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Tax Audit – Documentation &

Checklist

Roopali J, CA

Partner akasam and associates

Chartered Accountants

Tax Audit Objective

To assist Income Tax Department to assess correct income of

assessee and give information on compliance prescribed under

the Act

Main report

Form 3CA: Applies where accounts of business or profession of

assessee have been audited under any other law

Form 3CB Applies in cases where accounts are not required to be

audited by any other law

Annexure in Form 3CD to main report giving particulars of

compliance

Applicability of Tax Audit – S. 44AB

Every person carrying on business whose Gross Turnover,

Receipts Or Total Sales exceed Rs.1 Crore

Every person carrying on profession whose Gross Receipts exceed

Rs.25 Lakhs

Where profits & gains of person from business are taxable on

estimated basis u/s 44AD, 44AE, 44BB or 44BBB & such person

claims his income to be lower than profits & gains so estimated

Tax Audit Procedures

Primary responsibility is of assessee to ensure compliance, prepare

and submit relevant information

Tax Auditor (TA) to verify compliance

TA to-

• Use professional skill & expertise

• Apply Generally Accepted Auditing Procedures as applicable for

other audits

• Apply techniques of reasonable test audit checks & compliance

tests depending upon internal controls of assessee

• Follow principles of Materialit , Prude e & Su sta e Over

For

Tax Audit Procedures

Refer to following publications issued by ICAI-

• Standards on Audit (SAs)

• Guidance Notes (GNs) on Audit Reports & Certificates for Special

Purposes

• GN on Tax Audit , Supplementary GN on Tax Audit, GN on

section 145A considering VAT & GN on section 14A

• Issues on Tax Audit

• SA 700 - Auditor s report on financial statements

• Statement on qualifications in Auditor s report

Documentation and Checklist

Permanent File

PAN, TAN, registered office, branch office details, other taxes

registration o s and relevant supporting documents, partnership

deed/COI along with MOA, AOA etc.

Working File

All the working papers collected while doing the audit for that

particular year starting with appointment letter

Annexure to Tax Audit Report (Form - 3CD)

Part - A

Clauses 1-8

Name of the assessee

Address

Permanent Account Number

Applicability of indirect taxes

along with registration numbers

Status

Previous Year Ended

Assessment Year

Relevant clause of 44AB to be

mentioned

Permanent Audit file

Working audit File

Relevant Clauses – Impacted by

Management decisions

Part - B

Clause 9

Is applicable to Firms & Association of Persons

Names of partners / members & their profit-sharing ratios [Sub-

Clause (a)]

Changes in the constitution, or profit-sharing, of Partnership/

Association & the particulars of change [Sub-Clause (b)]

Clause 10

Nature of Business / Profession (If more than one business/

profession is carried out, then nature of every business/

profession) [Sub-Clause (a)]

Particulars of change in business / profession [Sub-Clause (b)]


Management decisions Clause 11

Whether books of accounts are prescribed as per S. 44AA? [Sub-

Clause (a)]

Books of Accounts maintained (In case of computerized system of

accounting, mention books of account generated by such system)

along with details of each location wherein these are

maintained[Sub-Clause (b)]

List of books and nature of relevant documents examined [Sub-

Clause (c)]

Clause 12

Mention profit assessable on presumptive basis which is included

in profit & loss account and relevant section under which it is

assessable

Clause 13

Method of Accounting followed in P.Y [Sub-Clause (a)]

Any change in method of accounting in relation to last P.Y [Sub-Clause

(b)]

Details of such change and its effect on profit / loss to be mentioned

in tabular form [Sub-Clause (c)]

Details of deviation in method employed from accounting standards

prescribed u/s. 145 & effect on profit / loss [Sub-Clause (d)]

Clause 14

Method of Valuation of Closing Inventory employed in P.Y [Sub-Clause

(a)]

Details of deviation of such method of valuation from method

prescribed u/s. 145A & effect on profit / loss [Sub-Clause (b)]





Clause 15

Give following particulars of Capital Asset converted into Stock-in-

Trade-

Description of Capital Asset [Sub-Clause (a)]

Date of Acquisition [Sub-Clause (b)]

Cost of Acquisition [Sub-Clause (c)]

Amount at which asset is converted into Stock-in-Trade [Sub-

Clause (d)]

Relevant documentation to be checked In case of Company

• Memorandum of Association

• Articles of Association

• Minutes of the meetings conducted by the Board of Directors

• Directors Report

• Notes to the audited Financial Statements

• Previous Year ROI

• Accounting policies and procedures

• Documents filed with ROC

In case of a Firm

• Obtain a true copy of the partnership deed signed by all the

partners

• Obtain a true copy of the amendment / admission / retirement deed

and get a declaration stating that there has been no change in the

profit sharing ratios during the year by all the partners

Relevant documentation to be checked

• The nature of business stated in partnership deed/ MoA & AoA, can

be cross checked with Sales Tax Registration Certificates, Shop Act

Licence, Service tax registration certificates etc.

