

• Both AS 5 and AS(IT)-II notified  by Government under section 145 state that if the material adjustments arising due to error or omission in earlier years, then prior period item.

• Both AS 5 and AS(IT)-II notified  by Govt under section 145 state that if the material adjustments arising due to error or omission in earlier years, then prior period item.

Material adjustments necessitated by circumstances which though related to previous periods but determined in the current period, will not be considered as prior

Audit Checklist

Auditor should obtain the particulars of expenditure or income of any earlier year debited or credited to the profit and loss account of the relevant previous year when mercantile system of accounting is followed

28. 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.

Section 56(2)(viia)  

provides that where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year any property being shares of a company (not being a company in which the public is substantially interested) :

1. Without consideration, the aggregate fair value of which exceeds Rs.50000, the whole of the aggregate fair market value of such property

2. For a consideration which is less than the aggregate fair market value of the property by an amount exceeding Rs.50000, the aggregate fair market value of such property as exceeds such consideration shall be chargeable to income tax under the head “income from other sources”.

Audit Checklist

1. The auditor should obtain from the assessee, a list containing the details of shares received, if any, by him from any other company and verify the same from the books of accounts and other relevant documents.

2. The auditor has to consider the provisions of Rule 11UA(1)(c) which provides for manner of determining fair market value of quoted shares and securities received by way of:

• Transaction carried out through any recognized stock exchange
• Transaction carried out other than through any recognized stock exchange

29. 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.

Section 56(2)(vii b) provides that where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income-tax under the head “Income from other sources”.

Audit Checklist

1. The auditor should obtain from the auditee, a list containing the details of shares issued , if any, by him to any person being a resident and verify the same from the books of accounts and other relevant documents.

2. The auditor has to consider the provisions of Rule 11UA(1)(c)(a) which provides for manner of determining:

• Fair market value of quoted shares and securities received by way of transaction carried out through any recognized stock exchange
• Fair market value of quoted shares and securities received by way of transaction carried out other than through any recognized stock exchange

3. The auditor has to consider the provisions of Rule 11UA(2) which provides for manner of determining the fair market value of unquoted equity shares.

30. Details of any amount borrowed on hundi or any amount due thereon (including interest on the amount borrowed) repaid, otherwise than through an account payee cheque. [Section 69D]

(In this clause the amount borrowed on hundi and details of repayment otherwise than by a account payee cheque are required to be indicated.)

Audit Checklist

1. Tax auditor should obtain a complete list of borrowings and repayments of hundi loans otherwise than by account payee cheques and verify the same with the books of account.

2. Tax auditor should verify the borrowing/repayments with reference to such evidence which may be available and in the absence of conclusive or satisfactory evidence or the may obtain management representation.

31. *(a) Particulars of each loan or deposit in an amount exceeding the limit specified in section 269SS taken or accepted during the previous yea :-

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

Section 269SS prescribes the mode of taking or accepting certain loans and deposits. As per this section, no person shall take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if:-

1. The amount of such loan or deposit or the aggregate amount of such loan and deposit or

2. On the date of taking or accepting such loan or deposit, any loan or deposits taken or accepted earlier by such person from the depositor is remain unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid is twenty thousand rupees or more.

Audit Checklist

1. This sub-clause requires five specific particulars in respect of each loan or deposit including the permanent account number of the lender, if available.

2. The tax auditor should obtain the above details from the assessee in respect of each loan or deposit and verify the same from the records maintained by him.

For the purposes of this clause, auditor may keep in mind the following typical situations:

1. Sale proceeds collected by the selling agent will not be considered as loan or deposit.
2. A current account is not excluded from the definition of the term “deposit”.
3. Advance received against agreement of sale of goods is not a loan or deposit.
4. Even if the loans are taken free of interest the information will still have to be given.

(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 amount 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.

Section 269T is attracted where repayment of the loan or deposit is made to a person, where the aggregate amount of loans or deposits held by such person either in his own name or jointly with any other person on the date of such repayment together with interest, if any, payable on such deposit is Rs.20,000 or more.

Loan or deposits discharged by means of transfer entries in the books of account constitute repayment of loan or deposits otherwise than by account payee cheques or account payee bank drafts. Hence, such entries have to be reported under this clause.

(c) 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

(The particulars (i) to (iv) at (b) and comment 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 Provincial Act)

Audit Checklist

Practically, it may not possible to verify each payment, reflected in the bank statement, as to whether the payment/ acceptance of deposits or loans has been made through account payee cheque, demand draft, pay order or not, it is thus desirable that the auditor should obtain suitable certificate from the assessee to the effect that the payments/ receipts referred to in section 269SS and 269T were made by account payee cheque drawn on a bank or account payee bank draft as the case may be.

