Tax Audit Report- More Compliances needed Key Changes / Amendment in Form 3CD

Introduction

CBDT has vide notification no. 33/2014 dated 25.07.2014 revised the format of Tax Audit Report (referred as TAR) to be furnished under section 44AB of the Income tax Act 1961 with effect from 25.07.2014.

The revised report has added some new clauses and amended few existing clauses to increase/improve disclosure requirements. The new form requires tax auditor to furnish more and detailed information in the new form for tax audit report.

Changes:

Major changes have been made with a view to have more information and analysis in standard forms. Many details will have to be furnished in comprehensive, tabular and analytical forms.

Some changes are to incorporate new provisions or more provisions which are in force but were not covered in TAR. The style and pattern of signature has also been changed and more information is required about the person signing the report.

Effective date:

The amended forms shall come into force w.e.f. 25.07.2014. The existing Form No. 3CA, Form No. 3CB and Form No. 3CD have been substituted vide notification no. 33/2014 dated 25.07.2014 with immediate effect. CBDT has withdrawn old utility of form No. 3CD. Taxpayers and CAs are advised to await the release of the new schema and utility to submit in the newly notified aforementioned Forms and advised that any upload using the old Forms will not be valid even for previous AYs in view of the notification of CBDT. CBDT is expected to release new schema and updated utility for e-filing soon.

Key Changes/Amendments made in the Tax audit Report:

Some of major changes having impact of reporting requirements and more detailed working are as follows:

FORM 3CA:

1.     Now we have to mention the period for which profit & loss account/ Income and expenditure account has been prepared. This assumes importance if accounts are prepared for more than or less than 12 months.

2.     In the opinion part, now apart from mentioning that particulars in Form 3CD give a true and correct view we also have to mention our observations/ qualifications if any.

FORM 3CB:

Changes made are similar to that in Form 3CA as mentioned above.

FORM 3CD:

Now it has 41 clauses against 32 clauses prior to this notification. The key changes made in Form 3CD are addition of some new clauses thereby requiring more disclosures and doing away with certification by client/ auditee. Listed below are the all modifications/ additions made in Form 3CD.

To see the changes in the clauses click here

These forms have to be signed (with Seal) by a person eligible to sign the report as per the provisions of section 44AB of the Income Tax Act, 1961.

Further, “Annexure 1” to Form 3CD has been removed from reporting because some of information were found in audited accounts and also in the form of IT Return filed by assessee. Therefore, the omission of Annexure 1 as an annexure makes no impact on reporting requirement or collection of information.

Conclusion:

The attached modificaiton increases the responsibilities of the Chartered Accountants while performing the Tax Audit, as from now the Auditor has to ensure enhanced compliances than earlier. As per revised TAR forms, tax audit will a require lot of additional time for checking various aspects, collection of information not fully disclosed by client’s staff, elaborate checking is needed, method of cross verifications will have to be adopted, more responsibility has been casted upon tax auditors.

As disclosure requirements are also increased substantially, the auditor can no longer just rely on the certification received from the client, as the amendment requires specific disclosures to be made.

Disclaimer: The information contained in this write up is to provide a general guidance to the intended users. The information should not be used as a substitute for expert consultations. An author recommends that professional advice should be sought before taking any action on specific issues.

Download revised Form 3CA 3CB and 3CD 


Author of this article is Harsha Ramnani. She is practicing Chartered Accountant. She can be reached at harsha.ramnani01@gmail.com

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ICAI releases Guidance Note on tax Audit – Edition 2014

• ICAI releases Guidance Note on tax Audit – Edition 2014 

To Download the Guidance Note Click Here

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Download Revised Utility for Tax Audit Report for AY 2014-15

CBDT on 20.08.2014 released Revised Form 3CA-3CD & Form 3CB-3CD filing utility along with updated Schema. Revised Utility is is now available for e-Filing. CBDT has revised the Format of Tax Audit report vide its  Notification No. 33/2014 dated 25/07/2014 and all Tax audit reports  submitted on or after 25.07.2014 are required to be submitted in the revised format. - 

