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Thread: Guidance Note On Tax Audit Under Section 44 AB Of The Income - Tax Act

  1. #11
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    Thumbs up Guidance Note On Tax Audit – No.- 11- Audit procedures

    11. Audit procedures

    11.1. In the case of an audit ,the tax auditor is required to express his opinion
    as to whether the financial statements give a true and fair view of the
    state of affairs of the assessee in the case of the balance sheet and in
    the case of the profit and loss account/ income and expenditure
    account, of the profit/loss or income/expenditure. As regards the
    statement of particulars to be annexed to the audit report, he is required
    to give his opinion as to whether the particulars are true and correct. In
    giving his report the tax auditor will have to use his professional skill
    and expertise and apply such audit tests as the circumstances of the
    case may require, considering the contents of the audit report. He will

    have to conduct the audit by applying the generally accepted auditing
    procedures which are applicable for any other audit. He can apply the
    technique of test audit depending on the type of internal control
    procedures followed by the assessee. The tax auditor will also have to
    keep in mind the concept of materiality depending upon the
    circumstances of each case. He would be well advised to refer to the
    Statements on Standard Auditing Practices (SAPs) issued by ICAI, the
    "Statement on Auditing Practices" as well as the "Guidance Note on
    Audit Reports and Certificates for Special Purposes" while determining
    the extent of test checks and materiality in each particular case. If the
    statutory auditor of a person is also appointed to undertake tax audit, it
    is advisable to carry out both the audits concurrently.

    11.2. Section 227 of the Companies Act gives certain powers to the auditors
    to call for the books of account, information, documents, explanations,
    etc. and to have access to all books and records. No such powers are
    given to the tax auditor appointed under Section 44AB. However, since
    the appointment of the tax auditor is made by assessee, it will be in the
    interest of the assessee to furnish all the information and explanations
    and produce books of account and records required by the tax auditor.
    If, however, the assessee refuses to produce any particular record or to
    give any specific information or explanation, the tax auditor will be
    required to report the same and qualify his report.

    11.3. The audit report given under Section 44AB is to assist the income-tax
    department to assess the correct income of the assessee. In order that
    the tax auditor may be in a position to explain any question which may
    arise later on, it is necessary that he should keep detailed notes about
    the evidence on which he has relied upon while conducting the audit
    and also maintain all his working papers. Such working papers should
    include his notes on the following, amongst other matters:

    (a) work done while conducting the audit and by whom;
    (b) explanations and information given to him during the course of
    the audit and by whom;
    (c) decision on the various points taken;
    (d) the judicial pronouncements relied upon by him while making the
    audit report; and

    (e) certificates issued by the client/management letters.
    Attention is also invited to the Statement on Standard Auditing
    Practices: Documentation (SAP-3) which provides that the tax auditor
    should document matters which are important in providing evidence that
    the audit was carried out in accordance with the basic principles.

    11.4. If the accounts of the business or profession of a person have been
    audited under any other law by the statutory auditor(s), it is not
    necessary for the tax auditor appointed under section 44AB to conduct
    the audit once again in the matter of expression of "true and fair view"
    of the state of affairs of the entity and of its profit/loss for the period
    covered by the audit. However, the said section envisages the
    certification of the particulars in the prescribed form on which the tax
    auditor has to express his opinion as to whether these are `true and
    correct'. In other words, where an audit has already been conducted
    and the opinion of the auditor has been expressed on the accounts, it
    would not be necessary to repeat the entire exercise to express similar
    opinion all over again. The tax auditor has only to annex a copy of the
    audited accounts and the auditor's report and other documents forming
    part of these accounts to his report and verify the particulars in the
    prescribed form for expressing his opinion as to whether these are true
    and correct.

