Reetu | Dec 13, 2021 |
Tax Audit Form 3CD: Clause by Clause Summary
The period from June to September is particularly unpleasant for taxpayers since all financial data for the previous fiscal year must be accumulated and the final tax burden is calculated on the basis of the same. If the taxpayer is subject to audit, the process becomes even more complicated because one must submit not only a return but also a tax audit report to the Income Tax authorities. In this context, we should have heard or come across the ‘Form 3CD’. We will cover the following aspects with regard to Form 3CD.
| 1 | Name of the assessee | These are the fundamental information required to identify the assessee. It should be noted that if the audit is for a branch, the name and address of such branch must be mentioned. | |
| 2 | Address | ||
| 3 | Permanent Account Number (PAN) | ||
| 4 | Whether the assessee is liable to pay indirect tax like excise duty, service tax, sales tax, goods and service tax,customs duty,etc. if yes, please furnish the registration number or,GST number or any other identification number allotted for the same | This clause requires the registration numbers with the respective tax authorities to be entered. | |
| 5 | Status | Individual, Hindu Undivided Family (HUF), company, firm (including LLP), Association of Persons (AOP), Body of Individuals (BOI), local authority, and artificial juridical person are the several groups of assesses listed in the Act. | |
| 6 | Previous year | This is in reference to the audited fiscal year. This period is normally from the 1st of April to the 31st of March of the following year, but care must be taken in cases of business closures, new firms, amalgamations, demergers, and so on. | |
| 7 | Assessment year | This relates to the audit’s applicable assessment year. | |
| 8 | Indicate the relevant clause of section 44AB under which the audit has been conducted | The applicable Section 44AB clause [(a) to (e)] under which the tax audit is being undertaken shall be chosen. | |
| a) | Whether the assessee has opted for taxation under section 115BA/ 115BAA/ 115BAB/ 115BAC/ 115BAD ? | ||
| 9 | a) | If firm or association of persons, indicate names of partners/members and their profit sharing ratios. | The names of a firm’s or AOP’s partners or members will be covered here. If a person is acting in a representative capacity (for example, A’s HUF is a partner and A is acting in a representative capacity on behalf of the HUF), the name of the beneficial partner/member (A’s HUF) should be provided. Furthermore, the profit sharing ratio includes the loss sharing ratio. |
| 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 | All changes that occur throughout the year, regardless of how frequently they occur, must be addressed. | |
| 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) | The assessee must choose the appropriate business code from the list supplied. If the nature of the business or profession to be carried out changes, this must be indicated. It is unnecessary to announce a temporary halt in business. |
| b) | If there is any change in the nature of business or profession, the particulars of such change. | ||
| 11 | a) | Whether books of account are prescribed under section 44AA, if yes, list of books so prescribed. | When a person’s turnover exceeds a specific threshold, he or she is required to keep certain books of accounts, such as a cash book, journal, ledger, and so on. Furthermore, certain certain experts are required to keep supplementary records. A doctor, for example, must keep a daily case register in which specific data of patient visits are noted. The tax auditor provides a list of the books and records that he examined. |
| 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. ) | ||
| c) | List of books of account and nature of relevant documents examined. | ||
| 12 | 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, 44ADA, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB,Chapter XII-G, First Schedule or any other relevant section.) | The amount of profit related to a business subject to the presumptive taxation scheme must be recorded here. In the case of several firms, only the profit related to the businesses subject to the presumptive scheme of taxes shall be reported sectionally. | |
| 13 | a) | Method of accounting employed in the previous year | The accounting technique, whether cash or mercantile, must be indicated. Companies, on the other hand, are required by the Companies Act to keep their accounts on an accrual or mercantile basis. |
| 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. | ||
| c) | If answer to (b) above is in the affirmative, give details of such change, and the effect thereof on the profit or loss. | ||
| d) | Whether any adjustment is required to be made to the profits or loss for complying with the provisions of income computation and disclosure standards notified under section 145(2) | Income Computation and Disclosure Standards (ICDS) ranging from ICDS I to ICDS X have been specified by the Income Tax Act. The effect of each ICDS must be considered in the tax computation to determine the net tax due — the increase in profit, loss in profit, and net effect are specified for each ICDS. | |
| e) | If answer to (d) above is in the affirmative, give details of such adjustments | ||
