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CHAPTER AUDIT UNDER FISCAL LAWS

10

PART A – INCOME TAX AUDIT

SECTION 44AB
 Applicability
of Tax Audit
(CNO-
528.000)

Every person –
Business
(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case
may be, in business exceed or exceeds 1 crore rupees in any previous year.
Profession
(b) carrying on profession shall, if his gross receipts, in profession exceeds 50 lakhs
rupees in any previous year,
Deemed Profits 44AE / 44BB / 44 BBB
(c) carrying on the business shall, if the profits and gains from the business are
deemed to be the profits and gains of such person under section 44AE or section
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44BB or section 44BBB as the case may be, and he has claimed his income to be
lower than the profits or gains so deemed to be the profits and gains of his
business, as the case may be, in any previous year,
44AE- Plying / Hiring / Leasing Goods Carriage (For Small Transporters)
44BB- Business of Exploration etc. of Mineral Oils (For Non-Resident Mineral Oil
Explorers)
44BBB-Foreign Companies Engaged in Business of Civil Constructions
Deemed Profits 44ADA
(d) carrying on the profession shall, if the profits and gains from the profession are
deemed to be the profits and gains of such person under section 44ADA, and he
has claimed such income to be lower than the profits and gains so deemed to be
the profits and gains of his profession and his income exceeds the maximum
amount which is not chargeable to income-tax in any previous year, or
(Sec 44ADA: - For professionals where gross receipts doesn’t exceed 50 lakhs, they
can pay tax on presumptive profit of 50% under 44ADA)
Deemed Profits 44AD
(e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD
are applicable in his case and his income exceeds the maximum amount which is
not chargeable to income-tax in any previous year,
(Sec 44AD: - For Individual / HUF / Partnership (Excluding LLP) where business
turnover is not exceeding 2 crores, they can pay tax on presumptive basis of 8% /
6% if receipt through banking channels under 44AD)
 What if turnover is above 1 crore up to 2 crores?
Individual / HUF / Partnership (Excluding LLP) – either go on presumptive
basis or get your books audited under clause (e), (Interpretation rule,
specific overrides general, not using presumptive basis when it is eligible
will be covered in 44AD)
Others-- Company / Co-Operative etc. – Tax Audit under clause (a)

 Commission Income
Section 44AD is not applicable in case of commission income
 Continuity Concept
If assessee wants to claim presumptive income under Sec 44AD then, he
should do it for next 5 years continuously also, if he doesn’t do it for next
5 years, and go for actual any basis in these 5 years then he will be banned
from using option of deemed profits for next 5 years from year in which
actual basis was adopted.
 Conditional Content in Brown is recently added or modified as per new ICAI Study Material or Statutory
Increase In Amendments.
To Limit
With effect from assessment year 2020-21, the threshold limit, for a person carrying on
business, has been increased from Rs 1 crore to Rs 5 crores in case when cash receipts and
payments made during the year does not exceed 5% of total receipt or payment, as the
case may be. In other words, 95% or more of the business transactions should be done
through banking channels.

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 Business V/S
Profession

Definition of Profession
Whether a particular activity can be classified as business' or Rs profession' will depend
on the facts and circumstances of each case. The expression "profession" involves the
idea of an occupation requiring purely intellectual skill or manual skill controlled by the
intellectual skill of the operator, as distinguished from an operation which is
substantially the production or sale or arrangement for the production or sale, of
commodities. - CIT Vs. Manmohan Das (Deceased) [1966] 59 ITR 699(SC).
Nursing home – Business or Profession?
When nursing-home income should be treated as professional income?
If the doctors are carrying on the activities of a nursing home (polyclinic) for the purpose
of treating their own patients, the income from the nursing home must be treated as
their professional income. But if any business activity is carried on by the nursing home
such as running of a drug store for selling drugs to patients or others, admitting patients
and charging fee such as room fees, etc. it may be considered to be a business and that
part of the income would be in the nature of business income [CIT v K.K. Shah (1982) 135
ITR 146(Guj)].
Can company perform profession?
Q. Mr. A is architect working as a proprietor with annual collection of 10 lakhs in FY 18-
19, then he converted his business in company. Now in financial year 19-20 it increased
to 75 lakhs. Whether tax audit is applicable to both the years?
Answer
In FY 18-19 he is operating as proprietor and proprietor can perform profession for Sec
44AB so limit applicable will be 50 lakhs, as turnover is within 50 lakhs tax audit is not
applicable.
In FY 19-20 business is operated in the form of company, and company cannot be said to
be engaged in profession for Sec 44AB, so it will not be considered as profession, but it
will be considered as business so limit applicable will be 1 crore, and again it is within limit
so tax audit not applicable.
 Examples -- DB Pvt. Ltd. has total turnover of Rs 125 lacs for the FY 2017-18.
Applicability Section 44AD is not applicable to company assessee, hence Limit of Rs 2 crore is not
of Tax Audit applicable to DB Pvt. Ltd and it has to conduct the Audit of Books of Accounts under
section 44AB of the Act for the FY 2017-18 as turnover exceeds Rs 1 crore.
ABC & Co. (a partnership firm) engaged in trading of electronic goods having a turnover
of Rs 165 lacs for the FY 2017-18.
Section 44AD is applicable to Partnership Firm. Thus, ABC & Co. can declare the minimum
profit @ 8% of the turnover as its turnover during the PY 2017-18 does not exceed Rs 2
crores. If the firm do not opt for presumptive income scheme under section 44AD, it has
to get books of accounts audited u/s 44AB of the Act.
Mr. Anand Khater, a Commission Agent has commission receipts of Rs 137 lacs during
the FY 2017-18.

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Though Section 44AD is applicable to an Individual, it is not applicable to Commission
income. In the given case, since, Mr. Anand earns the commission income, he cannot take
the benefit of section 44AD. His total turnover during the FY 2017-18 in respect of
commission income exceeds Rs 1 crore, he has to get his books of accounts audited u/s
44AB of the Act.
Mr. Vishal Raka, owning an Agency of Samsung Mobile for the city of Pune and makes
the turnover of Rs 87 lacs during the FY 2017-18.
Though Section 44AD is applicable to an Individual, it is not applicable to Commission
income. In the given case, since, Mr. Vishal earns the commission income, he cannot take
the benefit of section 44AD. His total turnover during the FY 2017-18 in respect of
commission income does not exceeds Rs 1 crore, therefore, he need not to get his books
of accounts audited u/s 44AB of the Act.
COMPUTATION OF SALES / TURNOVER / GROSS RECEIPTS (CNO-526.000) (MCQ-FL.13)
 Case

Q. Doctor is running clinic on ground floor, he has nursing home on 1st floor with 50 beds open for
patients of other doctors also and there is a medical in basement.
Money Collection during the year at: - Clinic 15 lakhs, Nursing Home 60 lakhs, Medical 30 lakhs,
Business whose income is charged on presumptive basis 20 lakhs
Is Tax Audit applicable to him?
Answer
Professional Receipts 15 lakhs
Business Turnover 60 + 30 = 90 Lakhs
As professional receipts are not exceeding 50 lakhs and business turnover is not exceeding 1 crore.
Tax Audit is not applicable.
As Sec 44AD & Sec 44DA is applicable he will have to go for presumptive basis of taxation for business
or profession.