    11.5. While test checks may suffice in the conduct of a statutory audit for
    the expression of the auditor's opinion as to whether the accounts
    depict a `true and fair' view, the tax auditor may be required to apply
    reasonable tests on the total information to be prepared by the
    assessee in respect of certain items in the prescribed form, e.g., in
    verification of payments for purchases/expenses exceeding
    Rs.20,000/-in cash. While the entity may have to prepare the details
    for the entire year, the tax auditor may have to ensure that no items
    have been omitted in the information furnished and a reasonable test
    check would reveal whether or not the information furnished is correct.
    The extent of check undertaken would have to be indicated by the tax
    auditor in his working papers and audit notes. The tax auditor would
    be well advised to so design his tax audit programme as would reveal
    the extent of checking and to ensure adequate documentation in
    support of the information being certified.
    11.6. The tax auditor may rely upon the audit conducted by an internal
    auditor or by an outside professional firm appointed as internal auditor,
    by using his own judgement as to the degree of reliance which he
    wishes to place on the work of the internal auditor relevant to tax audit.
    The degree of reliance would depend on the areas of work covered by
    the internal auditor and relevant for purposes of tax audit, particularly by
    reference to working papers/documents of the internal auditor and
    ensuring that reasonable checks/tests have been applied to
    transactions covered by the internal auditor, to satisfy himself about the
    authenticity of the ultimate information. It would be in the interest of the
    tax auditor to obtain and scrutinise the programme of work and
    procedures adopted and the relevant working papers and documents
    obtained by the internal auditor in evidence of the work carried out by
    him. Reference may be made to the Statement on Standard Auditing
    Practices: Relying upon the Work of an Internal Auditor (SAP-7) - vide
    Appendix IX. Primarily, however, it would, be necessary for the tax
    auditor to ensure that in expressing his opinion, he has adequately
    satisfied himself as to the authenticity of the information contained in
    the relevant form and that, his working papers and documents are
    adequate to enable him to certify the particulars. Reference may be
    made to Statement on Standard Auditing Practices: Study and
    Evaluation of the Accounting System and Related Internal Controls in
    Connection with an Audit (SAP-6) and Analytical Procedures (SAP-14).

    11.7. Audit procedures applicable to a person whose accounts of the
    business or profession have been audited under any other law will apply
    as well to a person who carries on business or profession but who is not
    required by or under any other law to get his accounts audited. In order
    to express his opinion on the accounts of a person belonging to the
    latter category the tax auditor should apply the same tests and checks
    as he would have applied in the conduct of audit of the former category.
    In case the relevant vouchers for the expenditure and payments made
    by a non-corporate entity are not available, it will be necessary for the
    tax auditor to call for any other evidence in support of such expenditure
    and payments. The entity should be advised to maintain
    vouchers/records in evidence of transactions to avoid a qualification in
    the matter by the tax auditors. The qualification in respect of this matter
    would, in the normal course, be necessary in case the vouchers or other
    evidence required to be maintained are not produced in evidence of the

    income/expenditure or assets/liabilities. The entity should be
    encouraged to maintain office vouchers with the recipient's signatures
    for the amounts reimbursed on account of expenditure like local
    conveyance etc., for which other supporting evidence is not possible to
    obtain. It would also be advisable to give appropriate notes on
    accounts in the case of a person who carries on business or profession
    but who is not required by or under any other law to get his accounts
    audited. These may include disclosure regarding method of accounting
    and practices consistently and regularly followed, and whether a change
    in such matters or practice has been made during the year,
    notwithstanding the fact that such disclosures are required to be made
    in Form No.3CD.

  2. #12
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    Thumbs up Guidance Note On Tax Audit – No.- 12 - Professional misconduct

    12. Professional misconduct


    It may be noted that when any question relating to professional misconduct in connection with tax audit arises, the tax auditor would be liable under the Chartered Accountants Act and the ICAI's disciplinary jurisdiction will prevail in this regard.
    Last edited by BARE ACT; 26-08-2010 at 11:42 AM.

  3. #13
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    Thumbs up Guidance Note On Tax Audit – No.- 13. Audit report

    13. Audit report
    13.1 Section 44AB requires the tax auditor to submit the audit report in the prescribed form and setting forth the prescribed particulars. Sub-rule 1 of rule 6G provides that the report of audit of accounts of a person required to be furnished under section 44AB shall -
    (a) in the case of a person who carries on business or profession and who is required by or under any other law to get his accounts audited, be in Form No. 3CA;
    (b) in the case of a person who carries on business or profession, but not being a person referred to in clause (a), in Form No. 3CB.

    13.2 Sub-rule (2) of Rule 6G further provides that the particulars which are required to be furnished under section 44AB shall be in Form No. 3CD. 13.3 It may be be noted that earlier there were three forms of audit report. Form No. 3CA - Audit report under section 44AB of the Income-tax Act, 1961, in a case where the accounts of business of a person have been audited under any other law.