| f) | Disclosure as per ICDS | The ICDS also contain certain disclosure requirements and this is the clause under which such disclosures are ultimately made. | |
| 14 | a) | Method of valuation of closing stock employed in the previous year. | This method of valuation would be based on the assessee’s ordinary accounting system, subject to certain prescribed adjustments for tax, duty, cess, etc. (such as excise duty, VAT) incurred in purchasing the inventory. |
| 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: | ||
| 15 | Give the following particulars of the capital asset converted into stock-in-trade:- | In general, an asset held as a capital asset would generate income under the head capital gains when sold, but an asset held as stock-in-trade would generate revenue under the head profits and gains of business. When a capital asset is selected to be considered as part of the business’s stock, it is recognised as a ‘transfer’ for income tax purposes and will attract capital gains subject to certain conditions and exceptions. | |
| 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. | ||
| 16 | Amounts not credited to the profit and loss account, being, – | Section 28 of the Income Tax Act is the charging section for income under the heading ‘profits and gains of business or profession.’ This clause is intended to capture and report money that would not normally be considered a business income but is judged to be a business income by virtue of the Income Tax Act. For example, compensation obtained as a result of job termination, profit from the sale of an import licence, salary received by a partner from a partnership firm, and so on. Even export benefits such as pro forma credits, duty drawbacks, customs refunds, and so on would be covered by this clause if they were not credited to the profit and loss account. Furthermore, unless the transaction is clearly covered by the laws, a capital receipt would not typically be taxed. As a result, if the receipt does not appear in the profit and loss account, it will be covered here. | |
| a) | the items falling within the scope of section 28; | ||
| b) | the proforma credits, drawbacks, refunds of duty of customs or excise or service tax or refunds of sales tax or value added tax or Goods & Service Tax,where such credits, drawbacks or refunds are admitted as due by the authorities concerned; | ||
| c) | escalation claims accepted during the previous year; | ||
| d) | any other item of income; | ||
| e) | capital receipt, if any. | ||
| 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, please furnish: | If the sale consideration of an immovable property is less than the stamp duty value of such property, the stamp duty value shall be deemed to be the sale consideration for the purpose of computing capital gains thereon where such property is held as a capital asset, and the stamp duty value shall be taken as income/sale value to be considered under the business head of income where the property is held as stock-in-trade. This clause is intended to ensure conformity in this regard. | |
| 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 :- | The Income Tax Act prescribes depreciation to be charged as per the ‘block of assets system’ subject to certain conditions. This clause checks that the depreciation has been arrived at correctly. | |
| a) | Description of asset/block of assets. | ||
| b) | Rate of depreciation. | ||
| c) | Actual cost or written down value, as the case may be. | ||
| ca) | Adjustment made to the written down value under section 115BAC/115BAD (for assessment year 2021-2022 only) | ||
| cb) | Adjustment made to written down value of Intangible asset due to excluding value of goodwill of a business or profession | ||
| cc) | Adjusted written down value | ||
| d) | Additions/deductions during the year with dates; in the case of any addition of an asset, date put to use; including adjustment on account of :- i) Central Value Added Tax credit 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. | ||
| 19 | Amounts 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, 35E; | These sections allow for special deductions for prescribed businesses. The tax auditor checks whether the assessee has complied with all the necessary conditions to claim a deduction under these sections. Some of these sections may require a certificate by a Chartered Accountant certifying the eligibility. | |
| 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)] | The assessee would be granted a deduction for a payment made to an employee in the form of a bonus or commission only if such bonus or commission was exclusively available to such employee in relation to the services done by him. |
| b) | Details of contributions received from employees for various funds as referred to in section 36(1)(va): | These funds include superannuation funds created for the benefit of the employee. The contributions made by the employer to such funds shall be allowed as a deduction only if they are made within the due date as specified in the applicable law. | |
| 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 | The nature of these expenses are such that they may either be fully disallowed or only allowed subject to certain conditions. If they form a part of the profit and loss account, they have to be disclosed here. |