32.(a) Details of brought forward loss or depreciation allowance, in the following manner, to the extent available :

Audit Checklist

In this clause particulars of brought forward loss or unabsorbed depreciation should be reported. Auditor should ascertain that the whether the provisions of set off and carry forward of losses is followed or not.

Section 71B – Carry forward and set off of loss from House Property
Section 73A - Carry forward and set off of losses by specified business
Section 78   - Carry forward and set off of losses in case of change in constitution of firm or on    succession

(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.

In this clause change in shareholding should be reported in accordance with the section 79 of the act which is as follows:

Section 79 In case of a company, not being a company in which public are substantially interested, where a change in shareholding has taken place in a previous year, then no loss incurred in any year prior to the previous year shall be carried forward and setoff against the income of the previous year unless on the last day of that previous year and on the last day of the previous year in which the loss was incurred, the shares of the company carrying not less than 51% of the voting power were beneficially held by the same persons.

Audit Checklist

Auditor should compare the composition of the shareholding as on the last day of the previous year and the last day of every previous year in which the loss was incurred, and also ascertain the compliance of the above section and report accordingly.

(c) 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.

Section 73 It provides treatment of losses in speculation business:

1. Any loss computed in respect of speculation business carried on by the assessee shall not be set off except against profit and gains of other speculation business.

2. If any part of the loss is not set off from the income of other speculation business, in that case the, remaining portion of loss shall be carry forward up to the four assessment year starting from the end of the relevant assessment year.

Audit Checklist

Auditor has to verify from the books of accounts and other relevant documents as to whether the assessee is carrying on any speculation business, if so in that case he has to furnish the details of speculation loss under the above section and check the compliance of the same.

(d) whether the assessee has incurred any loss referred to in section 73A in respect of any specified business during the previous year, if yes, please furnish details of the same.

(In this clause, if the assessee is incurred any loss in respect of specified business under section 35AD, detail of such loss is to be provided) 

Section 35AD: Certain tax incentives are provided by way of allowing 100% deduction in respect of whole of any expenditure of capital nature to the following specified businesses:

1. Setting up and operating a cold chain facility;

2. Setting up and operating a warehousing facility for storage of agricultural produce;

3. Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network.

4. Building and operating, anywhere in India, a new hotel of two-star or above category as classified by  the Central Government;

5. Building and operating, anywhere in India, a new hospital with at least one hundred beds for patients;

6. Developing and building a housing project under a scheme for slum redevelopment or rehabilitation, framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed.

7. Developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed; and

8. Production of fertilizer in India.

Audit Checklist

Auditor has to verify from the books of accounts and other relevant documents as to whether the assessee is carrying on any specified business as mentioned in Section 35AD, if so in that case he has to furnish the details of speculation loss under the above section and check the compliance of the same.

In case of a company, please state that whether the company is deemed to be carrying on a speculation business as referred in explanation to section 73, if yes, please furnish the details of speculation loss if any incurred during the previous year.

Audit Checklist

Auditor has to furnish the details of speculation losses incurred by the assessee under speculation business.

33. Section-wise details of deductions, if any, admissible under Chapter VIA or Chapter III (Section 10A, Section 10AA).

Deduction under Chapter VI-A

• Section 80C  Deduction is allowed by investing in prescribed fund such as NSC, PF,     Fixed deposit in scheduled bank or post office etc.
• Section 80CCC  Deduction in respect of Premium Paid for Annuity Plan of LIC or Other   Insurer
• Section 80CCD  Deduction in respect of contribution to pension  fund
• Section 80CCG  Deduction of Rajiv Gandhi Equity Saving Scheme
• Section 80D  Deduction in respect of Medical Insurance
• Section 80DD  Deduction in respect of Rehabilitation of Handicapped Dependent Relative
• Section 80DDB Deduction in respect of Medical Expenditure on self or dependent relative
• Section 80E Deduction in respect of Interest on loan of higher studies
• Section 80G Deduction in respect of various donations
• Section 80GG Deduction in respect of house rent paid
• Section 80U  Deduction in respect of person suffering from physical disability
• Section 80RRB Deduction in respect of any income by way of Royalty of a Patent
• Section 80TTA Deduction from Gross Total Income in respect of any income by way of interest on saving bank account
• Section 24 Deduction is allowed in respect of interest on loan borrowed for the purpose of constructing House Property

Deduction under Section 10A or 10AA of Chapter III

• Section 10A    Special provision of deduction in respect of newly established undertakings in free trade zone, etc.
• Section 10AA Special provision of deduction in respect of newly established units in Special Economic Zone.