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 Important We cannot add professional receipts & business turnover.
Learnings We have to add turnover of all business and all profession to see applicability.
Now if in case of non-presumptive businesses or profession if for any one business or
profession prescribed limit is crossed then audit will be done for all businesses or professions
Turnover from business which are covered under following sections which deal with
presumptive taxation shall be excluded
 Clause (c) -- 44AE / 44BB / 44BBB
 Clause (d) -- 44ADA
 Clause (e) -- 44AD
 Not in any Clause -- 44B / 44BBA
o Exclusion is as per proviso to Sec 44AB. Further Sec 44B is for non-residents
in shipping business & 44BBA is for non-resident in business of operating
aircraft in these sections’ income charged on presumptive basis and there
is no option with assessee to claim lower income.
If assessee goes for presumptive basis of taxation, then no audits for those businesses and if
they don’t go for presumptive, audit will be done only for such businesses, with respect to
other businesses and profession it depends on whether prescribed limit is exceeded.

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 Inclusions
/
Exclusions
from
Turnover

Advance Received
The amount received by way of advance for which goods or services are yet to be rendered
will not form part of the receipts, as such advances are the liabilities of the assessee and
cannot be treated as his receipts till the goods or services are rendered.
But if advance is forfeited and there is no liability to return it then it will be included in
turnover.
Discount
Discount “Appearing in Sales Invoice”, it is given at the time of sale, so from start we know it
will never be received so it is not counted in turnover. It can be name of bulk discount /
turnover discount / loyalty discount / referral discount etc. It should be reduced from
turnover.
Reimbursement of expenses
If the assessee is merely reimbursed for certain actual expenses incurred, the same will not
form part of his gross receipts. But in the case of charges recovered, which are not by way of
reimbursement of the actual expenses incurred, they will form part of his gross receipts.

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Reimbursement of expenses incurred (e.g. packing, forwarding, freight, insurance, travelling
etc.) and if the same is credited to a separate account in the books, only the net surplus on
this account should be added to the turnover for the purposes of Section 44AB;
C&B A/c Dr 120
To Sale A/c 100
Transport Charges Payable A/c 20
Similarly, Reimbursement of customs duty and other charges collected by a clearing agent
will be excluded.
Indirect Taxes
 Inclusive Method of Accounting
If indirect taxes are not separately accounted and included in sales account, latter
they are segregated and tax paid then it will be counted in turnover.
Sale Entry
C&B A/c Dr 112
To Sales 112
Tax Payable Entry
Sales Dr 12
To IDT Payable 12
 Exclusive Method of Accounting
If Indirect Taxes are accounted separately at the time of sale. Then IDT won’t be
counted.
Sales Entry
C&B A/c Dr 112
To Sales A/c 100
IDT Payable A/c 12
Insurance Claim
Insurance claims - except for fixed assets will be included
Scrap Sale – Included even if shown under miscellaneous income
Post Sales Receipts
 Cash Assistance
Cash assistance (by whatever name called) received or receivable by any person
against exports under any scheme of the Government of India will be included
 Exchange Rate Difference
The net exchange rate difference on export sales will be included
 Sale of Import License
Profits on sale of a licence granted (import) will be included.
Different Business
 Speculative Business
Q Mr. A trader in share market to take benefit of price movements (Speculation).
He bought shares for 30 lakhs and sold them for 50 lakhs. Then he purchased shares
for 80 lakhs and sold them for 20 lakhs. How his turnover will be computed?
Answer: -
We should compute profits or losses in the speculative transactions. Add these
profits & losses to determine total turnover.
1st Trade 50 – 30 = 20 lakhs profit
2nd Trade 20 – 80 = (60) lakhs loss.
Turnover = 20 + 60 = 80 lakhs
 Commission Agents (Agency Business)
Only commission will be counted in turnover
 Travel Agents

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In the case of a travelling agent, the amount received from the clients for payment
to the airlines, railways etc. where such amounts are received by way of
reimbursement of expenses incurred on behalf of the client will be excluded. If,
however, the travel agent is conducting a package tour and charges a consolidated
sum for transportation, boarding and lodging and other facilities, then the amount
received from the members of group tour should form part of gross receipts
 Advertising Agents
In the case of an advertising agent, the amount of advertising charges recovered by
him from his clients provided these are by way of reimbursement should be
excluded. But if the advertising agent books the advertisement space in bulk and
recovers the charges from different clients, the amount received by him from the
clients will not be the same as the charges paid by him and in such a case the amount
recovered by him will form part of his gross receipts
 Share Market Brokers
o Similarly, in case of brokers only brokerage will be counted
o In case of personal sale of Broker “Sale value” will be counted in turnover
Hire Purchase
Hire charges and instalments received in the course of hire purchase will be included.
Exclusions
Following shall not be included because this is not regular business income
 Sale Proceeds of Fixed Assets / Investment Property (It is not business)
 Profit / Loss on sale of investments (Include sale value if it is a business)
 Interest / Dividend / Rent if it is not business
 Tax Already Paid
Share of profit of a partner of a firm in the total income of the firm excluded from
his total income under section 10(2A) of the Income Tax Act, 1961.

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QUALIFICATIONS & DISQUALIFICATIONS OF TAX AUDITOR ( SEC 288)
 Chart

 Qualifications Chartered Accountant

 Disqualificatio Individual
ns Assesses Himself***
(CNO-556.000) HUF
Family member of HUF***
AOP
Member of AOP***
Trust /Institution
 Author / Founder ***
 If author / founder is HUF, then members of HUF***
 Substantial Contributor i.e. exceeding Rs 50,000***
 Trustee or Manager***
Firm
Partner of firm***
Company
Who is disqualified to do statutory audit under Sec 141 (3)?
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For Assesses other than those covered above
Who can verify return u/s 139*** (Mentally Ill – Guardian, Political Party- CEO, Other-
Power of Attorney Holder etc.)
All Assesses (Other Than Company)
 (All points below are similar to company audit disqualifications but there are
changes so be careful)
o Officer or employee of Assessee
o Partner or Employee of Employee or Officer
o Direct / Indirect Business Relationship with assessee
o Convicted by court for fraud, 10 years from date of conviction

o @Holding any Security or Interest in assessee (Only Relative exempt

up to FV 1,00,000)
o @Indebted to assessee for any amount (Only Relative exempt up to Rs
1,00,000)
o @Guarantee or Security of assessee for third party for any amount
(Only Relative exempt up to Rs 1,00,000)
*** Including Relatives
@By individual or His partner or His Relative
Chart on Definition of Relative

ELIGIBILTY OF CONSULTANTS & INTERNAL AUDITOR

 Eligibility of
Tax Consultant

A chartered accountant/firm of chartered accountants, who is appointed as tax consultant of

the assessee, can conduct tax audit under section 44AB.
 Eligibility of But an internal auditor of the assessee cannot conduct tax audit if he is an employee of the
Internal assessee. Further the Council of ICAI has decided that an internal auditor of an assessee, whether
Auditor working with the organisation or independently practicing chartered accountant or a firm of
chartered accountants, cannot be appointed as his tax auditor.