    Form No. 3CB - Audit report under section 44AB of the Income-tax Act, 1961 in the case of a person carrying on business.
    Form No. 3CC - Audit report under section 44AB of the Income-tax Act, 1961, in the case of a person carrying on profession.
    The revised Form No. 3CA is applicable to a person whose accounts of the business or profession have been audited under any other law carrying on either business or profession while Form No. 3CB is applicable to a person who carries on business or profession but who is not required by or under any other law to get his accounts audited. Earlier the required particulars in the case of a person carrying on profession were to be furnished in Form No. 3CE. However, the new Form No. 3CD is applicable in respect of persons carrying on business
    and/or profession.

    13.4. It may thus be noted that the audit report is in two parts. The first part requires the tax auditor to give his opinion as to whether or not the accounts audited by him give a true and fair view:

    i. in the case of the balance sheet, of the state of affairs as at the last date of the accounting year.
    ii. in the case of the profit and loss account, of the profit or loss of the assessee for the relevant accounting year.

    The second part of the report states that the statement of particulars required to be furnished under section 44AB is annexed to the audit report in Form No. 3CD. The tax auditor is required to give his opinion whether the prescribed particulars furnished by the assessee are true
    and correct.

    13.5 In paragraph 3 of Form No. 3CB the auditor has to report that the financial statements audited by him give a `true and fair' view. The requirement in paragraph 3 of Form No.3CA and paragraph of Form No.3CB relating to particulars in Form No.3CD is that the auditor should report that these particulars in Form No.3CD are "true and correct". The terminology "true and fair" is widely understood though not defined even by the Companies Act, 1956. On the other hand, the words "true and correct" lay emphasis on factual accuracy of the information. In this context reference is invited to AS-1 and AS(IT)-I relating to disclosure of accounting policies. These standards recognise that the major considerations governing the selection and application of accounting
    policies are (i) prudence, (ii) substance over form and (iii) materiality.
    Therefore, while giving particulars in Form No.3CD these aspects should be kept in view. In particular, considering the nature of particulars to be given in Form No.3CD, the aspect of materiality should be considered. In other words particulars should be given in the respect of material items and the auditors should ensure factual accuracy relating to these
    particulars.

    13.6. In the case of a person whose accounts of the business or profession have been audited under any other law, it is not required for the tax auditor appointed under section 44AB to give his opinion, as to whether or not the accounts give a true and fair view as indicated herein above.
    It would only be necessary for him to annex a copy of the audited accounts as well as a copy of the audit report given by the statutory auditor with his report in Form No. 3CA along with Form No.3CD.

    13.7 In the case of a person who carries on business and also renders professional services but who is not required by or under any other law to get his accounts audited, report should be given in Form No. 3CB.
    The statement of particulars should be given in Form No. 3CD. Even where separate sets of accounts are maintained in respect of business and professional activities Form No. 3CB and Form No. 3CD should be used.

    13.8. In the case of a person who carries on business or profession but who is not required by or under any other law to get his accounts audited, the expression "proper books of account" should mean, the books of original entry and other books of account required to be maintained to
    record all the transactions of the assessee in the same manner, as in the case of a person whose accounts of the business or profession have been audited under any other law. Although, proper books of account have not been prescribed generally for a person who carries on business or profession but who is not required by or under any other law to get his accounts auditeds (except under Section 44AA for certain categories of persons), the tax auditor should ensure that such books are maintained as would give the information required to prepare balance sheet and profit and loss account in the formats recommended in Appendices X and XI of this Guidance Note. Reference in this connection may also be made to the publication of the Institute entitled
    "Monograph on Compulsory Maintenance of Accounts", which provides the necessary guidance in the matter.

    13.9. In case the accounts of a person who carries on business or profession but who is not required by or under any other law to get his accounts audited, are being audited for the first time, it is recommended that a disclosure be made to the effect that corresponding comparative figures of the previous year, if given, are not audited.

    13.10. In certain cases, members are called upon to report on the accounts reopened and revised by the board of directors. The accounts of a company once adopted at its annual general meeting should not normally be re-opened and revised. The Institute and the Department of Company Affairs have affirmed this position. In case of revision, the audit report should be given in the manner suggested by the Institute. (Published in the Chartered Accountant, pp.655, February, 1985. Also refer to Revision/Rectification of Financial Statements, published in Compendium of Guidance Notes - Volume I). The Department of Company Affairs had also clarified that accounts can be revised to comply with technical requirements. It may be pointed out that report
    under section 44AB should not normally be revised. However, sometimes a member may be required to revise his tax audit report on grounds such as:

    (i) revision of accounts of a company after its adoption in annual general meeting.
    (ii) change of law e.g., retrospective amendment.
    (iii) change in interpretation, e.g. CBDT Circular, judgements, etc.