Form 3CA-3CD	Audit report under section 44AB of the Income-tax Act, 1961 in a case where the accounts of the business or profession of a person have been audited under any other law	Download
Form 3CB-3CD	Audit report under section 44AB of the Income-tax Act, 1961, in the case of a person referred to in clause (b) of sub-rule (1) of rule 6G	Download
Form 15CA	Information to be furnished for payments, chargeable to tax, to a non-resident not being  a company, or to a Foreign company	Download

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Major Changes in New Form 3CD (Tax Audit)

The CBDT has notified Income-tax (7th amendment) Rules, 2014 which substitutes the existing Form No. 3CD with a new form. The new Form 3CD prescribes certain new reporting clauses and substitutes some existing clauses with new ones. The new form requires tax auditor to furnish more and detailed information in the new form for tax audit report.

Unlike old form 3CD which required auditor to report only those inadmissible payments which were debited to Profit and loss account, the new Form 3CD requires reporting of all disallowable payments even if they are not debited to profit and loss account.

With the substitution of Form No. 3CD, reporting in the new form would be a time taking job for the Chartered Accountants. Here is the list of additional reporting requirements as prescribed in the new Form No. 3CD:

(1)		Registration number in case of indirect tax liability:
		Assessees liable to pay indirect taxes (like excise duty, service tax, sales tax, customs duty, etc.) shall furnish their registration number or any other identification number allotted to them[clause 4 of Part A].
(2)		Relevant clauses of section 44AB:
		The relevant clauses of section 44AB shall be reported under which audit has been conducted[clause 8 of Part A].
(3)		Location at which books of account are kept:
		New Form seeks details of the address at which books of account of assessee have been kept[clause 11(b) of Part B].
(4)		Nature of documents examined by the auditor:
		The auditor is required to specify the nature of documents examined by him in the course of tax audit[clause 11(c) of Part B].
(5)		Change in method of accounting/stock valuation:
		A tabular format is specified for reporting of financial impact of changes in method of accounting and method of stock valuation[clause 13 and clause 14 of Part B].
(6)		Transfer of land/building for less than stamp duty value:
		Details of land or building transferred by assessee for less than stamp duty value (under section 43CA or under section 50C) shall be reported in new Form 3CD [clause 17 of Part B].
(7)		Deduction allowable under Sections 32AC/35AD/35CCC/35D:
		Deductions allowable under sections 32AC, 35AD, 35CCC and 35DDD are also required to be reported in revised Form No. 3CD[clause 19 of Part B].
(8)		Disallowances:
		Old Form3CD required reporting of inadmissible payments only when they were debited to Profit and loss account. However, the new Form 3CD requires reporting of following disallowable payments, even if they are not debited to profit and loss account[clause 21 of Part B]:

(i)		Disallowance for TDS default under Section 40(a)
(ii)		Disallowance for cash payments under section 40A(3)
(iii)		Disallowance for provision for gratuity under section 40A(7)
(iv)		Disallowance under Section 40A(9)
(v)		Particulars of any liability of a contingent nature
(vi)		Amount of deduction inadmissible under section 14A
(vii)		Interest inadmissible under the proviso to section 36(1)(iii)

(9)		Deemed income under Section 32AC:
		Section 32AC of the Act provides for investment allowance of 15% for investment in plant and machinery. New form provides for reporting of deemed income which results from sale or transfer of new asset, (if asset was acquired and installed by the assessee for the purpose of claiming deductions under Section 32AC) within a period of five years from the date of its installation[clause 24 of Part B].
(10)		Receipt of unlisted shares:
		A new clause is inserted in the Form 3CD which requires reporting of all unlisted shares which were received by assessee either for inadequate consideration or without consideration in view of section 56(2)(viia)[clause 28 of Part B].
(11)		Issue of shares above fair market value:
		A new clause is inserted in the Form 3CD which requires reporting of all transactions of issue of shares where consideration received by assessee exceeds its fair market value in view of section 56(2)(viib)[clause 29 of Part B].
(12)		Speculation losses:
		New Form No. 3CD provides for reporting of losses from speculation business as referred to in Section 73[clause 32(c) of Part B].
(13)		Losses from business specified under section 35AD:
		Assessee shall furnish details of losses incurred as referred to in Section 73A in respect of specified businesses mentioned in Section 35AD[clause 32(d) of Part B].
(14)		Reporting of deductions claimed under Sections 10A and 10AA:
		If any deduction has been claimed by assessee under Sections 10A and 10AA then it shall be reported in new Form No. 3CD[clause 33 of Part B].
(15)		Compliance with TCS provisions:
		Old Form 3CD required reporting on compliance with TDS provisions only. However, New Form No. 3CD requires reporting on compliance with TCS provisions as well[clause 34(a) of Part B].
(16)		Filing of TDS/TCS statements:
		The tax auditor shall report on the compliance by the assessee with the provision of furnishing of TDS or TCS statement within prescribed time[clause 34(b) of Part B].
(17)		Assessee-in-default:
		If assessee is deemed as an assessee-in-default and he is liable to pay interest under Section 201(1A) or 206C(7), the tax auditor shall furnish the TAN of assessee, interest payable and interest actually paid[clause 34(c) of Part B].
(18)		Dividend Distribution Tax:
		Revised Form No. 3CD requires reporting of following reductions as referred to in clause (i) and clause (ii) of Section 115-O(1A)[clause 36 of Part B]:

i)		Dividend received by domestic company from its subsidiary, and
ii)		The amount of dividend paid to any person for or on behalf of the New Pension System Trust referred to in Section 10(44).

(19)

Audits:

(i)		Cost audit: Old Form No. 3CD required reporting only when statutory cost audit was carried out under Section 233A of the Companies Act, 1956. However, the revised Form No. 3CD specifies reporting requirement even when cost audit has been carried out voluntarily. The requirement of attachment of copy of cost audit report along with Form has been substituted with reporting of qualifications in cost audit report[clause 37 of Part B].
(ii)		Cost Audit under Central Excise Act: The requirement of attachment of copy of cost audit report along with Form has been substituted with reporting of qualifications in cost audit report [clause 38 of Part B].
(iii)		Special Audit under Service Tax: If any service-tax audit is carried out in relation to valuation of taxable services, the tax auditor shall report any qualifications made in relation to valuation of taxable services[clause 39 of Part B].

(20)		Ratios:
		Unlike old form which required reporting of certain ratios pertaining to current year only, the new Form requires reporting of ratios of preceding financial year as well. Further, total turnover is to be reported for the previous year as well as for preceding financial year[clause 40 of Part B].
(21)		Demand raised or refund issued:
		The new Form seeks details of demand raised or refund issued under any tax laws (other than Income Tax Act, 1961 and Wealth Tax Act, 1957) along with details of relevant proceedings[clause 41 of Part B]. Source: Taxmann

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Audit Limit of 60 for Tax Audit is per Assessment year – ICAI - See more at: http://taxguru.in/#sthash.pPEieBAW.dpuf

Modification in the Council Guidelines No. 1-CA(7)/02/2008 dated 8th August, 2008 as contained in Appendix No. (34) to the Chartered Accountants Act, 1949

The Council of the Institute at its 331st meeting held in February, 2014 decided to increase the specified number of tax audits from 45 to 60 and an Announcement dated 11.2.2014 in this regard was hosted on the website of the Institute. The Council subsequently at its 333rd meeting held in May, 2014 decided that the specified limit of 60 would relate to an assessment year as against the existing stipulation of a financial year. 

In view of the aforesaid decisions of the Council, the existing Para 6 of Chapter VI of the Council Guidelines No. 1-CA(7)/02/2008 dated 8th August, 2008 as contained in Appendix No. (34) to the Chartered Accountants Act, 1949 stands modified as under:- 

1. In para 6.1 (a) and (b), the figure “45” pertaining to specified number of tax audit assignment has been substituted by the figure “60”. 

2. In para 6.0 and 6.1, the words “in a financial year” have been substituted by the words “relating to an assessment year”. 

3. In para 6.1.6, the words “in each financial year” have been substituted by the words “relating to each assessment year”. 

As already announced the revised limit of 60 tax audits would be applicable w.e.f. 1st April, 2014. The above announcement is published for information of the members at large. 

(T. Karthikeyan)
Secretary

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CAs to manually file 2 million audit reports in 5 days

Unable to solve software glitches in its e-filing system, the Central Board of Direct Taxes has asked assessees to manually file tax audit reports by September 30. The new requirement of manual filing of tax audit reports came through a CBDT notification on September 26.