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STATUTORY AUDITOR NOT APPOINTED OR AUDIT REPORT IS NOT AVAILABLE FOR ANY REASON (CNO 562.000)
 Practical A question may arise in the case of a public sector company or any other company where the
Problem statutory auditor has not been appointed by the authorities concerned as to whether the tax
auditor appointed under section 44AB can complete his audit without waiting for statutory
audit report on the accounts audited by the statutory auditors. It may be noted that Form No.
3CA requires the tax auditor to enclose a copy of the audit report conducted by the statutory
auditor or the auditor of the financial statements as the case may be.
 Solution Where a statutory auditor has not been appointed by the authorities concerned or where the
report of the statutory auditor is not available for whatever reasons, it will be possible for the
tax auditor to give his report in Form No. 3CB and to certify the relevant particulars in Form
No.3CD. This is particularly important in those cases where the assessee concerned has
suffered losses in the relevant accounting year. It may, however, be noted that the tax auditor
in such cases will have to conduct the financial audit as well in order to enable him to certify
whether or not the accounts reported upon by him give a true and fair view of the state of
affairs of the assessee whose accounts are audited by him under section 44AB.

CEILING LIMIT OF TAX AUDIT (CNO-529.000/529.050) (MCQ – FL.1/ FL.2)

Ceiling limit per CA is 60 (Council Guidelines 2008)

In case of CA Firm 60 x Number of Partners
In case of partnership in multiple firms then in totality it should not exceed 60 per CA
One partner can sign on behalf of other
Limit for part time COP is Zero
Audit u/s 44AE / 44AD / 44ADA shall be excluded
(From Clause (c) 44BB & 44BBB not excluded as these are big audits of non-residents)
Only for audit under section 44AB
Corporate non-corporate both are included
Branches and HO will be counted as one.
Multiple branches will be counted as one.

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AUDIT REPORT UNDER TAX AUDIT (MCQ – FL.8/FL.12)

Audit report: 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 –
 Applicability in the case of a person who carries on business or profession and who is required by or
of Form 3CA under any other law to get his accounts audited, be in Form No. 3CA; (Companies Act /
/ 3CB / 3CD Banking Act / Insurance Act / Co-Operative Society Act etc.)
in the case of a person who carries on business or profession, but not being a person
referred to in clause (a), be in Form No. 3CB.
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.
 Details of It may be noted that the audit report in Form No.3CB is in two parts.
Form 3CB First Part on Financial Statements
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:
 in the case of the balance sheet of the state of affairs as at the last date of the
accounting year.
 in the case of the profit and loss account of the profit or loss of the assessee for
the relevant accounting year.
Second Part on Statement of Particulars in Form 3CD
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 subject to observations and qualifications, if any.
Wordings for Financial Statements Vs Wordings of Form 3 CD
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.
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The requirement in paragraph 3 of Form No. 3CA and paragraph 5 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 under the Companies Act, 2013. On the other
hand, the words "true and correct" lay emphasis on factual accuracy of the information.
Factual Accuracy Subject to Materiality
In this context reference is invited to AS-1 and OLD AS(IT)-I relating to disclosure of
accounting policies. These standards recognize 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.3 CD 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.
 Details of In the case of a person whose accounts of the business or profession have been audited under
Form 3CA 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.
 Different In the case of “person” having their accounting year which is different from the financial year,
Accounting accounts of the financial year are required to be prepared and audited. The audit report shall be
Year in Form 3CB.

REPORT VS CERTIFICATE (CNO-530.000)

 Reporting
Requirement

Section 44AB of the Income Tax Act, 1961 requires the auditor to submit the audit report in the
prescribed form and setting for the prescribed particulars. The statement of particulars as
required in Form 3CD are required to be annexed to the main audit report. The audit report is in
two parts. The first part requires the auditor to give his opinion as to whether or not the
accounts audited by him give a true and fair view and the second part of the report is in the
form of an “Annexure” containing statement of particulars in respect of certain specified
matters. The tax auditor has to report whether particulars are true and correct.

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 Report Vs In this context, it is important to appreciate the distinction between the term’s “report” and
Certificate “certificate”. Briefly speaking, the term “certificate” is used where the auditor verifies the
accuracy of facts while the term “report” is used in case the auditor is expressing an opinion.
Strictly speaking, having regard to the usage of the word true and correct, these particulars
require definitive information compiled from the books of account. Hence, it can be said that an
auditor conducting tax audit ‘certifies” the information contained in the statement of
particulars.
However, having regard to the distinction, it is significant to examine whether all 50 clauses
included in the statement of particulars are capable of being simply certified on the basis of books
of account or there are some clauses in respect of which different auditor(s) may hold different
opinion.
 Examples of For instance, Clause 14 dealing with valuation of closing stock would require the auditor to
Some examine and opine on the basis adopted for ascertaining the cost and, thus, to ensure that
clauses in method followed for valuation of stock results in disclosure of correct profits and gains. Similarly,
Form 3CD Clause 18 relating to depreciation would require the auditor to exercise judgement having
where is regard to the facts and circumstances of the case, etc. Thus, there are several matters on which
judgment is the auditor is required to exercise judgement while giving his report on various amounts
applied and included in the statement of particulars. No doubt that the auditor obtains the statement of
opinion is particulars in FormNo.3CD duly authenticated by the assessee, it does not merely involve checking
given the corresponding figures with the documents and books of account but requires the auditor to
exercise his judgement which may at times lead to different figures by different persons reporting
thereon. There can also be situations leading to difference of opinion between the tax auditor and
the assessee.
 Conclusion Therefore, it can be said that an auditor conducting tax audit “reports” on certain information,
apart from certifying certain factual information contained in the statement of particulars
annexed to the tax audit report under section 44AB of the Income-tax Act, 1961.

PENALTY FOR NOT GETTING THE ACCOUNTS AUDITED AS REQUIRED U/S 44AB
 AO can
Impose
Penalty

According to section 271B, if any person who is required to comply with section 44AB fails to get
his accounts audited in respect of any year or years as required under section 44AB, the Assessing
Officer may impose a penalty.
The penalty shall be lower of the following amounts:
0.5% of the total sales, turnover or gross receipts, as the case may be, in business, or of
the gross receipts in profession, in such year or years.
Rs 1,50,000.
Relief
However, according to section 273B, no penalty shall be imposed if reasonable cause for
such failure is proved

TAX AUDIT REPORT CAN BE REVISED IN FOLLOWING CIRCUMSTANCES (CNO-558.010)

Normally, the report of the tax auditor cannot be revised later.

However, when the accounts are revised in the following circumstances, the tax Auditor may have to revise his Tax
audit report also.

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Change in law with retrospective effect.
Change in interpretation of law (e.g.) CBDT Circular, Notifications, Judgments, etc.
Revision of accounts of a company after its adoption in the annual general meeting. (Fraud, Error or Change
in Accounting Policy, Change in Significant Estimate)
The Tax Auditor should state it is a revised Report, clearly specifying the reasons for such revision with a reference to
the earlier report.

AUDIT REPORT UNDER TAX AUDIT

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FORM 3CD 50 CLAUSES

Statement of particulars required to be furnished under Section 44AB of the Income Tax Act, 1961.
PART'A'
 Clause 1.

Text - Name of the Assessee:

Notes - Branch Name along with Assessee name in case of Tax Audit of Branch
 Clause 2.

Text - Address:
Notes - As communicated to ITO for assessment, in case of company also mention
registered office if it is different
 Clause 3.

Text - Permanent Account Number:

Notes - Mandatory in e-filling, as per the FAQ available at department's site, in case PAN
is not available for foreign director, one need to enter FFFPF9999F
 Clause 4.
(CNO-
531.000) Text - 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.
Notes - All the GSTIN numbers allotted to the assessee need to be mentioned.
 Clause 5.