    In case where a member is called upon to report on the revised accounts, then he must mention in the revised report that the said report is a revised report and a reference should be made to the earlier report also. In the revised report, reasons for revising the report should also be mentioned. [Reference may also be made to the Guidance Note on auditor's Report on Revised Accounts of Companies Before Circulation to shareholders, published in Compendium of Guidance Notes, Volume-I] - vide Appendix XII.

    13.11. In the case of companies having their accounting year which is different from the financial year, accounts of the financial year are required to be prepared and audited. The audit report shall be in Form 3CB. The above position has also been clarified by the CBDT in its Circular No, 561 dated 22.5.1990. The Circular is reproduced in Appendix XIII.

  4. #14
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    Thumbs up Guidance Note On Tax Audit – No.- 14. Form No. 3CA

    14. Form No. 3CA


    14.1. This form is to be used in a case where the accounts of the business or profession of a person have been audited under any other law.

    The first part of the report refers to the fact that the statutory audit of the assessee was conducted by a chartered accountant or any other auditor in pursuance of the provisions of the relevant Act, and the copy of the audit report along with the audited profit and loss account and balance sheet and the documents declared by
    the relevant Act to be part of or annexed to the profit and loss account and balance sheet, are annexed to the report in Form No. 3CA.

    In a case where the tax auditor carrying out the audit under section 44AB is different from the statutory auditor, a reference should be made to the name of such statutory auditor. In case the statutory auditor is carrying out the audit under section 44AB, the fact that he has carried out the statutory audit under the relevant Act should be stated.

    14.2. The next paragraph states that the statement of particulars required to be furnished under section 44AB is annexed with the report in Form No. 3CD. The tax auditor has to state further that, in his opinion and to the best of his information and according to the explanations given to him, the particulars given in the said annexure are true and correct.

    14.3. Where any of the requirements in this form is answered in negative or with qualification, the report shall state the reasons therefor. The tax auditor should state this qualification in the audit report so that the same becomes a comprehensive report and the user of the audited statement
    of particulars can realise the impact of such qualifications. In this regard the tax auditor should follow the "Statement on Qualifications in Auditors' Reports" - vide Appendix XV.

    14.4. It is possible that in the case of a a person whose accounts of the business or profession have been audited under any other law, which has branches at various places, the branch accounts might have been audited by branch auditors under the statute. If the audit under section
    44AB is also carried out by the same branch auditors or other chartered accountants, they should submit the report in Form No. 3CA to the management or the principal tax auditor appointed for the head office under Section 44AB. Attention in this regard is drawn to SAP-10 `Using the Work of Another Auditor' which discusses the procedures in this regard as well as the principal tax auditor's responsibility in relation to his use of the work of the branch auditor. The principal tax auditor should submit his consolidated report on the registered office/head office and branch accounts and report in his tax audit report as under :

    "I/We have taken into consideration the audit report and the audited statements of accounts, and particulars received from the auditors, duly appointed under the relevant law, of the branches not audited by me/us".

    14.5 Item No. 4 of the notes to Form No. 3CA requires that the person, who signs this audit report, shall indicate reference of his membership No./certificate of practice number/authority under which he is entitled to sign this report. No separate certificate of practice number is allotted by ICAI. As such, where a chartered accountant acts as a tax auditor he should give his membership number with ICAI and the status such as proprietor or partner under which he has signed the report.

    14.6 An assessee may have one or more branches outside India. The accounts of such branches are normally audited by the professional accountants overseas. The results of such branches are also incorporated in the consolidated accounts prepared in this country. In the case of foreign branches the relevant information in respect of such branches as is required by Form No. 3CD, may be obtained by the tax auditor in India from the assessee who should obtain the same
    from the overseas auditor who had audited the accounts of such foreign branches. The tax auditor in India while certifying the information in Form No. 3CD may rely upon the information obtained
    by him from the overseas auditor and while submitting his consolidated report in Form No.3CD he should specifically point out in his audit report as under:-

    "I/We have taken into consideration the audit report and the audited statements of accounts, and particulars received from the auditors, appointed under the relevant law, of the overseas branches not audited by me/us".