This means chartered accountants, who do a bulk of the preparation and filing of such reports on behalf of clients, have only five days to comply, failing which tax officials are empowered to levy penalties, which can run into lakhs of rupees in many cases.

The scope of e-filing was expanded this year (assessment year 2013-14) with the law mandating that all tax audit reports be filed electronically.

Corporates unaffected

Indian tax authorities get about 2 million tax audit reports every financial year, a bulk of which are usually filed just before the deadline. Of this, about 5 lakhrelate to corporates, and the remaining relating to individuals, partnership firms.

The latest problem is going to mostly affect the small and medium assessees. Large corporates will not be affected as they are required to file returns by November 30. Strangely, the CBDT on the same day (September 26) extended the last date for electronic filing by a month from September 30 to October 31, even while mandating manual filing by September 30.

Much trouble

Income tax assessees were facing difficulties on uploading due to the frequent changes in the e-filing utility.

 

In September alone, the utility was changed on three occasions .

The CA fraternity is anguished as most of the tax audit work in the country is done by them — whether it is for corporates, individuals other non-corporate categories.

 

This is because tax audit reports, from the current assessment year onwards, were required to be filed only electronically and there was no procedure for manual filing for assessment year 2013-14.

 

“We are requesting CBDT not to stipulate manual filing of tax audit reports.

The electronic filing of the tax audit reports will be done by the extended time of October 31”, Subodh Kumar Agarwal, President of the Institute of Chartered Accountants of India (ICAI) told Business Line.

 

Manual filing is not required by either income tax law or the income tax rules — so, why insist on it through a notification, he asked.

 

ICAI has therefore approached CBDT seeking withdrawal of the latest directive .

With civil disturbances in Andhra Pradesh and natural calamities in Gujarat and Uttarakhand, as well as massive power blackouts in many other regions hampering work, it is difficult to ensure manual filing of the tax audit reports in a span of four days, it has been submitted.

 

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Tax Audit Due Date Extension – Still a Mystery

It is learnt from one of the Central Council member of ICAI that While the representations for extension of due date for tax audit reports are going on but no positive response yet been given by the Ministry of Finance or CBDT.

 

It is further stated by him that revenue has taken the stand that since the problems faced by members are with respect to uploading, therefore, only the date of uploading report may be extended and date of report may not get extended.

 

But we are yet to understand do CBDT want to extend only the due date for upload of Tax Audit Report or ITR also. Further it seems ICAI not been able to represent or strongly represents the facts before the Ministry. As issue is not only the Difficulty in furnishing tax Audit Report but also the following :-

 

1. First Time Introduction of Online Tax Audit Report as well as other Audit Reports.

 

2. Late Release of ITR and then Frequent Revision.

 

     3. Increased workload due to first time introduction of Online Tax Audit      Utilities.Lets hope good sense prevails and Government Extend the due date for Filing of Tax Audit Report as well as ITR in audit cases to address the problem faced by lakhs of taxpayers and tax Professionals.

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Forms 15CA & 15CB changed again; no reporting of exempt income, no filing of form 15CB for certain payments

INCOME-TAX (FOURTEENTH AMENDMENT) RULES, 2013 - SUBSTITUTION OF RULE 37BB AND FORM NOS. 15CA AND 15CB

NOTIFICATION NO. 67/2013 [F. NO. 149/119/2012-SO (TPL)]/SO 2659(E), DATED 2-9-2013

In exercise of the powers conferred by sub-section (6) of section 195 and section 192, section 194B, section 194BB, section 194E, section 194LB, section 194LC, section 194LD, section 196B, section 196C, section 196D read with section 295 of the Income-tax Act, 1961 (43 of 1961) and in supersession of the notification of the Government of India in the Ministry of Finance, Department of Revenue, issued by the Central Board of Direct Taxes vide number S.O.2363(E) dated the 5th August, 2013 published in the Gazette of India, dated the 5th August, 2013, the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:—

1. (1) These rules may be called the Income-tax (14th Amendment) Rules, 2013.

(2) They shall come into force on the 1st day of October, 2013.