Text - Status:
Notes
 If there is any change in these 5 clauses in previous year mention both
 Ensure that the status is quoted as per section 2(31) of the Act. It should not be
confused with the residential status of the assessee. Further, in case of a
proprietorship concern status shall be quoted as individual
 Clause 6.

Text - Previous year ended: 31" March ________

Notes –
 The period of the previous year has to be stated. Since the previous year under the
Act now uniformly begins on 1st April and ends on 31st March, the relevant
previous year should be mentioned.
 In case of amalgamations, demergers, reconstitution, new business, closure of
existing business etc. the date of beginning/ ending of the previous year may be
different, the auditor may accordingly, mention the relevant date of beginning and
ending of the previous year in this clause. Hence, the tax auditor has to apply his
professional judgement depending on the facts and circumstances of the same.

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 Clause 7.

Text - Assessment Year

 Clause 8.

Text - Indicate the Relevant clause of section 44AB under which the audit has been
conducted.
Notes - Audit under clause (a) and (b) is much more important than (c) & (d) & (e).
 Clause 8A Clause
Clause (8A), The new clause inserted in part A of the form 3CD requires the assessee to
state whether the assessee has opted for taxation under any of the sections 115BA,
115BAA and 115BAB.

It may be noted that all the above sections i.e.115BA, 115BAA and 115BAB are applicable
to the company assesses only. The reply to the above clause can either be a “yes” or “no”.
 If Answer is No
If the assessee has not opted for any concessional rates as provided under the
sections 115BA, 115BAA and 115BAB, of the Act, then, the tax auditor is not
required to take any further steps and no further audit procedure is required to
be followed. The answer to such question as per the clause in such case can be
given as “No” only.

 If Answer is Yes
However, if the assessee informs that it has opted for the confessional rate of
taxation as per the provisions of sections 115BA, 115BAA and 115BAB of the Act,
then the audit approach is required to be modified.
Audit checklist for practical understanding:
 Check whether the assesse is a company.
 If yes, whether the company has opted for taxation regime under section 115BA/
115BAA/ 115BAB and report accordingly?
If yes, whether the copy of Form 10-IB / 10-IC /10-ID filed online has been obtained from
the assessee?
PART B
 Clause 9.

Text –
(a) If firm or Association of Persons, indicate names of partners/ members & their
profit-sharing ratios.
(b) If there is any change in the partners of members or in their profit-sharing ratio
since the last date of the preceding year, the particulars of such change.
Notes –
 If person is partner / member in representative capacity, then details of beneficial
partner / member should be given.
 Also, give details of LOSS Sharing Ratio
 Give details of changes (all changes)
 Confirm from partnership deed or any document supporting AOP
 If share in AOP is not determined specify it (Section 167B will get applicable,
charging at maximum marginal rate)

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CA Ravi Taori
 Clause 10

Text –
(a) Nature of business or profession (if more than one, nature of every business or
profession).
(b) If there is any change in the nature of business or profession, the particulars of
such change.
Notes –
 Mention Sector / Sub Sector
Mention Code (as per list of IT department)
Example Professionals Chartered Accountants, Auditors, etc. A0601
 Details of each business
 Changes in nature of business (Trading to Manufacturing)
Take management representation for change
 Reorganization / Reconstruction is no change in nature of business
Temporary closure of business is no change in nature of business
 Clause 11
(CNO-
532.000)

Text –
(a) Whether books of account are prescribed under section 44AA, if yes, list of books
so prescribed.
(b) List of books of account maintained and the address at which the books of
account 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.
Notes –
Check that the books of accounts have been maintained as required by law:
 In case of professionals, requirements of section 44AA read with rule 6F of the
Income Tax Rules, 1962, should be kept in mind.
 Rule 6F read with section 44AA has prescribed books of account to be maintained
by professionals. In case the assessee is a professional then only inquiry under
clause 11(a) will be answered in the affirmative and list of the books prescribed
will have to be given.
 In case of assessee engaged in business, no such books have so far been
prescribed; hence this question will be answered in the negative.

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 In case of corporate assessee, the books of accounts required to be maintained
are contained in the relevant statute.
 Clause 12

Text –
Whether the profit and loss account include any profits and gains assessable on
presumptive basis, if yes, indicate the amount and the relevant section (44AD, 44AE,
44AF, 44B, 44BB, 44BBA, 44BBB, Chapter XII-G, First schedule or any other relevant
section)
Notes –
 Not Applicable: - If the profit and loss account does not include profit assessable
on presumptive basis, then, there is no requirement to furnish the particulars
under this clause.
 P&L Amount & Not Assessable Amount: - The amount to be mentioned under this
clause means the amount included in the profit and loss account. The tax auditor
is not required to indicate as to whether such amount corresponds to the
amount assessable under the relevant section relating to presumptive taxation.
As such, the reporting requirement gets satisfied if the amount as per profit and
loss account is reported.
The auditor should keep in mind the prescribed guidance while furnishing
information under this clause in the format provided in the e-filing utility.
 Past Basis: - Go through the past assessment records to find out the basis at which
such income was assessed in the past.
 Revenue Analysis: - Go through the profit and loss account and make out a
revenue analysis in order to determine whether turnover includes any revenue
from any business which is assessable on presumptive basis under section 44AD,
44ADA, 44AE, 44B, 44BB, 44BBA, 44BBB. Chapter XII-G or any other relevant
section.
 Not entitled to claim expenditure & depreciation: - If the income is taxed on
presumptive basis then the assessee is not entitled to claim any expenditure under
sections 30 to 38 except the salary and interest to partners in case of a firm. The
auditor should ensure that the assessee does not claim any such expenditure.
Further written down value of any asset used for the purpose of such a business
shall be deemed to have been calculated as if the assessee had claimed and had
been actually allowed the deduction in respect of depreciation for each of the
relevant assessment years. The auditor shall ensure that the written down value
of any asset used for such business is correctly determined.
 Qualify Report: - Qualify the report if there is included any turnover from such
business in the gross turnover because income from such business is to be
computed on presumptive basis and if it is computed under normal provisions of
the Act then the accounts are to be audited.

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CA Ravi Taori
 Clause 13
(CNO-
534.000/
535.000/
537.500/
557.010/)

Text –
(a) Method of accounting employed in the previous year.
(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)
(e) If answer to (d) above is in the affirmative, give details of such adjustments:

Shortcut to Remember ICDS

Ajay devgan Van leke Construction site pe pahuch tha hai. Waha ke logo se puch tha hai
kitna Revenue kama te ho. Fir bolta hai jinke paas Fixed Assets aur Foreign Exchange
nahi hai unki list banao. List lejaata hai for Government grant, jab tak government grant
nahi deti khudka ghar as Security jama karata hai, Borrowing cost aur Provisions khud
bear karta hai.
Ajay devgan white colour ki (Accounting Policy)
Van leke (Valuation of Inventory)
Construction site pe pahuch tha hai. Waha ke logo se puch tha hai kitna (Construction
Contracts)

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Revenue kama te ho. Fir bolta hai jinke paas (Revenue Recognition)
Fixed Assets nahi hai aur (Tangible Fixed Assets)
Foreign exchange nahi unki list banao. List lejaata hai aur (Changes in Foreign Exchange
Rate)
Government grant mangta hai, jab tak government grant nahi deti khudka ghar as
(Government Grants)
Security jama karata hai (Securities),
Borrowing cost aur (Borrowing Cost)
Provisions khud bear karta hai. (Provisions, Contingent Liabilities and Contingent Assets)
(f) Disclosure as per ICDS: (2 ICDS not included Foreign Exchange & Securities)