    If the assessee is unable to obtain relevant information in respect of the overseas branches duly certified by the overseas auditor, the relevant facts should be suitably disclosed and reported upon.
    Last edited by BARE ACT; 26-08-2010 at 12:41 PM.

  5. #15
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    Thumbs up Guidance Note On Tax Audit – No.- 15. Form No. 3CB

    15. Form No. 3CB
    15.1 In the case of a person who carries on business or profession but who is not required by or under any other law to get his accounts audited the audit report has to be given in Form No. 3CB. Form No. 3CB consists of four paragraphs.
    The tax auditor has to state whether he has examined the balance sheet as at 31st March of the relevant previous year and the profit and loss account/income and expenditure account for the year ended on the date.

    Further, such a balance sheet and the profit and loss account must be attached with the audit report.

    The tax auditor has to certify that the balance sheet and the profit and loss account/income and expenditure account are in agreement with the books of accounts maintained at the head office and branches. He has also to mention the total number of branches. He has to report his observations, comments, discrepancies or inconsistencies, if any. Subject to the above observations, comments, discrepancies, inconsistencies he has to state whether:

    (a) he has obtained all the information and explanations which, to the best of his knowledge and belief, were necessary for the purposes of the audit;
    (b) in his opinion proper books of account have been kept by the head office and branches of the assessee so far as appears from his examination of the books;
    (c) in his opinion and to the best of his information and according to the explanations given to him the said accounts, read with notes thereon, if any, give a true and fair view;
    (i) in the case of the balance sheet of the state of the affairs of the assessee as at 31st March, ______ and
    (ii) in the case of the profit and loss account/income and expenditure account of the profit/loss or surplus/deficit of the assessee for the year ended on that date.

    15.2 Under clause
    (a) of paragraph 3 of Form No.3CB, the tax auditor has to report his “observations/comments/ discrepancies/inconsistencies,” if any. The expression “Subject to above” appearing in clause

    (b) makes
    it clear that such observations/comments/ discrepancies/ inconsistencies which are of qualificatory nature relate to necessary information and explanations for the purposes of the audit or thekeeping of proper books of accounts or the true and fair view of the financial statements, respectively to be reported on in paragraphs (A),(B) and (C) under clause (b) of paragraph 3. While reporting on clause (a) of paragraph 3 of Form No. 3CB the tax auditor should report only
    such of those observations/comments/ discrepancies/ inconsistencies which are of qualificatory nature which affect his reporting about obtaining all the information and explanations which were necessary for the purposes of the audit, about the keeping of proper books of account by the head office and branches of the assessee and about the true and fair view of the financial statements. Further, only such observations/ comments/discrepancies/inconsistencies which are of a qualificatory nature should be mentioned under clause (a). Any other observations/ comments/ discrepancies/inconsistencies, which do not affect the reporting on the matters specified above may form part of the notes to accounts forming part of the accounts. In case the tax auditor has no observations/comments/ discrepancies/inconsistencies to report which are of qualificatory nature, the following portion of paragraph 3 may be deleted:
    "3(a) *I/We report the following observations/comments/discrepancies/ inconsistencies, if any:
    Subject to above,-"

    The tax auditor may then give his report as required by sub-paragraphs (A), (B), and (C) of paragraph 3 and paragraph 4.

    15.3 Paragraph 4 of Form No.3CB provides that the prescribed particulars are furnished in Form No.3CD annexed to the report and whether in his opinion and to the best of his information and according to the explanations given to him, they are true and correct. The auditor may have a difference of opinion with regard to the particulars furnished by the assessee and he has to bring these differences under various clauses in Form No.3CD. The auditor should make a specific
    reference to those clauses in Form No.3CD in which he has expressed his reservations, difference of opinion, disclaimer etc. in this paragraph.


    15.4. If a person who carries on business or profession but who is not required by or under any other law to get his accounts audited, has branches and separate accounts are maintained at the branches, the assessee can request the tax auditor appointed under section 44AB to audit the head office and branch accounts. In the alternative, the assessee can appoint separate tax auditors for branches. The branch tax auditor in such a case will have to give an audit report in Form No.
    3CB to the management or the tax auditor appointed for the audit of head office accounts. The tax auditor appointed for the audit of head office can rely on the report of branch tax auditors subject to such checks and verifications as he may choose to make and shall submit his consolidated report on the head office and branch accounts. He should make suitable reference to the audit conducted by separate branch tax auditors in the same manner as stated in para 14.6 above.