| b) | Amounts inadmissible under section 40(a):- | These sections broadly relate to disallowances made in respect of an expenditure or a part of an expenditure where tax was required to be deducted at source but the assessee failed to do so. | |
| 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; | This is applicable to firm, AOP or BOI assessees where payments are made to the partners/members in the nature of salary, remuneration, interest, etc. The Act has prescribed certain limits upto which such expenditure can be allowed in the hands of the firm/AOP/BOI and if the expenditure exceeds this limit, the same is not allowed as a deduction. | |
| d) | Disallowance/deemed income under section 40A(3): | This section places a disallowance on any expenditure incurred by any mode other than an account payee cheque/bank draft or through a bank account using ECS if they exceed Rs. 10,000 in a day subject to certain exceptions. | |
| e) | provision for payment of gratuity not allowable under section 40A(7); | The deduction under this section is allowed in relation to a provision created for payment of contribution to an approved gratuity fund only if such sum is actually payable during the year. | |
| f) | any sum paid by the assessee as an employer not allowable under section 40A(9); | Any payment incurred by an employer towards setting up of any fund, trust, Company, AOP, BOI, Society, etc will not be allowed as a deduction subject to certain exceptions. | |
| g) | particulars of any liability of a contingent nature; | Such a liability usually relates to ongoing legal disputes where it is not certain that there will be a liability for the as assessee. | |
| 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; | The section prescribes a method of calculation of an amount of expenditure which will be disallowed as it is deemed to be incurred towards earning exempt income. | |
| i) | amount inadmissible under the proviso to section 36(1)(iii). | Where the assessee borrows a loan for business purposes, the interest thereon would normally be allowed as a deduction. However, if such loan was used to acquire an asset, the interest shall not be allowed for the period between the date of borrowing of the loan to the date on which the asset was put to use. | |
| 22 | Amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006. | The MSME act prescribes an amount of interest that would not be allowed as a deduction in the computation of taxable income of the assessee. | |
| 23 | Particulars of payments made to persons specified under section 40A(2)(b). | This section basically disallows expenditure incurred by way of payment to specified persons (relatives) if the assessing officer finds them to be excessive in nature. | |
| 24 | Amounts deemed to be profits and gains under section 32AC or 32AD or 33AB or 33ABA or 33AC. | These sections allow for a special deduction to certain assessees subject to certain conditions. In case of a breach of these conditions, the whole or a part of the deduction allowed earlier would be included as deemed income. | |
| 25 | Any amount of profit chargeable to tax under section 41 and computation thereof. | This section relates to deemed profits arising out of: Where a deduction has been allowed in an earlier year in respect of an expenditure but the assessee has received some benefit whether by cash or by reduction in actual liability in the current year, such benefit will be chargeable to tax under this section. Where an asset has been sold by an assessee engaged in the power generation and distribution and such sale consideration exceeds the written down value. Where a bad debt that was allowed earlier is subsequently recovered. Where an amount has been withdrawn from a special reserve created by a financial company on which deduction was earlier allowed Where such amounts/benefits as above have been received even after the closure of business. | |
| 26 | i | In respect of any sum referred to in clause (a),(b),(c),(d),(e),(f) or (g) of section 43B, the liability for which:- | This section allows certain expenditure like cesses, taxes, duties, interest to bank, etc. to be claimed only on actual payment of the same if it is made before the due date of filing the return for the respective assessment year. |
| ii | State whether sales tax, goods & service Tax, customs duty, excise duty or any other indirect tax, levy, cess, impost etc.is passed through the profits and loss account. | ||
| 27 | a) | Amount of Central Value Added Tax credits availed of or utilised 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. | The details of the CENVAT credit carried forward from the previous year, its utilization and the balance left needs to be provided along with the treatment of the same in the accounts of the as assessee. |
| b) | Particulars of income or expenditure of prior period credited or debited to the profit and loss account. | This clause would be relevant only for the persons following the mercantile system of accounting. | |
| 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. | Where the assessee receives certain shares of a private limited company where the Fair Market Value of such shares minus the amount paid to acquire such shares exceeds Rs. 50,000, such excess shall be chargeable to tax under the head ‘Income from other sources’. | |