Notes –
ICDS: - Income Computation and Disclosure Standards (ICDS):
Section 145 of the Income Tax Act, 1961 deals with the method of accounting.
 Under section 145(1), income chargeable under the heads “Profits and gains of
business or profession” or “Income from other sources” shall be computed in
accordance with either the cash or mercantile system of accounting regularly
employed by the assessee.
 Section 145(2) empowers the Central Government to notify in the Official Gazette
from time to time, income computation and disclosure standards to be followed
by any class of assessees or in respect of any class of income.
 Accordingly, the Central Government has, in exercise of the powers conferred
under section 145(2), notified ten income computation and disclosure standards
(ICDSs) to be followed by all assesses (other than an individual or a HUF who is
not required to get his accounts of one previous year audited in accordance with
the provisions of section 44(AB)), following the mercantile system of accounting,
for the purposes of computation of income chargeable to income-tax under the
head “Profit and gains of business or profession” or “ Income from other sources”.
from the A.Y. 2017-18.
 All the notified ICDSs are applicable for computation of income chargeable under
the head “Profits and gains of business or profession” or “Income from other
sources” and not for the purpose of maintenance of books of accounts.
 In the case of conflict between the provisions of the Income‐tax Act, 1961 and the
notified ICDSs, the provisions of the Act shall prevail to that extent.
 Clause 14
(CNO-
535.010)

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CA Ravi Taori
Text –
 Method of valuation of closing stock employed in the previous year.
 Details of deviation, if any, from the method of valuation prescribed under
Section 145 A and the effect thereof on the profit or loss.
Notes –
 Accounting Standard mentions Exclusive Method & 145A mentions Inclusive
Method
 Impact of such change is NIL (Explained under Guidance Note)
 Clause 15

Text –
Give the following particulars of the capital asset converted into stock-in-trade –
(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.
Notes –
 Under section 45(2) such a conversion or treatment of capital asset into stock-in
trade, will be deemed to be a transfer of the previous year in which the asset is
so converted or treated as stock-in-trade. However, the capital gains arising from
such a transfer will become chargeable in the previous year in which such
converted asset is sold or otherwise transferred.
 Clause 16
(CNO-
536.000/
537.000/
537.500)

Text –
Amounts not credited to the profit and loss account, being, -
(a) the items falling within the scope of section 28;
(b) the proforma credits, drawbacks, refund of duty of customs or excise or service
tax, or refund of sales tax or value added 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
Notes –
 Profit on sale of fixed assets/investments to the extent not credited to the profit
and loss account.
 Government grant in relation to a specific fixed asset where such grant is shown
as a deduction from the gross value of the asset by the concern in arriving at its
book value.

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CA Ravi Taori
 No compete fees directly credited to reserves for sub clause
 Interest incomes received treated as liability
 Where such amounts have not been credited in the profit and loss account but
netted against the relevant expenditure/income heads, such fact should be
clearly brought out.
 The tax auditor may obtain a management representation in writing from the
assessee in respect of all items falling under this clause.

 Clause 17
From 1st
April 2021
5 % is
changed to
10 %
(CNO-
539.000)

Text –
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: -
Details of Property Consideration Value adopted or assessed
received or accrued or assessable
Notes –
 43CA & 50C taxes, difference between sale proceeds & value considered for
stamp duty as Capital Gain on Land & Building
(43CA – Other than Capital Asset / 50C – Capital Asset)
 Difference will be taxed only if stamp act value exceed is 105% of consideration.
E.g. if Consideration is 100 and Stamp Act value is 103 then difference will not be
taxable.
 But clause 17 is not yet amended so in this clause information has to be given
even if difference is less than 5%
 Auditor would have to apply professional judgment as to what constitutes land
or building for e.g. whether leasehold right / development rights / TDR / FSI etc
would fall under these provisions or not, would require to be evaluated based on
facts & circumstances of transactions.
 Clause 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: -
(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 115BAA (for
assessment year 2020-21 only)
(cb) 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 adjustments on account of -
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(i) Central Value Added Tax credits 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.
 Clause 19
(CNO-
540.000)

Text –
Amount admissible under sections – 32AC,32AD, 33AB, 33ABA, 35(1)(i), 35(1)(ii), 35(1)
(iia), 35(1)(iii), 35(1)(iv), 35(2AA), 35(2AB), 35ABB, 35AC, 35AD, 35CCA, 35CCB, 35CCC,
35CCD, 35D,35DD, 35DDA, 35E.
Notes –
Sec 32AD is recently included in above list. In this section a one-time benefit is available
in the year of installation of the new asset by the eligible undertaking and is available over
and above the claim of depreciation, as well as the additional depreciation of 35%
available under section 32(1) (iia) for the same backward areas.
 Clause 20

Text –
(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(l)(ii)].
(b) Details of Contributions received from employees for various funds as referred
to in section 36(1) (va)
Notes –
 Careful analysis will be required to distinguish bonus & commission
 If amount is not deposited it will be a permanent disallowance, in case of
voluminous data test check is allowed.

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CA Ravi Taori
 Clause 21
(CNO-
542.000/
543.000/
544.000/
545.000)

(MCQ – FL.11)

Text –
(a) Please furnish details of amount debited to the profit and loss account, being
in nature of capital, personal expenditure, advertisement expenditure in
documents of political party etc.
(b) Amounts inadmissible under section 40(a); (TDS not deducted, 30% Disallowed)
(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. (Limit on remuneration to partners)
(d) Disallowance/deemed income under section 40A (3). (Cash Payment Exceeding
10,000 / Plying & Hiring then 35,000)
(e) Provision for payment of gratuity not allowable under sec.40A (7). (Provision
for gratuity not allowed)
(f) any sum paid by the assessee as an employer not allowable under section 40A
(9) ;(Payment to unregistered gratuity / PF)
(g) Particulars of any liability of a contingent nature. (AS 29, CL should be in notes
to account)
(h) Amount of deduction inadmissible in terms of sec. 14A in respect of the
expenditure incurred in relation to income which does not form part of the total
income; (Expenditure on exempted income)
(i) Amount inadmissible under the proviso to sec. 36(1)(iii) (Interest on loan for
CAPEX till it is put to use)
Notes –
 Obtain List: - For the purpose of furnishing the above particulars, the tax auditor
should obtain a list of all cash payments in respect of expenditure exceeding Rs
10,000/- (Rs 35000/- in case of plying, hiring or leasing goods carriages) made by
the assessee during the relevant year which should include the list of payments
exempted in terms of Rule 6DD with reasons.
 Test Checks: - In case of voluminous nature of the information, the tax auditor
can apply materiality principles, tests check and compliance tests for verifying
the information required to be provided under this clause

