Draft Management Representation Letter (MRL) for Tax Audit
Deepak Gupta | Jun 15, 2022 |
Draft Management Representation Letter (MRL) for Tax Audit
Here is a Draft Management Representation Letter (MRL) that should be taken by Chartered Accountants (CAs) while doing the Tax Audit. Please note that Professional Friends can make changes in this format, as per their requirement.
Firm Name with Address
Date: ___________
Sub: Tax audit of XXX Limited for the year ended 31 March _____ (relevant to the Assessment year 20xx-xx)
Dear Sirs,
This representation letter is provided in connection with your tax audit for the year ended 31 March 20xx for the purpose of expressing an opinion as to whether the Form 3CD (the “Form 3CD”) prescribed under Rule 6G(2) of the Income Tax Rules, 1962 (the “Rules”) pursuant to Section 44AB of the Income Tax Act, 1961 (the “Act”), along with the enclosures thereto give a true and correct view of the facts mentioned therein. Form 3CD is also required to be filed electronically pursuant to the proviso to Rule 12(2) of the Act.
We acknowledge our responsibility for downloading the utility from the designated website, filling the particulars in Form No.3CD in accordance with the books of account and other records of the Company, and electronically forwarding the same, in line with the requirements of the Information Technology Act, 2000 as amended from time to time, to you for verification. We also acknowledge our responsibility for providing you with the scanned copies of the original Tax Accounts, including those which are required to be uploaded on the designated website, namely, https://www.incometax.gov.in/iec/foportal. On completion of the upload on the designated website by you, we will provide you with a complete copy of the aforesaid documents as filed on the designated website.
We confirm, the following representations made to you, to the best of our knowledge and belief:
1 We have made available to you all significant information that we believe is relevant to the subject matter, including the Company’s original accounting records (including computer generated records) as maintained and all other relevant records, including minutes of all Directors’ and Managements’ meetings and details of registration numbers/ other identification numbers for indirect taxes such as goods and service tax, service tax, central sales tax, value added tax, customs duty and entry tax to the extent applicable. We acknowledge our responsibility for the completeness and accuracy of the information supplied to you.
2 There have been no transactions that have not been properly recorded in the underlying accounting records.
3 There have been no irregularities involving any member of the management or any of the employees that could have a material impact on the particulars required to be furnished in the Form No. 3CD.
4 There are no communications from regulatory agencies affecting the subject matter or assertion covered by Form 3CD.
5 The facts and amounts stated and representations made in the Form No. 3CD and the detailed schedules attached thereto (duly authenticated by us) are complete and true and correct in all respects and are as required by law.
6 In providing the same:
7 We confirm that the Company has no liability to pay indirect taxes being value added tax or any other indirect tax or duty except Goods and Service tax as disclosed in Clause 4 of the Form No. 3CD.
8 The Company is a non-deposit taking Non-Banking Finance Company, engaged primarily in the business of financing, leasing, bill discounting and other financial services. Further, we confirm that there has been no change in the nature of business or profession in the previous year from earlier years.
9 We confirm that no books of account have been prescribed under Section 44 AA of the Income-tax Act, 1961, in relation to the business carried on by the Company.
10 We have made available to you all financial records and related data (including computer generated records) and the address at which the books of account are kept. We confirm that the addresses where the books are maintained as disclosed in Clause 11(b) read with Exhibit-I of form 3CD is correct and complete.
11 The statement of Profit and Loss does not include any profits and gains assessable on presumptive basis u/s 44AD, 44ADA, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, Chapter XII-G, First Schedule or any other relevant section, as required under Clause 12 of Form 3CD.
12 The Company has employed mercantile system of accounting during the year and there has been no change in the method of accounting compared to the method employed in the previous year.
13 There is no deviation in the method of accounting employed in the previous year from the accounting standards prescribed under section 145 of the Income-tax Act, 1961.
14 The Company has given the ‘disclosures as per ICDS’ (to the extent applicable) required under Clause 13(f) read with Exhibit II and IIA of the Form 3CD.
15 The Company has correctly followed the accounting standards prescribed under Section 145 of the Income-tax Act, 1961.
16 We confirm that no adjustment required to be made to the profits for complying with the provisions of income computation and disclosure standards notified under section 145(2) other than those disclosed under Clause 13 of the Form No. 3CD read with Enclosure II.
17 We confirm that appropriate disclosures have been made in clause 13 (f) of the Form No. 3CD required as per income computation and disclosure standards.