| 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. | ||
| A | Whether any amount is to be included as Income Chargeable under the head income from other sources as referred to in clause (ix) of sub section 2 of section 56 | Advances received in relation to the transfer of a capital asset are shown as income from other sources where the advances are forfeited and the capital asset is not ultimately transferred. | |
| B | Whether any amount is to be included as income chargeable under the head Income from other sources as referred to in clause (x) of sub section 2 of section 56 | ||
| 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] | Hundis are financial instruments not recognised by formal law. | |
| A | Whether primary adjustments to transfer price, as referred to in sub section (1) of section 92CE, has been made during the previous year? | The transfer pricing provisions under the Income Tax Act in general aim to value transactions with associated enterprises at an arm’s length price. This clause aims to capture such relevant information within the tax audit report. | |
| B | Whether the assessee has incurred expenditure during the previous year by way of interest or of similar nature exceeding one crore rupees as referred to in sub section (1) of section 94B | Where an Indian Company borrows a sum of money from an associated enterprise, the deduction in respect of interest payable on such borrowed amount under the Income-tax Act shall be restricted to 30% of EBITDA (Earnings before interest, tax, depreciation and amortisation). The interest in excess of 30% shall be allowed to be set off in subsequent years subject to certain conditions. This clause places a check for compliance in this regard. | |
| C | Whether the assessee has entered into an impermissible avoidance arrangement, as referred to in section 96 during the previous year (This Clause is kept in abeyance till 31st March,2021) | An impermissible avoidance arrangement would be an arrangement where the main purpose is to obtain a tax benefit and is not at arm’s length, results in tax evasion (directly or indirectly), lacks commercial substance or is carried out in a manner that does not otherwise occur if the arrangement was for bona fide purposes. | |
| 31 | a) | Particulars of each loan or deposit in an amount exceeding the limit specified in section 269SS taken or accepted during the previous year | Taking a loan or any amount in relation to an immovable property (specified sums) exceeding Rs. 20,000 otherwise than by way of an account payee cheque or bank draft or use of a bank account through ECS would attract a penalty equal to the amount borrowed. Details of all loans or specified sums taken exceeding Rs. 20,000 are provided herein. Section 269ST says that a person is not allowed to receive more than Rs. 2 lakh from either: (i) From a person in a day (in total); (ii) In respect of single transaction; or (iii) In respect of transactions relating to a single event/occasion; If such amount is paid through any mode other than an account payee cheque / bank draft or use of ECS through a bank account. The reporting of non-compliance with this section will be made in this clause. |
| b) | Particulars of each specified sum in an amount exceeding the limit specified in section 269SS taken or accepted during the previous year :- ba) Particulars of each receipt in an amount exceeding the limit specified in section 269ST, in aggregate from 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 is otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account bb) Particulars of each receipt in an amount exceeding the limit specified in section 269ST, in aggregate from a person in a day or in respect of single transaction or in respect of transaction relating to one event or occasion from a person, received by cheque or bank draft, not being an account payee cheque or an account payee bank draft, during the previous year bc) Particulars of each payment made in an amount exceeding the limit specified in section 269ST, in aggregate to a person in a day or in respect of a single transaction or in respect relating to one event or occasion to a person, otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account during the previous year bd) Particulars of each payment in an amount exceeding the limit specified in section 269ST, in aggregate to a person in a day or in respect of single transaction or in respect relating to one event or occasion to a person, made by a cheque or bank draft, not being the an account payee cheque or an account payee bank draft, during the previous year | ||
| c) | Particulars of each repayment of loan or deposit or any specified advance in an amount exceeding the limit specified in section 269T made during the previous year: | Repayment of a loan or any amount in relation to purchase of an immovable property (specified sums) exceeding Rs. 20,000 otherwise than by way of an account payee cheque or bank draft or use of a bank account through ECS would attract a penalty equal to the amount borrowed. Details of all repayments of loans or specified sums paid exceeding Rs. 20,000 during the year are provided herein. | |
| d) | Particulars of repayment of loan or deposit or any specified advance in an amount exceeding the limit specified in section 269T received otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account during the previous year | ||