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CA Ravi Taori
 Verify with Books: - This list should be verified by the tax auditor with the books
of account in order to ascertain whether the conditions for specific exemption
granted under clauses (a) to (l) of Rule 6DD are satisfied. Details of payments
which do not satisfy the above conditions should be stated under this clause.
 Online Payments: - The tax auditor has to take into account the technological
advancements in the field of banking and information technology where
payments have been taken other than through an account payee cheque or bank
draft.
Shortcut to Remember in Sequence Sch III Expense Headings
 Cost of Material Consumed
 Purchases
o Capital Expenditure
o Personal Expenditure
 Change in Inventory
 Employee Benefit Costs
o Remuneration to Partners Not Admissible Under Sec 40(b) / 40(ba)
o Provision for gratuity not allowed Sec 40A (7)
o Payment to unregistered gratuity / PF 40A (9)
o Expenditure by employees at club
 Finance Cost
o Interest on loan for CAPEX till it is put to use Sec 36(1)(iii)
 Depreciation
 Other Expenses
o Advertisement Expenditure in documents of political party
o Contingent Liability
o Expenditure by way of penalty under any law
 Any Heading
o Cash Payment Exceeding 10,000 / Plying & Hiring then 35,000 Sec
40A(3)
o TDS not deducted, 30% Disallowed Sec 40(a)
o Expenditure on Exempted Income

 Clause 22

Text –
Amount of interest inadmissible under section 23 of the Micro, Small and Medium
Enterprises Development Act, 2006 (3 times bank rate)

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 Clause 23
(CNO-
546.000)

Text –
Particulars of payments made to persons specified under section 40A (2) (b). (All
Payment to relatives, if they excessive they will be disallowed under 40A(2)(a))
Notes –
CASE
An assesses has paid Rent to his brother Rs 2,50,000/- and paid interest to his sister
Rs 4,00,000. State the reporting requirements in the Tax Audit Report.
Solution
(i) Payment of Rent and Interest: A tax auditor has to report under Clause 23 of
Form 3CD which deals with the particulars of payments made to persons
specified under Section 40A(2)(b) of the Income Tax Act, 1961. Where the
assessee is an individual, the specified persons include any relative of the
assessee (i.e. Husband, Wife, Brother, Sister or any other Lineal Ascendant
or Descendant)
(ii) In the present case, an assessee has paid rent to his brother Rs 2,50,000 and
interest to his sister of Rs 4,00,000 which may be disallowed if, in the opinion
of the Assessing Officer, such expenditure is excessive or unreasonable
having regard to:
o the fair market value of the goods, services or facilities for which
the payment is made; or
o for the legitimate needs of business or profession of the
assessee; or
o the benefit derived by or accruing to the assessee from such
expenditure.
Hence this fact needs to be reported in the Tax Audit Report
accordingly.
 Clause 24
(FL.5)

Text –

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CA Ravi Taori
 Amount deemed to be profits & gains under section 32AC / 32AD / 33AB
/33ABA / 33AC. (Withdrawal / Closure of deposit is taxed)
 Clause 25

Text –
Any amount of profit chargeable to tax under section 41 & computation thereof.
Notes –
 Sale of Assets of undertaking engaged in generation and distribution of power
 Sale of assets used in scientific research
 Recovery of Bad Debts allowed earlier
 Withdrawal from Special Reserve to Set-off of loss
 Reversal/writing back of trading liability.
 Clause 26
(CNO-
546.000)

Text –
In respect of any sum referred to in clause (a), (b), (c), (d), (e), (f) or (g) of section 43B,
the liability for which:
A. Pre-existed on the first day of the previous year but was not allowed in the
assessment of any preceding previous year and was – (Opening Balance & Its
treatment)
(i) Paid during the previous year;
(ii) Not paid during previous year
B. Was incurred in the previous year & was – (Closing Balance & Its treatment)
(i) paid on or before the due date for furnishing the returns of income of
the previous year under section 139(1).
(ii) Not paid on or before the aforesaid date.

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CA Ravi Taori
(State whether sales tax, customs duty, excise duty or any other indirect tax,
levy, cess impost, etc., is passed through the profit and loss account)
Notes – (In sequence of powerful entities)
 (Govt) Tax, duty
 (Railways) Clause (g) was inserted by the Finance Act 2016 and applies from
assessment year 2017-18. It refers to any sum payable by the assessee to the
Indian Railways for the use of railway assets.
 (Authorities) Employer contribution to PF / ESIC / Superannuation Fund/Gratuity
Fund,
 (Financers) Interest on Loan from Banks / Financial Institutions, Leave
encashment, etc.” Also, Interest payment to co-operative bank is allowed on
payment basis, other than PACS, PCARDB
 (Employee) Bonus or commission to employees,
 Clause 27
(CNO-
546.500)

Text –
(a) Amount of Central Value Added Tax credits availed of or utilized 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.
(b) Particulars of income or expenditure of prior period credited or debited to the
profit and loss account.
Notes –
 It may be noted that information under this clause would be relevant only in
those cases where the assessee follows mercantile system of accounting. Under
cash system of accounting, expenses debited/ income credited to the profit and
loss account would be current year’s expenses/income even though they may
relate to earlier years.
 Clause 28

Text –
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 for the same.
Notes –
 Sec 56(2) (viia) is applicable for transaction after 1st June 2010 and before 1st
April 2017, now Sec 56(2)(x) is applicable which is much wider in scope which is
covered in Clause 29B
 Clause 29
(CNO-
548.000)

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CA Ravi Taori
Text –
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.
Notes – “Ready-made information to tax as gift”
 Clause 29A

Text –
(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? (Yes/No)
(b) If yes, please furnish the following details:
(i) Nature of income:
(ii) Amount thereof:
Notes –
 Sec 56(2)(ix)
Section 56(2)(ix) was inserted by the Finance (No 2) Act 2014, with effect from
assessment year 2015-16. It provides for taxability as Income from Other Sources
of any sum of money received as an advance or otherwise in the course of
negotiations for transfer of a capital asset, if such sum is forfeited and the
negotiations do not result in transfer of such capital asset.
 Not Applicable to Personal Capital Asset
The auditor is not required to report any such forfeited amount if it is in respect
of a personal capital asset, where neither the asset, the advance nor the
forfeiture is recorded in the books of account relating to the business or
profession.
 Not Applicable for Advance for Stock in Trade
Any advances received and forfeited towards sale of stock-in-trade would be
taxable under section 28(i) and would not be required to be reported since the
amount would be credited to profit & loss account.
 Advance Long Outstanding – No Reporting Required
The requirement of reporting arises only on forfeiture of such amount. If an
advance has been received and has been outstanding for a considerable period
of time, there is no requirement to report such amount unless and until it is
forfeited by an act of the assessee. Only forfeiture of amounts received as
advance towards transfer of a capital asset is required to be reported under this
clause.
 Forfeiture Right
o Such forfeiture should be as per right in contract or as per sanction of
law.
o If there is no such right and amount is forfeited with no action by
purchaser party, then it becomes income under Sec 56(2)(ix) and auditor
has to report it.

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 Clause 29B
(CNO-
547.000)

Text
(a) 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? (Yes/No)
(b) If yes, please furnish the following details:
 Nature of income:
 Amount (in Rs.) thereof:
Notes –
Section 56(2)(x)
Section 56(2)(x) was introduced by the Finance Act 2017, with effect from assessment
year 2017-18. However, since it applies to amounts or assets received on or after 1st April
2017, it effectively applies with effect from assessment year 2018-19.
Under this section, the following amounts/value of assets received by an assessee from
any person or persons are chargeable to tax as Income from Other Sources:
 Money
Any sum of money, received without consideration, if it exceeds Rs. 50,000
 Immovable Asset
o Stamp duty value of any immovable property received without
consideration, stamp duty value of which exceeds Rs. 50,000.
o Stamp duty value of such property as exceeds such consideration, if the
amount of such excess is more than the higher of the following amounts,
namely: —
 the amount of fifty thousand rupees; and
 the amount equal to five per cent of the consideration:
 Other Asset
o Aggregate Fair market value of property, other than immovable
property, without consideration, where the aggregate fair market value
of such property exceeds Rs. 50,000.
o Aggregate Fair market value of property, other than immovable
property, in excess of the consideration, where the aggregate fair
market value exceeds the consideration by more than Rs. 50,000.

