Tax audit changes and issues

TAX AUDIT- CHANGES & ISSUES

ASHOK SETH, LucknowB. Sc, FCA, DISA (ICA)

[email protected]

mailto:[email protected]

General Issues

Communication with Previous Auditor Management Representation Letter

(14A also) Applicability of Accounting Standards

General Purpose Financial Statements AS 1 (Accounting Policies), 2, 5, 16, 22

etc.. Materiality

CA Ashok Seth, Lucknow 211th July 2013

SECTION 44AD

Amended from Asstt Year 2011-12 Eligible- Individual, HUF, Partnership

Firm (NOT being LLP) AND who have not claimed deductions u/s 10A, 10AA, 10B, 10BA, 80HH to 80RRB

Applicable to ALL business (Except those covered in 44AE- truck plying).

11th July 2013 CA Ashok Seth, Lucknow 3

SECTION 44AD (Contd.)

Not applicable on Profession (S 44AA) Turnover limit- Does not exceed 1

Crore (increased from 60 lacs) Multiple Eligible business- turnover to

be clubbed for all such business Mixture of Eligible and Non-eligible

business- Turnover of Eligible Bussiness only



If Common books maintained for eligible and non-eligible business then expenses have to be divided on logical parameters- Samurao Techno 37 DTR 386



44AD is non Obstante Section- It starts with “Notwithstanding anything

to the contrary contained in section sections 28 to 43C”

Thus 40A(3), 41(1), 43B and 41a(ia) are not applicable.


Applicability of 44AB

44AD(5) – Applicability of 44AB if profits of eligible business lower than 8% AND his income exceeds maximum amount not chargeable to tax



The 8% income has to be income under profits and gain from business head

Income assessable under the head other sources or other heads of income other than PGBP (e.g. FDR interest, Rent etc.) not to be considered- Allied Construction 291 ITR (AT) 16 (Del)


Decision MatrixIncome from Eligible Bussiness

Total Income Applicability of 44AD

Applicability of 44AB &

44AA> 8% of turnover

Exceeds Exemption

Limited

Yes No

= 8% of turnover

Exceeds Exemption

Limited

Yes No

< 8% of turnover

Exceeds Exemption

Limited

No Yes

< 8% of turnover

Less than Exemption

Limited

No No


TURNOVER

Gross turnover - as understood in commercial sense

VAT part of Turnover? Excise part of Turnover? Commission and labour charges -

part of turnover Sales of Commission Agent, Stock

Broker11th July 2013 CA Ashok Seth, Lucknow 10

Turnover in Speculative Bussiness and Derivatives

In case of a day trader/speculator, & derivatives transactions in Security and Commodity Markets: - Sum total of differences, whether

positive or negative (Para 5.11(a) to (c) of ICAI Guidance Note) and also premium on sale of options unsettled transactions at year end


Example of TurnoverType Shares Profits (a) Loss (b)

Future RIL 500.00

Future Tata 200.00

Future Infosys 800.00

Total 1,300.00 200.00

GROSS TURNOVER WILL BE (a + b) 1,500.00


Professional Income

Share of profit and remuneration from professional firm – Can not be treated as turnover for 44AB- Hitesh D. Gajaria 40-A BCAJ 16 (Apr 2008)


Tax Audit Report – 3CB

Requires Assurance whether Financial Statements are True and Fair?

AND

That Particulars in Form 3CD are True and Correct.


True and Fair- 3CB

To include disclaimer as per Para 19 of SA 700 (AAS 28) relating to preparation of accounts by the assessee and the scope of audit.

3CB Report

Membership No of signatory and FRN no of firm should be given.


3CD

9(b)- Books of account maintained (……… the books of account generated by such computer by such computer system.)

11(a)- Method of accounting employed in the previous year- Refer to Significant Accounting Policies Followed.


12(b) Deviation from 145A

145A(ii)- further adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of its valuation (page 74 from Para 23.7 of GN)

Adjustments are profit neutral – CIT v. Indo Nippon Chemicals Co. Ltd. 261 ITR 275 (SC)


3CD

14- Depreciation- Note for pending assessment, differences and disputes. Additional Depreciation also Refer Para 26.7 of GN for disputes

16(b)- 2(24)(x) amount received from employees. Chart to be given.

16(e)(I to iii)- Penalty for violation of Law- Should not include for contractual violations.


Clause 17(L)- Inadmissible under 14-A

Sub S 2 and 3 inserted by FA 2006 AO to determine inadmissible

expenses in accordance with method prescribed – IF not satisfied with the claim having regard to the accounts of the assessee

Rule 8D inserted by I Tax (Fifth Amendment) Rules 2008


14A (Contd.)

The amount of inadmissible expenses depends upon facts and circumstances of the case.

Rule 8D does not mandate that assessee should necessarily compute the disallowance as per Rule 8D(2)

The Auditor will have to verify the amount of inadmissible expenditure as determined by the assessee.


14A (Contd.)

Auditor shall examine the details as furnished by the assessee.

Entitled to rely on management representation after evaluation

Established principles of allocation based on logical parameters to be followed by auditor.


14A (Contd.)

If in agreement with computation by assessee, report amount with suitable disclosure of material assumptions

If not in agreement, either give Qualified opinion, Adverse opinion, or Disclaimer of opinion – where neither basis nor supporting documents provided


Clause 17A- Interest to MSME

Interest inadmissible u/s 23 of the MSME Development Act, 2006.

Sec 16 of MSME Act the Date from which and rate at which interest is payable.

Sec 22 Provides for additional information in Audited Financial statements. Appropriate qualification


Clause 17A- Interest to MSME (Contd.)

Where auditee neither provided nor paid any interest under MSME act- NIL can be reported in clause 17A.

If interest payable and not provided in financial statements- effect on true and fairness to be seen


Clause 18- 40A(2)(b) Refer Page 236 of GN

Old: A company having substantial interest in the business of the assessee or any director of such company or relative of such director was covered –sub section (iv)

Now: Any other company carrying on business in which the first mentioned company has substantial interest will also be covered – refer – sub section (v)


Miscellaneous

Clause 22(b)- Prior Period expenditure- Refer AS 5

Clause 25(a)- Brought forward loses- appropriate disclosure.


E-FILLING OF RETURNS

Amendment of Income Tax Rule 12 Following reports to be e-filed U/S 44AB Form 3CEB (Section 92E Transfer

Pricing Report – international & domestic),

115JB (MAT) 10B, 10BB, 10CCB


Steps to be followed

Registration by CA as Chartered Accountant (DOB- PAN v ICAI)- Link to be activated to be received in e-mail

Assessee to add CA from his login CA to generate TAR in XML format-

Exe Utility in Forms Other Than ITR CA to upload XML (with DSC) and

attach signed scanned copy of B Sheet and P&L


Steps Continued

Assessee to approve the report from his work list by clicking “View form” in work list with his DSC

If rejected by Assessee the uploading process to start again


Steps Continued

The date when assessee approves will be date of furnishing of TAR not the date when CA uploaded the report.

Assessee to put the date of furnishing of TAR etc. in his XML of return

Assessee to upload the return.


Registration


CA Registration


Assessee Log In


Add CA


Uploading by CA


Assessee Work List


Approval by assessee


View Uploaded Form


If you wait for happy moments, you will wait forever.

But if you start believing that you are happy,

you will be happy forever.Good Day!

CA Ashok Seth, Lucknow 3911th July 2013

Please mail your comments to

[email protected]

40CA Ashok Seth, Lucknow11th July 2013

THANK YOU

mailto:[email protected]

41

Have a good day

CA Ashok Seth, Lucknow11th July 2013