18 We confirm that the Company does not own/ hold any inventories, hence reporting under Clause 14 of the Form No. 3CD is not applicable to the Company.
19 There are no items of capital assets converted into stock-in-trade during the previous year.
20 There are no items of the following nature which are not credited to the statement of Profit and Loss other than already disclosed:
21 The Company did not transfer any land or building or both during the previous year, therefore clause 17 is not applicable to the Company.
22 In relation to clause 18, we conform that there are no disputes with tax authorities with regard to classification of assets or depreciation rates.
23 We confirm that the date of put to use in respect of assets capitalised during the year is as per the details mentioned in Exhibit-III A.
24 We confirm that deletions of Fixed Assets during the year disclosed under clause 18(d) read with Exhibit- III B are complete and accurate.
25 In relation to the information requirement of clause 18 of the Form 3CD, we confirm that no Input Tax Credit was claimed on capital goods. We further confirm that no adjustment has been made towards change in foreign exchange rates arising at the time of settlement of liability and the same has been included in additions to fixed assets. In addition, we confirm that there is no adjustment in respect of any subsidy or grant or reimbursement, by whatever name called.
26 In accordance with clause 19, we confirm that Statement of Profit and Loss does not include any amount admissible under sections 32AC, 32AD, 33AB, 33ABA, 35(1)(i), 35(1)(ii), 35(1)(iia), 35(1)(iii), 35(1)(iv), 35(2AA), 35(2AB), 35ABB, 35AC, 35AD, 35CCA, 35CCB, 35CCC, 35CCD, 35D, 35DD, 35DDA and 35E.
27 We confirm that the Company has not paid any sum to an employee as bonus or commission for services rendered, where such sum was otherwise payable to him as profits or dividend.
28 We confirm that there is no other fund that requires disclosure except to the extent disclosed under Clause 20(b) of the Form No 3CD read with Exhibit-IV.
29 There was no capital expenditure debited to the statement of Profit and Loss except to the extent disclosed under clause 21(a) of the Form 3CD.
30 There were no personal expenses debited to the Statement of Profit and Loss other than those payable under contractual obligations or in accordance with generally accepted business practice.
31 We confirmed that there is no expenditure incurred on advertisement in any souvenir, brochure, tract, pamphlet or the like, published by any political party has been incurred.
32 The Company had not made any payments to clubs towards entrance fees and subscriptions, cost for club services and facilities used other than those disclosed under clause 21(a) of the Form 3CD
33 The Company had not incurred any expenditure by way of penalty or fine for violation of any law.
34 The Company had not incurred any expenditure by way of any other penalty or fine, or for any purpose which is an offence or which is prohibited by law.
35 With regard to Clause 21(b), Clause 34(a) and Clause 34(c) we confirm that considering the voluminous nature of transactions undertaken by the Company, it is not practicable for the management to prepare complete reconciliation of expenses/payments (accounted in the books of accounts) with the expenses/ payments actually subjected to and not subjected to TDS.
36 We confirm that systems are in place for the deduction of TDS as required by section 40(a) and there is no amount inadmissible as on 31 March 20xx.
37 Further we confirm that the Company has complied with all the provisions of Chapter XVII B of the Act and deduction of tax at source has been made at the applicable rates under the relevant provisions of the Act. There have been no case of Tax deductible where tax has not been deducted at all, or shortfalls on account of lesser deduction than required to be deducted or tax deducted late, or tax deducted but not paid to the credit of the Central Government in accordance with the provisions of Chapter XVII-B of the Act. Further, we confirm that detail given in Exhibit XI of Form 3CD is correct.
38 With regard to clauses 34(b) of annexed Form 3CD, the statement of tax deducted or collected contains information about all transactions which are required to be reported.
Further, we confirm that all returns of tax deducted at source have been furnished to the authorities within the prescribed time as required per the provisions of Chapter XVII-B.
39 In accordance with clause 34 (c), we confirm that the Company is not liable to pay any interest under section 201(1A) or section 206C(7) as at 31 March 2018 other than those disclosed under the clause.
40 There are no amounts debited to profit and loss account being, interest, salary, bonus, commission or remuneration inadmissible under section 40(b)/40(ba), hence, this clause is not applicable to the Company.
41 We confirm that it is not the practice of the Company to retain the copies of the cheques or to obtain copies of cheques from banks. Further, we confirm that there are no expenses covered under section 40A(3) and payments referred to in section 40A(3A) read with rule 6DD in respect of which payment were made by modes other than account payee cheque/ drafts or online transfer to the bank account of the payee.