• For businesses falling in presumptive taxation category take a

declaration that the activity is the same & no other activity is being

conducted

Steps – Verification of Books of Accounts • Detailed ledger scrutiny to be conducted

• Expenses and income heads should also be checked for comparing with

the previous year accounting method.

• Check the year end entries in journal for the expenses provided and see

the method of providing expenses is as same as of earlier year. Similarly

payment entries in the beginning of the year should also be checked for

checking the way of dealing with expenses and provisions.

• Pl check for the applicability of Accounting Standards and CBDT

circulars wherever applicable

• Wherever supporting documentation is not completely available,

confirmation from management in the form of management

representation letter (MRL) to be obtained

Verification of Books of accounts

Clause 16

Amounts not credited to Profit / Loss Account, being -

items falling within scope of S. 28 [Sub-Clause (a)]

Verify the reserves account, or any other account, capital account

of the proprietor/partner, credits in the other balance sheet items

to identify if any item is directly credited to the same.

pro forma credits, drawbacks, refunds of customs or excise duties or service

tax, sales tax or VAT, where same are admitted as due by concerned

authorities [Sub-Clause (b)]

Check for the claims lodged and admitted by authorities.

escalation claims accepted during P.Y [Sub-Clause (c)]

any other items of income [Sub-Clause (d)]

capital receipt [Sub-Clause (e)]


Clause 17

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 then details of Property actual consideration received or

accrued versus value adopted or assessed or assessable is to be

mentioned in tabular form

Verification of Books of accounts Clause 18

Particulars of depreciation as per Income Tax Act, 1961 for each block of assets in

following form-

description of asset / block of assets [Sub-Clause (a)]

rate of depreciation [Sub-Clause (b)]

actual cost / WDV [Sub-Clause (c)]

Additions (along with date of asset being put to use) / deductions made to

block along with following adjustments [Sub-Clause (d)]-

• CENVAT claimed & allowed

• Change in exchange rates

• Subsidy, grant or reimbursement

Depreciation allowable [Sub-Clause (e)]

WDV at end of P.Y [Sub-Clause (f)]


Clause 18: continued

• ascertain date of asset being put to use - an e pert s opinion if

necessary or certificate from assessee

• Any interest paid on money borrowed for purchase/construction of asset,

upto the date on which asset is put to use, be capitalized to the cost of asset –

loan papers

• subsidy documentation if any received for acquiring the asset –be reduced

from the cost of acquisition.

• Section 43A – Any asset purchased from outside India – out of borrowing in

foreign currency – the foreign exchange fluctuation ( only to the extent of

amount actually repaid) be considered as part of the cost of the asset.

• Lease agreement to be verified to ascertain whether the asset is on a finance

lease or operating lease. Operating lease – dep available to lessor, Finance

lease – dep available to lessee.


Clause 19

Amounts admissible u/s. 32AC, 33AB, 33ABA, (wherever

applicable), 35(1)(i) to 35(1)(iv), 35(2AA), 35(2AB), 35ABB, 35AC,

35AD, 35CCA, 35CCB, 35CCC, 35CCD, 35D, 35DD, 35DDA & 35E-

Debited to Profit / Loss Account (showing amount debited &

deduction allowable under each section) [Sub-Clause (a)]

Compliance with all the conditions, if any specified under the

relevant provisions of the Act or Rules or any other guidelines,

circular etc., issued in this behalf needs to be verified and

reported in tabular manner


Clause 20

Sum paid to employee as bonus or commission, where same

was payable as profits or dividend [Sub-Clause (a)]

Sums received from employees as contributions to any

provident or superannuation funds or any other fund u/s.

2(24)(x); due date for payment & actual date and amount of

payment to concerned authorities u/s. 36(1)(va) [Sub-Clause

(b)] in tabular form


Amounts debited to Profit / Loss, being-

capital expenditure [Sub-Clause (a)]

personal expenditure [Sub-Clause (b)]

expenditure on advertisement in any publication of political party

[Sub-Clause (c)]

expenditure incurred at clubs [Sub-Clause (d)]-

• as entrance fees & subscription

• as cost for club services & facilities used

penalty or fine for violation of any law [Sub-Clause (e)(i)]

any other penalty or fine [Sub-Clause (e)(ii)]

expenditure incurred for an offensive purpose or that which

prohibited by law [Sub-Clause (e)(iii)]

Clause 21 continued….