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CA Ravi Taori
 Clause 30

Text –
Details of any amount borrowed on hundi or any amount due thereof (including interest
on the amount borrowed) repaid, otherwise than through an account payee cheque
[Section 69D].
Notes –
No threshold limits
 Clause 30A

Text –
(a) Whether primary adjustment to transfer price, as referred to in sub-section (1)
of section 92CE, has been made during the previous year? (Yes/No)
(b) If yes, please furnish the following details: -
 Under which clause of sub-section (1) of section 92CE primary
adjustment is made?
 Amount (in Rs.) of primary adjustment:
 Whether the excess money available with the associated enterprise is
required to be repatriated to India as per the provisions of sub-section
(2) of section 92CE? (Yes/No)
 If yes, whether the excess money has been repatriated within the
prescribed time (Yes/No)If no, the amount (in Rs.) of imputed interest

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CA Ravi Taori
income on such excess money which has not been repatriated within
the prescribed time.
Notes – Section 92CE
 Primary Adjustment
Sub section (1) Where a primary adjustment to transfer price, —
(i) has been made Suo moto by the assesse in his return of income;
(ii) made by the Assessing Officer has been accepted by the assessee;
(iii) is determined by an advance pricing agreement entered into by the assessee
under section 92CC;
(iv) is made as per the safe harbor rules framed under section 92CB; or
(v) is arising as a result of resolution of an assessment by way of the mutual
agreement procedure under an agreement entered into under section 90 or
section 90A for avoidance of double taxation, the assessee shall make a
secondary adjustment:
 Non-Applicability
No secondary adjustment is required if the primary adjustment relates to
assessment year 2016-17, or an earlier assessment year. No secondary
adjustment is required if the amount of primary adjustment made in any
previous year does not exceed Rs. 1 crore.
 Secondary Adjustment
Sub section (2) Where, as a result of primary adjustment to the transfer price,
there is an increase in the total income or reduction in the loss, as the case may
be, of the assessee, the excess money which is available with its associated
enterprise, if not repatriated to India within the time as may be prescribed, shall
be deemed to be an advance made by the assessee to such associated enterprise
and the interest on such advance, shall be computed in such manner as may be
prescribed.
 Clause 30B

Text –
(a) 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? (Yes/No)
(b) If yes, please furnish the following details: -
 Amount (in Rs.) of expenditure by way of interest or of similar nature
incurred:

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 Earnings before interest, tax, depreciation and amortization (EBITDA)
during the previous year (in Rs.):
 Amount (in Rs.) of expenditure by way of interest or of similar nature
as per (i) above which exceeds 30% of EBITDA as per (ii) above:
 Details of interest expenditure brought forward as per subsection (4)
of section 94B:
A.Y. Amount (in Rs.)
 Details of interest expenditure carried forward as per subsection (4) of
section 94B:
A.Y. Amount (in Rs.)
Notes –
 Limit excess Interest Expense
Section 94B was inserted by the Finance Act 2017, with effect from assessment
year 2018-19. It provides that, where an Indian company or a permanent
establishment of a foreign company in India, incurs any expenditure by way of
interest or of similar nature exceeding Rs. 1 crore which is deductible in
computation of income under the head “Profits & Gains of Business or
Profession” in respect of a debt issued by a non-resident AE, such interest, to
the extent of excess interest, shall not be deductible. Further, if the debt is
issued by a lender who is not associated, but an AE provides either an implicit or
explicit guarantee to such lender or deposits a corresponding and matching
amount of funds with the lender, such debt is also regarded as having been issued
by an AE.
 Computation of Extra Interest
The excess interest is to be computed as the lower of:
(i) Total interest paid or payable in excess of 30% of earnings before
interest, taxes, depreciation and amortization (“EBITDA”) of the
borrower in the previous year; or
(ii) Interest paid or payable to AEs for that previous year.
 Carry forward of Interest
The excess interest, which is disallowed, is allowed to be carried forward for a
period of 8 assessment years following the year of disallowance, to be allowed
as a deduction against profits and gains of any business in the subsequent years,
to the extent of maximum allowable interest expenditure under this section.
 Clause 30C

Text –
(a) Whether the assessee has entered into an impermissible avoidance
arrangement, as referred to in section 96, during the previous year? (Yes/No.)
(b) If yes, please specify: —
 Nature of impermissible avoidance arrangement:
 Amount (in Rs.) of tax benefit in the previous year arising, in aggregate,
to all the parties to the arrangement:

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 Clause 31
(CNO-
549.000)
(Incs.01.5)

Text & Notes

(a)* Particulars of each loan or deposit in an amount exceeding the limit specified --All loans or deposits
in Section 269SS taken or accepted during the previous year: - taken or accepted in
(i) name, address and permanent account number (if available with the aggregate from single
assessee) of the lender or depositor; party exceed 20,000
(ii) amount of loan or deposit taken or accepted;
(iii) whether the loan or deposit was squared up during the previous year;
(iv) maximum amount outstanding in the account at any time during the
previous year;
(v) whether the loan or deposit was taken or accepted by cheque or bank
draft or use of electronic clearing system through a bank account
(vi) in case the loan or deposit was taken or accepted by cheque or bank
draft, whether the same was taken or accepted by an account payee
cheque or an account payee bank draft

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(b) Particulars of each specified sum in an amount exceeding the limit specified in --All sums taken or
Section 269SS taken or accepted during the previous year: - accepted with respect to
(i) name, address and Permanent Account Number (if available with the
immovable property in
assessee) of the person from whom specified sum is received;
aggregate from single
(ii) amount of specified sum taken or accepted;
(iii) whether the specified sum was taken or accepted by cheque or bank party exceed 20,000
draft or use of electronic clearing system through a bank account;
(iv) maximum amount outstanding in the account at any time during the
previous year;
(v) in case the specified sum was taken or accepted by cheque or bank draft,
whether the same was taken or accepted by an account payee cheque
or an account payee bank draft
(Particulars at (a) and (b) need not be given in the case of a Government
company, a banking company or a corporation established by the Central, State
or Provincial Act.)