42 The provision for payment of gratuity has been correctly disclosed under Clause 21(e) of Form 3CD.
43 The Company has paid no sums, which are disallowed under section 40A (9).
44 We confirm that the Company has no liability of contingent nature which is required to be disclosed under Clause 21(g) of Form No. 3CD.
45 The deductions under Section 14A in respect of expenditure incurred in relation to income which does not form part of the total income as disclosed under clause 21(h) is correct and accurate.
46 The Company does not have any amount of interest paid that is inadmissible under proviso to Section 36(l)(iii) of the Act.
47 There are no amounts of interest inadmissible under Section 23 of the Micro Small and Medium Enterprises Development Act, 2006.
48 There are no parties covered under section 40A(2)(b) other than those disclosed under clause 23 read with Exhibit-V & VI of Form 3CD and no payments have been to the persons specified under section 40A(2)(b) except as disclosed under the said clause.
49 There are no amounts deemed to be profits and gains under section 32AC or 32AD or 33AB or 33ABA or 33AC of the Act.
50 There is no amount of profit chargeable to tax under section 41 of the Act for the purpose of clause 25 of Form 3CD.
51 With respect to requirements of clause 26(A), we confirm that the liabilities that pre-existed on the first day of the previous year but were not allowed in the assessment of any preceding year have been disclosed under Exhibit VII. Except as disclosed in Exhibit VII, liabilities that pre-existed on the first day of the previous year have been claimed by the Company in the Return of Income furnished to the tax authorities under section 139(1) in respect of Assessment Year 2018-20xx. However, the assessment is yet to be completed. Pending completion of the above assessment, the amounts claimed have been deemed to be allowed as deductions and therefore, no details have been given under this clause.
52 With respect to requirements of clause 26(B), we confirm that the liabilities that were paid on or before the due date for furnishing the return of income of the previous year under Section 139 (1) and were not paid on or before the aforesaid date have been disclosed under Exhibit VIII. We further confirm that all amounts incurred during previous year but remaining outstanding as on the last day of the previous year have been considered.
53 We confirm the following with respect to clause 26(B) of the Form 3CD read with Exhibit VIII-
54 The Company has not availed of or utilized during the previous year, Goods and Service Tax (GST) credits other than those disclosed under Clause 27(a) read with Exhibit IX of Form 3CD, along with the treatment in the statement of Profit and Loss and treatment of outstanding Central Value Added Tax/ GST credits in the accounts.
55 There is no income or expenditure of prior period credited or debited to the statement of Profit and Loss.
56 Section 56(2)(viia) of the Act was applicable till 1 April 2017, hence clause 28 is not applicable.
57 We confirm that the Company has not received any consideration for issue of shares which exceeds the fair market value of the shares as referred to in section 56(2)(viib) of the Act. Further we confirm that the fair market value of the equity shares issued through rights issue were determined by merchant banker on the basis of “Comparable Companies Method” which is higher than the book value approach (selected as preferable method as given under Rule 11UA of the Rules).
58 There are no amount is included as income chargeable under the head ‘income from other sources’ as referred to in clause (ix) and (x) of sub-section (2) of section 56.
59 The Company has neither any amount were borrowed on hundi, nor were any amount due thereon (including interest on the amount borrowed) repaid during the previous year.
60 We confirm that the Company has not entered into any specified transactions which would require any adjustment to transfer price under section 92CE(1).
61 The Company has not incurred expenditure during the previous year in respect of which requirement of sub-section (1) of section 94B would be applicable.
62 We confirm that with regard to clause 31(a), 31(b) and 31(c) of the annexed Form No. 3CD, there are no receipt or repayment of loans or deposits or specified sum for an amount exceeding the limit specified under section 269SS or 269T were taken or accepted or repaid during the previous year by a cheque or bank draft, whether or not being an account payee cheque or an account payee bank draft.
63 We further confirm that the management has placed reliance on decision of Supreme Court in Sahara India Real Estate Corpn. Ltd. v. SEBI [2012] 25 taxmann.com 18 , wherein it has been held that the debentures (optionally fully convertible debentures) are securities. Hence the management believes that NCDs are out of purview of Section 269SS and 269T and accordingly, NCDs have not been disclosed in clause 31(a) and 31(c) of the Form 3CD.