    15.5 If the tax auditor is called upon to give his report only in respect of one or more businesses carried on by the assessee and the books of accounts of the other businesses are not produced as the same are not required to be audited under the Act, the tax auditor should mention the fact that audit has not been conducted of those businesses whose books of account had not been produced. However, if the financial statements include,
    inter alia, the results of such business for which books of account have not been produced, the auditor should qualify his report in Form No. 3CA/3CB.


  6. #16
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    Thumbs up Guidance Note On Tax Audit – No.- 16 - Form No. 3CD

    16. Form No. 3CD

    16.1 The statement of particulars given in Form No. 3CD as annexure to the audit report contains thirty two clauses. The tax auditor has to report whether the particulars are true and correct. This Form is a statement of particulars required to be furnished under section 44AB. The same is
    to be annexed to the reports in Forms No. 3CA and 3CB in respect of a person who carries on business or profession and whose accounts have been audited under any other law and in respect of person who carries on business or profession but who is not required by or under any other
    law to get his accounts audited respectively.

    16.2. As stated earlier, the tax auditor should obtain from the assessee, the statement of particulars in Form No. 3CD duly authenticated by him. It would be advisable for the assessee to take into consideration the
    following general principles while preparing the statement of particulars:

    (a) He can rely upon the judicial pronouncements while taking any particular view about inclusion or exclusion of any items in the particulars to be furnished under any of the clauses specified in
    Form No.3CD.

    (b) If there is a conflict of judicial opinion on any particular issue, he may refer to the view which has been followed while giving the particulars under any specified clause.

    (c) The Accounting Standards (AS), Guidance Notes, Statements of Auditing Practices (SAP) issued by the Institute from time to time should be followed.

    16.3. While furnishing the particulars in Form No.3CD it would be advisable for the tax auditor to consider the following:

    (a) If a particular item of income/expenditure is covered in more than one of the specified clauses in the statement of particulars, care should be taken to make a suitable cross reference to such items at the appropriate places.
    (b) If there is any difference in the opinion of the tax auditor and that of the assessee in respect of any information furnished in Form No. 3CD, the tax auditor should state both the view points and
    also the relevant information in order to enable the tax authority to take a decision in the matter.
    (c) If any particular clause in Form No.3CD is not applicable, he should state that the same is not applicable.
    (d) In computing the allowance or disallowance, he should keep in view the law applicable in the relevant year, even though the form of audit report may not have been amended to bring it in
    conformity with the amended law.
    (e) In case the prescribed particulars are given in part or piecemeal to the tax auditor or relevant form is incomplete and the assessee does not give the information against all or any of the clauses, the auditor should not withhold the entire audit report.

    In such a case, he can qualify his report on matters in respect of which information is not furnished to him. In the absence of
    relevant information, the tax auditor would have no option but to state in his report that the relevant information has not been furnished by the assessee.
    (f) The information in Form No. 3CD should be based on the books of accounts, records, documents, information and explanations made available to the tax auditor for his examination.


  7. #17
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    Thumbs up Guidance Note On Tax Audit – No.- 17. Particulars to be furnished in Form No.3CD

    17. Particulars to be furnished in Form No.3CD.


    PART – A

    1. Name of the assessee : ___________________
    2. Address : ___________________
    3. Permanent Account Number : ___________________
    4. Status : ___________________
    5. Previous year ended : 31st March _________
    6. Assessment year : ___________________

    [Clauses 1 to 6]
    The requirements of clauses 1 to 6 of Part-A are discussed as follows:

    17.1 Under clause (1) the name of the assessee whose accounts are being audited under section 44AB should be given. However, if the tax audit is in respect of a branch, name of such branch should be mentioned along with the name of the assessee.

    17.2 The address to be mentioned under clause (2) should be the same as has been communicated by the assessee to the Income-tax Department for assessment purposes as on the date of signing of the audit report. If the tax audit is in respect of a branch or a unit, the address of the branch or the unit should be given. In the case of a company, the address of the registered office should also be stated. In the case of a new assessee, the address should be that of the principal place of business.