| e) | Particulars of repayment of loan or deposit or any specified advance in an amount exceeding the limit specified in section 269T received by a cheque or bank draft which is not an account payee cheque or account payee bank draft during the previous year | ||
| 32 | a) | Details of brought forward loss or depreciation allowance, in the following manner, to the extent available : | Such amounts need to be revised for any change arising out of a rectification order, assessment order, etc. |
| 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. | This provision is applicable to a private limited company with the following exceptions: Less than 51% of the voting power only has changed hands Change in shareholding is due to death of a shareholder Change in shareholding is due to shares gifted by a shareholder to a relative Where the holding Company is a foreign company and the change in shareholding is due to amalgamation/demerger where less than 51% of the shareholding has changed | |
| c) | Whether the assesse has incurred any speculation loss referred to in section 73 during the previous year, If yes, please furnish the details of the same. | A speculation loss cannot be set off against any income other than a speculation gain. Further, a loss in speculation business will be allowed to be carried forward for only 4 years. This clause keeps the above provisions in check. | |
| d) | Whether the assesse 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. | ||
| e) | 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. | ||
| 33 | Section-wise details of deductions, if any, admissible under Chapter VIA or Chapter III (Section 10A, Section 10AA). | The tax auditor will have to verify whether the assessee has fulfilled the conditions necessary to claim the section-wise deductions. | |
| 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: | These sections broadly relate to compliances in respect of TDS payable on certain expenses. The tax auditor reports the expenditure on which tax was required to be deducted, whether such tax was actually deducted and paid to the government on time. In case of a failure to comply on time, the details of penalty in respect of such late payments will also be covered. |
| b) | Whether the assesse is required to furnish the statement of tax deducted or tax collected. If yes 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: | ||
| 35 | a) | In the case of a trading concern, give quantitative details of principal items of goods traded : | The name of the stock item and its unit of measurement would need to be provided |
| b) | In the case of a manufacturing concern, give quantitative details of the principal items of raw materials, finished products and by-products : | ||
| 36 | A | Whether the assessee has received any amount in the nature of dividends as referred to in sub-Clause ( e ) of clause(22) of section 2 | Where a domestic company has paid dividend to its shareholders, it is liable to pay dividend distribution tax thereon. This dividend also includes deemed dividend subject to certain conditions. |
| 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. | ||
| 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. | ||
| 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 disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the auditor | ||
| 40 | Details regarding turnover, gross profit, etc., for the previous year and preceding previous year: | Calculation of such ratios would not be applicable for persons engaged in profession/ service industry. | |
| 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. | There are various other legislations like indirect tax, profession tax, etc. that the assessee may be subject to and such acts may have their own authorities to pass a demand or refund order. The details of orders of such authorities need to be provided in this clause. | |
| 42 | a | Whether the assesse is required to furnish statement in Form No.61 or Form 61A or Form No 61B | The forms mentioned in this clause relate to Specified Financial Transactions where reporting needs to be done in respect of certain prescribed transactions when they are entered into by such assessees as are prescribed in Section 285BA. |
| 43 | a | Whether the assessee or its parent entity or alternate reporting entity is liable to furnish the report as referred to in sub section 2 of section 286 | The report mentioned in this clause relates to providing information in respect of the international group of entities of which the assessee is a part and where the parent entity of such international group is not resident in India. |
| 44 | Break-up of total expenditure of entities registered or not registered under the GST (This Clause is kept in abeyance till 31st March,2021) | This clause attempts to provide a break-up of the total expenditure into various fields that are relevant from the GST point of view like expenditure in relation to exempt goods / services under GST, payments to entities under the Composition Scheme, Payments to entities not registered under GST etc. A similar schedule is available as a part of the Income Tax return forms to be filled up by those not liable for tax audit. |
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