Amount inadmissible u/s. 40(a) [Sub-Clause (f)]

as payment to non resident referred to in sub clause (i)

as payments to residents referred to in sub-clause (ia)

as payments referred to in sub-clause (ic)/(iia)/(iib)/(iii)/(iv)/(v)

For non/short deduction or non/short payment of TDS including

variation in rates

All details of the payments/Payee need to be reported in tabular

form


Verification of Books of accounts Clause 21 continued….

Amounts debited to Profit / Loss, being-

Amounts inadmissible u/s. 40(b) / 40 (ba) paid by way of Interest, Salary, Bonus,

Commission or remuneration

On The basis of examination of books of accounts and other relevant

documents/evidence, whether the expenditure covered u/s 40A(3) r.w.r 6DD or

u/s 40A(3A) were made by account payee cheque drawn on a bank or account

payee bank draft. If not the details need to be furnished in tabular form

Provision for gratuity not allowable u/s. 40A(7) [Sub-Clause (i)]

Any sum paid as employer not allowable u/s. 40A(9) [Sub-clause (j)]

Particulars of contingent liability [Sub-Clause (k)]

Deduction inadmissible as per S. 14A relating to expenditure pertaining to Income

not forming part of Total Income [Sub-Clause (l)]

Amount inadmissible under proviso to S. 36(1)(iii) [Sub-Clause (m)]


Clause 22: Amount of interest inadmissible under S. 23 of Micro, Small &

Medium Enterprises Development Act, 2006

Micro Enterprise:

• In case of enterprise engaged in manufacture or production of goods

pertaining to any industry specified in SCH I Industries (Development

and Regulations) Act 1951. Investment in Plant and Machinery does

not exceed Rs. 25.00 Lacs

• In case of Service Enterprise, investment in equipment does not

exceed Rs. 10.00 Lacs

Small Enterprise:

• In case of enterprise engaged in manufacture or production of goods

pertaining to any industry specified in SCH I Industries (Development

and Regulations) Act 1951. Investment in Plant and Machinery is

more than Rs.25 Lacs but does not exceed Rs.5 Crore

• In case of Service Enterprise, investment in equipment is more than

Rs.10 Lacs does not exceed Rs.2 Crore


Medium Enterprise :

• In case of enterprise engaged in manufacture or production of

goods pertaining to any industry specified in SCH I Industries

(Development and Regulations) Act 1951. Investment in Plant

and Machinery is more than Rs.5 Crore but does not exceed Rs.10

Crore

• In case of Service Enterprise, investment in equipment is more

than Rs.2 Crores but does not exceed Rs.5 Crore

MSME Act lays down that an interest payable or paid by the buyer,

under or in accordance with the provisions Sec 23 of the Act, shall

not for the purpose of the computation of income under Income Tax

Act,1961 be allowed as a deduction.


Clause 23

Particulars of payments made to persons specified u/s 40A(2)(b) –

related parties

Clause 24

Amounts deemed to be Profits and Gain under Section 32AC

(investment in new P&M) )or 33AB (Tea/coffee/rubber development

account) or33ABA (site restoration fund) or 33AC (reserves for

shipping business)

Clause 25

Amount of profit chargeable to tax u/s. 41 & computation thereof


Clause 26

In respect of any sum referred to in Clauses (a), (b), (c), (d), (e) or (f) of

S. 43B, liability for which-

Pre-existed on first day of PY but was not allowed as deduction

preceding PY & was paid during PY or not paid during PY [Sub-Clause (i

A)]

Was incurred in P.Y & was paid on or before due date for furnishing

returns of P.Y u/s. 139 (1) or not paid on or before due date [Sub-

Clause (i B)]

State whether sales tax, customs duty, excise duty or any other indirect

tax, levy, cess, impost etc. is passed through profit / loss account


Clause 27

Amount of CENVAT Credit utilized during P.Y. & treatment in profit / loss

account & treatment of CENVAT Credit outstanding [Sub-Clause (a)]

Particulars of prior period Income / Expenditure credited / debited to

Profit / Loss Account [Sub-Clause (b)]

Clause 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 for the same.