Audit Checklist

Auditor should ascertain that whether the conditions of claiming deduction prescribed under any of the above section is fulfilled or not, for ascertaining this, auditor has to obtain all necessary evidences which enable him to express the opinion regarding the admissibility of deduction. 

34. (a) Whether the assessee is required to deduct or collect tax as per the provisions of Chapter XVII-B or Chapter XVII-BB, if yes please furnish:

(b) whether the assessee has furnished the statement of tax deducted or tax collected within the prescribed time. If not, please furnish the details:

(c) whether the assessee is liable to pay interest under section 201(1A) or section 206C(7). If yes, please furnish:

(In this clause, details of tax deducted or collected as per the provisions of Chapter XVII-B or XVII-BB, statement of tax deducted or collected and the interest paid under section 201(1A) and 206C(7) for payment of interest in case the tax has not been deducted wholly or partly or after deducting has not been paid to the Govt. )

 Audit Checklist

a. In clause 34(a) auditor should verify as to whether the details of tax deducted or collected provided by the assessee is true, auditor may check these details from the return furnished by the client.

Auditor should report the amount on which tax is to be deducted, applicable section under which such tax is deducted, nature of payment, total amount paid or receive, amount on which tax is deducted, amount of tax deducted/ collected, amount on which tax is deducted on lower rates and amount of tax deducted but not deposited.

b. In clause 34(b) auditor should check whether assessee has furnished statement of tax deducted or collected within the prescribed time or not.

In case where assessee is liable to pay interest under section 201(1A) or 206C(7), auditor should ascertain whether the calculation of interest is correct and same have been deposited, it can be checked through Part G of 26AS.

c. Government as required by the Act.

35. (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;
(iii) sales during the previous year;
(iv) closing stock;
(v) shortage/excess, if any

(b) In the case of a manufacturing concern, give 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.

B. Finished products/by- products :

(i) opening stock;
(ii) purchases 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.

Audit Checklist

Auditor should obtain certificates from the assessee in respect of the principal items of goods traded, the balance of the opening stock, purchases, sales and closing stock and the extent of shortage/ excess/damage and the reasons thereof.

36. 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);
(c) amount of reduction as referred to in section 115-O(1A)(ii);
(d) total tax paid thereon;
(e) dates of payment with amounts.  

(In this clause, details of tax paid on distribution of Profits by the domestic company is to be reported)

Audit Checklist

Auditor should check the whether the assessee has distributed any profit as dividend in the previous year and where any reduction have been claimed under section 115-O(1A)(i) and115-O(1A)(ii) in that case, auditor should verify that whether the conditions of reduction as prescribed in the above section have been complied.                                                 

37. Whether any cost audit was carried out, if yes, give the details, if any, of disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the cost auditor.

Audit Checklist

The tax auditor should ascertain from the management whether any cost audit was carried out and if such audit was carried out, obtain a copy of the audit report, and report the details of disagreement or disqualification, if any.

38.  Whether any audit was conducted under the Central Excise Act, 1944, if yes, give the details, if any, of disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the auditor.

Audit Checklist

The tax auditor should ascertain from the management whether any audit was conducted under the Central Excise Act, 1944 and if such audit was carried out, obtain a copy of the audit report, and report the details of disagreement or disqualification, if any.

39.  Whether any audit was conducted under section 72A of the Finance Act, 1994 in relation to valuation of taxable services, Finance Act, 1994 in relation to valuation of taxable services, if yes, give the details, if any, of disqualification or disagreement on any  matter/item/value/quantity as may be reported/identified by the auditor.

Audit Checklist

Auditor should ascertain from the management whether any audit was conducted under section 72A of the Finance Act, 1994 and if such audit was carried out, obtain a copy of the report, and report details of disqualification or disagreement, if any.

40. Details regarding turnover, gross profit, etc., for the previous year and preceding previous year:

(The details required to be furnished for principal items of goods traded or manufactured or services rendered)

Audit Checklist

Auditor should verify that the assessee have followed the Generally Accepted Accounting Principles while calculating above ratios.  

41. Please furnish the details of demand raised or refund issued during the previous year under any tax laws other than Income Tax Act, 1961 and Wealth tax Act, 1957 alongwith details of relevant proceedings.

(In this clause, demand raised under any tax law other than Income Tax Act, 1961 should be reported)

Audit Checklist

Auditor should obtain list of all demand raised during the previous year under all tax law other than Income Tax, and report the relevant details accordingly.
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*(Signature and stamp/Seal of the signatory)

Place : ______________
………………………

Name of the signatory

Date : ______________
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Full address

Also Read: Tax Audit Report and Forms 3CA, 3CB, 3CD, and 3CE - A Comprehensive Analysis