    17.3 Under clause (3) the permanent account number (PAN) allotted to the assessee should be indicated. If the assessee has not been allotted the permanent account number as on the date of signing of the report, that fact should be indicated. Where PAN is not known but the general
    index register number (GIR) is available, the same may be given.

    17.4 Under clause (4) the status of the assessee is to be mentioned. Obviously this refers to the different classes of assessees included in the definition of “person” in section 2 (31) of the Act, namely, individual, Hindu undivided family, company, firm, an association of persons or a body of individuals whether incorporated or not, a local authority or artificial juridical person. In case of dispute regarding status the full facts should be mentioned.

    17.5 Under clause (5), since the previous year under the Act uniformly ends on 31st March, the relevant previous year should be mentioned.

    17.6 Under clause (6) the assessment year relevant to the previous year for which the accounts are being audited should be mentioned.

  8. #18
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    Thumbs up Guidance Note On Tax Audit – No.- 18 - If firm or Association of Persons, indicate names of partners/members and their profit sharing ratios

    PART - B

    18. (a) If firm or Association of Persons, indicate names of partners/members and their profit sharing ratios.

    (b) If there is any change in the partners/members or their profit sharing ratios, the particulars of such change.
    [Clause 7(a) and (b)]
    18.1 Where the assessee is a firm or association of persons (AOP), the names of partners of the firm or members of the association of persons and their profit sharing ratios have to be stated. In case where the partner of a firm or the member of AOP acts in a representative capacity, the name of the beneficial partner/member should be stated. Thus, the details of partners or members during the entire previous year will have to be furnished. The term “profit sharing ratios” would include loss-sharing ratio also since loss is nothing but negative profits. This would not cover any specific ratio or understanding in relation to payment of remuneration or interest to partners or members. In this connection, reference may made to Circular No.739 dated 25.9.1996
    issued by the Board reproduced in Appendix XIV.

    18.2 If there is any change in the partners of the firm or members of the association of persons or their profit or loss sharing ratio, the particulars of such change must be stated. All the changes occurring during the entire previous year must be stated.

    18.3 The particulars in this clause should be verified from the instrument or agreement or any other document evidencing partnership or association of persons including any supplementary documents or other documents effecting such changes. For this purpose, the tax auditor may also verify:

    (i) whether the relevant documents, if required, have been filed with the concerned authorities,
    (ii) whether notice of changes, if required, has been given to the registrar of firms, and
    (iii) any minutes or any other understanding recording any changes in the partners/members or their profit sharing ratios.

    18.4 The tax auditor should obtain certified copies of the deeds, documents, understanding, notice of changes etc. including certified copies of the acknowledgment, if any, evidencing filing of documents.

    18.5 In certain cases of association of persons it may be possible that the shares of the members are not precisely ascertainable during the previous year resulting in a situation whereby the shares of the members are indeterminate or unknown. In such circumstances, the relevant fact should be stated.

  9. #19
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    Thumbs up Guidance Note On Tax Audit – No.-19. - Nature of business or profession

    19. (a) Nature of business or profession.

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

    [Clause 8 (a) and (b)]
    19.1 In regard to the nature of business, the principal line of business such as manufacturing of electronic goods, trading in chemicals, wholesale trade in foodgrains or a retail trade in grocery should be stated. In the case of a person rendering services, the nature of services should be
    broadly stated. This information is similar to the information required in the return of income “Part IV, Information relevant to the business or profession”, where an assessee is required to state the nature of business or profession.

    19.2 Any material change in the nature of business should be precisely set out. The change will include change from manufacturer to trader as well as change in the principal line of business. For example, an assessee
    switching over from wholesale business to retail business or an assessee switching over from manufacturing his own commodities to manufacturing goods on job basis for others. Likewise, any addition to or permanent discontinuance of, a particular line of business may also amount to change requiring reporting. However, temporary suspension of the business may not amount to change and therefore need not be reported.

    19.3 A review of business report or the minutes of meetings would enable the tax auditor to note the changes, if any. Based thereon, he may make necessary enquiries and seek information and determine whether any change has occurred or not. If need be, the tax auditor should get a declaration from the assessee regarding change in the nature of business, if any.

    19.4 In the case of amalgamation, if there is a similar line of activity, no reference need be made. However, if a new line of activity emerges because of amalgamation, the same may be stated. In the case of restructuring, if any line of activity is being hived off, the same may also be stated.