Clause 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



Amount borrowed on hundi (including interest thereon) repaid other

than through account payee cheque (section 69D)

Clause 31

Particulars of each loan / deposit exceeding limits specified u/s. 269SS

taken or accepted during P.Y-

Name, address & PAN of lender / depositor

Amount of loan / deposit

Whether loan / deposit was squared up during P.Y

Maximum amount outstanding at any time in P.Y

Whether loan / deposit was taken / accepted otherwise than by

account payee cheque or account payee bank draft [Sub-Clause (a)]

Verification of Books of accounts Clause 31 continued…

Particulars of loan / deposit repaid exceeding limits specified u/s. 269T

during P.Y-

Name, address & PAN of payee

Amount of repayment

Maximum amount outstanding at any time during P.Y

Whether repayment was made otherwise than by account payee

cheque or account payee bank draft [Sub-Clause (b)]

Whether certificate has been obtained from assessee regarding taking

or accepting, or repayment of same through account payee cheque /

draft [Sub-Clause (c)]

Such particulars are not necessary in case of government companies,

banking companies or corporations established under Central, State or

Provincial Act


Details of brought forward loss or depreciation allowance, in following

manner [Sub-Clause (a)]-

Where change in shareholding of company has taken place in P.Y due to

which losses incurred in preceding P.Ys cannot be carried forward as per

S. 79 [Sub-Clause (b)]

Serial No

Asst Year

Nature of

Loss /

Allowance

(in Rs.)

Amount as

returned (in

Rs.)

Amount as

assessed

(refer to

relevant

order)

Remarks

Verification of Books of accounts Clause continued…

• 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.

• 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 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.


Section-wise details of deductions admissible under Chapter VI-A

or Chapter III (Section 10A, Section 10AA). Details as under:

Section under which deduction is

claimed

Amount admissible as per the

provisions of the Income Tax Act

1961 and also fulfills the

conditions, if any specified under

the conditions, if any specified

under the relevant provisions of

the Act or Rules or any other

guidelines, circular etc., issued in

this behalf.


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 below mentioned in

tabular manner:-

1. TAN

2. Section

3. Nature of payment

4. Total amount of Payment or Receipt of the nature specified in Col. 3

5. Total amount on which tax was required to be deducted or collected out of (4)

6. Total amount on which tax was deducted or collected at specified rate out of

(5)

7. Amount of tax ded. Or coll. Out of (6)

8. Total amount on which tax was deducted or collected at less than specified

rate out of (7)

9. Amount of tax deducted or collected on (8)

10.Amount of tax deducted or collected not deposited to the credit of the Central

Government out of (6) and (8)


Clause continued…

• Whether the assessee has furnished the statement of tax deducted

and collected within the prescribed time. If not, Please furnish the

details:-

TAN Type of

Form

Due Date for

furnishing

Date of

Furnishing, if

furnished.

Whether the statement of

Tax deducted or collected

contains information about

all transactions which are

required to be reported.

• Whether the assessee is liable to pay interest under section 201(1A) or

section 206C(7). If Yes, please furnish:-

TAN

(1)

Amount of

Interest Payable

(2)

Amount Paid out

of (2)

(3)

Date of Payment

(4)


In case of trading concern, quantitative details of principal goods traded-

1. Opening Stock

2. Purchases during P.Y

3. Sales during P.Y

4. Closing Stock

5. Short / Excess [Sub-Clause (a)]

In case of manufacturing concern, quantitative details of principal items of raw materials, finished

goods & / or by-products-

1. Opening Stock

2. Purchases during P.Y

3. Consumption / Production during P.Y

4. Closing Stock

5. Short / Excess

6. Yield of finished products

7. Percentage of yield

8. shortage / excess, if any


Clause 36

In case of domestic company , details of tax on distributed profits u/s. 115-

O in following form-

Total amount of distributed profits [Sub-Clause (a)]

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

amount of reduction as referred to in section 115-O(1A)(ii)

Total tax paid thereon [Sub-Clause (b)]

Dates of payment with amounts [Sub-Clause (c)]


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.

Clause 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.

Clause 39

Whether any audit was conducted under section 72A of the Finance

Act 1994 in relation to valuation of taxable services. If Yes, give the

details, if any, of the disqualification or disagreement on any matter/

item/ value/ quantity as may be reported/identified by the auditor.


Calculate following ratios:

Total Turnover

Gross Profit / Turnover

Net Profit / Turnover

Stock-in-trade / Turnover

Material Consumed / Finished Goods Produced

Clause 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 along with details of relevant

proceedings.

Any Questions

Contact Details

Any queries, contact,

[email protected]

www.akasamandassociates.com

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