2. In the Income-tax Rules, 1962 (hereafter referred to as the said rules), for rule 37BB, the following rule shall be substituted, namely:—

"37BB. Furnishing of information by the person responsible for making any payment including any interest or salary or any other sum chargeable to tax, to a non-resident, not being a company, or to a foreign company—(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or salary or any other sum chargeable to tax under the provisions of the Act, shall furnish the following, namely:—

(i)		the information in Part A of Form No.15CA, if the amount of payment does not exceed fifty thousand rupees and the aggregate of such payments made during the financial year does not exceed two lakh fifty thousand rupees;
(ii)		the information in Part B of Form No.15CA for payments other than the payments referred in clause (i) after obtaining—

(a)		a certificate in Form No. 15CB from an accountant as defined in the Explanation below sub-section (2) of section 288; or
(b)		a certificate from the Assessing Officer under section 197; or
(c)		an order from the Assessing Officer under sub-section (2) or sub-section (3) of section 195.

(2) The information in Form No. 15CA shall be furnished by the person electronically to the website designated by the Income-tax Department and thereafter signed printout of the said form shall be submitted to the authorised dealer, prior to remitting the payment.

(3) An income-tax authority may require the authorised dealer to furnish the signed printout referred to in sub-rule (2) for the purposes of any proceedings under the Act.

(4) The Director General of Income-tax (Systems) shall specify the procedures, formats and standards for ensuring secure capture, transmission of data and shall also be responsible for the day-to-day administration in relation to furnishing the information in the manner specified.

Explanation 1.— For the purposes of this rule, "authorised dealer" means a person authorised as an authorised dealer under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999).

Explanation 2.—For the removal of doubts, it is hereby clarified that for payments of the nature specified in column (3) of the specified list below, no information is required to be furnished under sub-rule (1).

SPECIFIED LIST

	Sl.No.	Purpose code as per RBI	Nature of payment
	(1)	(2)	(3)
	1	S0001	Indian investment abroad -in equity capital (shares)
	2	S0002	Indian investment abroad -in debt securities
	3	S0003	Indian investment abroad -in branches and wholly owned subsidiaries
	4	S0004	Indian investment abroad -in subsidiaries and associates
	5	S0005	Indian investment abroad -in real estate
	6	S0011	Loans extended to Non-Residents
	7	S0202	Payment- for operating expenses of Indian shipping companies operating abroad.
	8	S0208	Operating expenses of Indian Airlines companies operating abroad
	9	S0212	Booking of passages abroad -Airlines companies
	10	S0301	Remittance towards business travel.
	11	S0302	Travel under basic travel quota (BTQ)
	12	S0303	Travel for pilgrimage
	13	S0304	Travel for medical treatment
	14	S0305	Travel for education (including fees, hostel expenses etc.)
	15	S0401	Postal services
	16	S0501	Construction of projects abroad by Indian companies including import of goods at project site
	17	S0602	Freight insurance - relating to import and export of goods
	18	S1011	Payments for maintenance of offices abroad
	19	S1201	Maintenance of Indian embassies abroad
	20	S1 202	Remittances by foreign embassies in India
	21	S1301	Remittance by non-residents towards family maintenance and-savings
	22	S1302	Remittance towards personal gifts and donations
	23	S1303	Remittance towards donations to religious and charitable institutions abroad
	24	S1304	Remittance towards grants and donations to other Governments and charitable institutions established by the Governments.
	25	S1305	Contributions or donations by the Government to international institutions
	26	S1306	Remittance towards payment or refund of taxes.
	27	S1501	Refunds or rebates or reduction in invoice value on account of exports
	28	S1503	Payments by residents for international bidding".

3. In the said rules, in Appendix II, for Form No.15CA and Form No. 15CB, the following Forms shall be substituted, namely:—

Income-Tax Department	FORM NO. 15CA (See rule 37BB) Information to be furnished for payments, chargeable to tax, to a non-resident not being a company, or to a foreign company
		Ack. No.

FORM NO. 15CB (See rule 37BB) Certificate of an accountant 1

---

1. To be signed and verified by an accountant (other than an employee) as defined in the Explanation below sub-section (2) of section 288 of the Income-tax Act, 1961.

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