64 The company retains amount equivalent to 1 or 2 EMIs from the disbursal amount at the time of disbursal from the loan. The company has taken a stand that the amount retained by the company in the ordinary course of business and it is not in the nature of loan/ deposit. (Refer clause vii of para 49.8 on page 179 of Guidance Note on Tax Audit issued by the Institute of Chartered Accountant of India). Hence the same has not been disclosed under clause 31(a) and 31 (c) of the Form 3CD.
65 With regard to clause 31(ba) and 31(bc) of the annexed Form No. 3CD, the Company has not received / paid any amount in excess of limit specified in section 269ST, in aggregate from / to a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion from a person, during the previous year, where such receipt / repayment is otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account.
66 With regard to clause 31(bb) and 31(bd) of the annexed Form No. 3CD, there were no receipts or payments which were accepted or paid in aggregate from / to a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion from a person otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account.
Further, the Company being a NBFC has entered into arrangements with various banks, collection agents and business correspondents etc. for the purpose of EMI collection from customers, who face technical difficulty or operational issues or financial difficulty in remitting funds/ EMI payments through regular banking channels. Entire collection including cash collections by banks under CMS arrangements, by business correspondents or by collection agents from customers is directly deposited in collection bank accounts.In view of the above and considering voluminous nature of transaction, it is not practical possible to present such information.
67 There is no brought forward losses or depreciation allowance.
68 The Company is not deemed to be carrying on a speculation business as referred in explanation to section 73 and the assesse has not incurred any speculation loss under section 73 and section 73A of the Income-tax Act, 1961.
69 We confirm that there are no other deductions which are admissible under Chapter VIA or Chapter III (Section 10A, section 10AA) except as disclosed under clause 33 of Form 3CD read with Exhibit X.
70 We confirm that the provisions of Chapter XVII-BB are not applicable to the Company.
71 The Company is not a trading/ manufacturing company, hence clause 35 is not applicable.
72 The dividend paid u/s 115 – O of the Income Tax Act, 1961 during the previous year is correctly disclosed in Clause 36 of Form 3CD.
73 The Company has not received any amount in nature of dividend as referred to in sub-clause(e) of clause (22) of section 2 during the previous year.
74 No cost audit was required to be carried out under section 148 of the Companies Act 2013 during the previous year.
75 No audit has been conducted during the previous year under the relevant provisions of the Central Excise Act, 1944.
76 No audit has been conducted of the Company’s records during the year under Section 72A of the Finance Act, 1994.
77 The particulars of accounting ratios and their calculations in respect of the activities of the Company are correctly disclosed in Exhibit XIV.
Further, the Company has adopted IND-AS for preparation of its financial statements for the first time for the year ended 31 March 20xx. Accordingly, the preceding previous year figures represent the comparative restated figures as per IND-AS financial statements for the year ended 31 March 20xx.
78 There are no demand raised or refund issued during the previous year under any tax laws other than Income Tax Act, 1961 and Wealth tax Act, 1957.
79 The Company is not required to furnish statement in Form No. 61 or Form No. 61A or Form No. 61 B during the previous year other than those disclosed in clause 42 read with Exhibit XV of the Form 3CD.
80 We confirm that the Company is not liable to furnish a report under section 286(2) of the Act.
81 The return of income for the preceding previous year has been filed with the tax authorities on or before the due date.
82 All events subsequent to the 31 March 20xx, as applicable have been fully considered while furnishing information in relation to the Form 3CD and no circumstances or events have come to our attention up to the time of signing this letter which require adjustment of or disclosures in the Form 3CD.
We acknowledge that we are responsible for the compilation of information in Form No. 3CD. We shall not hold you liable, in case we are unable to claim a deduction / exemption or if we incur any tax liability on account of any errors / omissions / mistakes or any position taken by you in the Form No. 3CD, or if anything contained in or omitted from the Tax audit report has any unfavorable impact upon any tax proceedings.
Further, we undertake to indemnify and keep you indemnified, in case you suffer or are called upon to suffer, any loss, damage or claim, of any kind or nature whatsoever, arising from your signing the Tax Audit Report, except where, and to the extent that such loss, damage or claim is occasioned by, and is attributable solely to, your gross and wilful neglect and negligence.
Yours faithfully,
For and on behalf of XXX Limited
Authorized Signatory
Place: New Delhi
Date: xx xx 20xx
In case of any Doubt regarding Membership you can mail us at [email protected]
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