  10. #20
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    Thumbs up Guidance Note On Tax Audit – No.- 20.- Whether books of account are prescribed under section 44AA, if yes, list of books so prescribed

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

    (b) Books of account maintained. (In case books of account are maintained in a computer system, mention the books of account generated by such computer system.)

    (c) List of books of account examined.

    [Clause 9 (a) to (c)]
    20.1 The list of books of accounts prescribed, maintained and examined has to be stated under this clause. There may be difference between the 3 lists. For example, books of accounts may have been prescribed but all the prescribed books might not have been maintained or the entire
    books of accounts maintained might not have been produced for examination. The tax auditor should exercise his professional judgment and skill in order to arrive at the conclusion whether such a situation warrants any disclosure or qualifications while forming his opinion on the matters covered by reporting requirements in Form No.3CB.
    20.2 Whereas the CBDT has prescribed the books of account and other documents to be kept and maintained by the specified professional persons in Rule 6F, it has not yet prescribed the books of account to be maintained by those falling under sub-section (2) of section 44AA. As such, every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or authorised representative or film
    artist and whose total gross receipts exceed sixty thousand rupees (eighty thousand rupees in the case of a person who, in the course of his medical profession, dispenses drugs and medicines) in any one of the three years immediately preceding the previous year, or where the profession has been newly set up in the previous year, his total gross receipts in the profession for that year are likely to exceed the said

    amount, is required to maintain the following books of account:

    1. Cash book.

    2. Journal, if the accounts are maintained according to the
    mercantile system of accounting.

    3. Ledger.

    Apart from the aforesaid books of account, a person carrying on medical profession is required to keep the following:

    a) daily case register in Form No.3C showing data, patient's name, nature of professional services rendered, fees received and date of receipt; and
    b) an inventory under broad heads, as on the first and the last days of the previous year, of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession. No books of accounts have been prescribed so far in respect of any
    other class of persons.


    20.3. If books of account have been prescribed under rule 6F, the list of books so prescribed have to be stated under clause 9(a). It may be noted that the daily case register and the inventory under broad heads do not constitute books of account and hence they need not be mentioned under clause 9(a). Sometimes an assessee may carry on a combination of activities. Books of account might have been prescribed for one of the activities. In that case, mention may be made of the activity for which books have been prescribed.

    20.4. The tax auditor should obtain from the assessee a complete list of books of account and other documents maintained by him (both financial and non-financial records) and make appropriate marks of identification to ensure the identification of the books and records produced before him for audit. The list of books of account maintained by the assessee should be given under this clause.

    20.5. Attention is invited to the Institute’s publication titled “Monograph on Compulsory Maintenance of Accounts” dealing with the requirements of provisions of section 44AA relating to the books of account to be maintained by the tax payers falling within the said section. Section 44AA(2) provides that persons carrying on business or profession, other than those specified in sub-section (1), shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of
    the Income-tax Act, if his income from business or profession exceeds the monetary limits prescribed under section 44AA(2) or his total sales, turnover or gross receipts in business or profession exceed the monetary limits prescribed under section 44AA(2) in any one of the three years immediately preceding the previous year. The tax auditor will have to verify that the assessee has maintained such books of accounts and documents as prescribed under sub-section (3).

    20.6. For a person whose accounts of the business or profession have been audited under any other laws, the requirement for maintenance of books of account is contained in the relevant statutes. In the case of other assessees, normal books of account to be maintained will be cash
    book/bank book, sales/purchase journal or register and ledger. Assessees engaged in trading/manufacturing activities should also maintain quantitative details of principal items of stores, raw materials and finished goods. While giving his report in Form No. 3CB about
    maintenance of proper books of account, the tax auditor should ensure that they are maintained in accordance with the above requirements.

    20.7 As to the requirement regarding the mentioning of the books of accounts generated by the computer system, only such books of account and other records which properly come within the scope of the expression “proper books of account” should be mentioned. The tax auditor should insist on proper print-outs of books of account being taken out.

    20.8. Books of account examined would constitute the books of original entry and the other books of account. While the assessee is required to maintain proper evidence in the form of bills, vouchers, receipts, documents, etc., it may be noted that these are essential to support the entries in the books of account and no reference to such supporting evidence need be made under this clause.

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