(ba) Particulars of each receipt in an amount exceeding the limit specified in section --Receipt not in
269ST, in aggregate from a person in a day or in respect of a single transaction or prescribed mode Rs.
in respect of transactions relating to one event or occasion from a person, during
2,00,000 or more
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: a) in aggregate from a
(i) Name, address and Permanent Account Number (if available with the person in a day; or
assessee) of the payer;
b) in respect of a single
(ii) Nature of transaction;
transaction; or
(iii) Amount of receipt (in Rs.);
(iv) Date of receipt; c) in respect of
transactions relating to
one event or occasion
from a person

(bb) Particulars of each receipt in an amount exceeding the limit specified in section --Receipt by cheque or
269ST, in aggregate from a person in a day or in respect of a single transaction DD which is not account
or in respect of transactions relating to one event or occasion from a person, payee Rs. 2,00,000 or
received by a cheque or bank draft, not being an account payee cheque or an more
account payee bank draft, during the previous year: —
a) in aggregate from a
person in a day; or

b) in respect of a single
transaction; or

c) in respect of
(i) Name, address and Permanent Account Number (if available with the transactions relating to
assessee) of the payer; one event or occasion
(ii) Amount of receipt (in Rs.); from a person

(bc) Particulars of each payment made in an amount exceeding the limit specified --Payment not in
in section 269ST, in aggregate to a person in a day or in respect of a single prescribed mode Rs.
transaction or in respect of transactions relating to one event or occasion to a
2,00,000 or more
person, otherwise than by a cheque or bank draft or use of electronic clearing
system through a bank account during the previous year.

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(i) Name, address and Permanent Account Number (if available with the a) in aggregate from a
assessee) of the payee person in a day; or
(ii) Nature of transaction; b) in respect of a single
(iii) Amount of payment (in Rs.); transaction; or
(iv) Date of payment; c) in respect of
transactions relating to
one event or occasion
from a person

(bd) Particulars of each payment in an amount exceeding the limit specified in --Payment by cheque or
section 269ST, in aggregate to a person in a day or in respect of a single DD which is not account
transaction or in respect of transactions relating to one event or occasion to a
payee Rs. 2,00,000 or
person, made by a cheque or bank draft, not being an account payee cheque or
an account payee bank draft, during the previous year: more
(i) Name, address and Permanent Account Number (if available with the
a) in aggregate from a
assessee) of the payee
(ii) Amount of payment (in Rs.) person in a day; or

b) in respect of a single
transaction; or

c) in respect of
transactions relating to
one event or occasion
from a person

Particulars at (ba), (bb), (bc) and (bd) need not be given in the case of receipt
by or payment to a Government company, a banking Company, a post office
savings bank, a cooperative bank or in the case of transactions referred to in
section 269SS or in the case of persons referred to abcaus.in in Notification No.
S.O. 2065(E) dated 3rd July, 2017)”;

(c) Particulars of each repayment of loan or deposit or any specified advance in --All loans or deposits
an amount exceeding the limit specified in section 269T made during the repaid in aggregate to
previous year: —
single party exceed
20,000
(i) name, address and Permanent Account Number (if available with the
assessee) of the payee;
(ii) amount of the repayment; --All sums repaid with
(iii) maximum amount outstanding in the account at any time during the respect to immovable
previous year; property in aggregate
(iv) whether the repayment was made by cheque or bank draft or use of from single party exceed
electronic clearing system through a bank account;
20,000
(v) in case the repayment was made by cheque or bank draft, whether the
same was repaid by an account payee cheque or an account payee bank
draft.

(d) Particulars of repayment of loan or deposit or any specified advance in an Repayment details where
amount exceeding the limit specified in section 269T received otherwise than 3 prescribed mediums
by a cheque or bank draft or use of electronic clearing system through a bank
were not used while
account during the previous year: —
(i) name, address and Permanent Account Number (if available with the receiving funds
assessee) of the payer;

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(ii) repayment of loan or deposit or any specified advance 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 Repayment details where
amount exceeding the limit specified in section 269T received by a cheque or while receiving funds
bank draft which is not an account payee cheque or account payee bank draft
cheques and DD were
during the previous year: —
(i) name, address and Permanent Account Number (if available with the not account payee
assessee) of the payer;
(ii) repayment of loan or deposit or any specified advance received by a
cheque or a bank draft which is not an account payee cheque or account
payee bank draft during the previous year.
 Aggregate Amount
If the total of all loans/deposits from a person exceed Rs 20,000 but each individual item is less than
Rs 20,000, the information will still be required to be given in respect of all such entries starting from
the entry when the balance reaches Rs 20,000 or more and until the balance goes down below Rs
20,000. As such the tax auditor should verify all loans/deposits taken or accepted where balance has
reached Rs 20,000 or more during the year for the purpose of reporting under this clause
 Clause 32
(CNO-
550.000)

(a) Details of brought forward loss or depreciation allowance, in the following manner, to
the extent available:
Serial Assessment Nature of loss/ Amount as Amount as Remarks
Number Year allowance (in returned (in assessed (give
rupees) rupees) reference to
relevant order)
(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.
(c) Whether the assessee has incurred any speculation loss referred to in section 73 during
the previous year, if yes, please furnish the details of the same.
(d) Whether the assessee 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.
 Clause 33

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Text –
Section-wise details of deductions, if any, admissible under Chapter VIA or Chapter III
(Section 10A & Section 10AA.
Notes –
Can Chapter VI A deduction be more than the Gross Total Income- Income tax
computation is pending???-- No
 Clause 34
(MCQ- FL.3)

(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
TAN Sec Nature Total Total Amt Total Amt of Total Amt Amt of Amt of tax
of Amt of on which Amt on tax on which tax deducted or
Payment Payment tax was which Ded. tax was deduc collected not
or required to tax was Or deducted or deposited to
Receipt be deducte coll. or collec the credit of
of the deducted d or Out of collected on (8) the Central
nature or collected (6) at less Govt out of
specified collected at than (6) and (8).
in Col. 3 out of (4) specified specified
rate out rate out of
of (5) (7)

(b) whether the assessee is required to furnish the statement of tax deducted or tax
collected. If yes, please furnish the details:

Tax deduction Type Due date Date of Whether the statement of tax deducted
and collection of for furnishing, or collected contains information about
Account Form furnishing all details/transactions which are required
Number to be reported. If not, please furnish list
(TAN) of details/ transactions which are not
reported

(c) whether the assessee is liable to pay interest under section 201(1A) or section 206C (7).
If Yes, please furnish.
 Clause 35
(CNO-
532.000)

(a) In the case of a trading concern, give quantitative details of principal items of goods
traded:
(i) Opening stock;
(ii) Purchases during the previous year;
(iii) Sales during the previous year;
(iv) Closing stock;
(v) Shortage/excess, if any.
(b) In the case of a manufacturing concern, give quantitative details of the principal items of
raw materials, finished products and by-products.
a. Raw Materials: -
(i) Opening stock;
(ii) Purchases during the previous year;
(iii) Consumption during the previous year;
(iv) Sales during the previous year;
(v) Closing stock;
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(vi) *Yield of finished products
(vii) *Percentage of yield;
(viii) *Shortage/excess, if any.
B. Finished Products/By-products:
(i) Opening stock;
(ii) Purchases during the previous year;
(iii) Quantity manufactured during previous year;
(iv) sales during the previous year;
(v) Closing stock;
(vi) Shortage/excess, if any.
*Information may be given to the extent available.
 Clause 36

In the case of a domestic company, details or tax on distributed profits under section 115-O in
the following form –
(a) Total amount of distributed profits;
(b) amount of reduction as referred to in section 115-O(1A) (i)
(c) amount of reduction as referred to in section 115-O(1A) (ii)
(d) Total tax paid thereon;
(e) Dates of payment with amounts
 Clause 36A

(a) Whether the assessee has received any amount in the nature of dividend as referred to
in sub-clause (e) of clause (22) of section 2? (Yes/No)
(b) If yes, please furnish the following details: -
(i) Amount received (in Rs.):
(ii) Date of receipt:

 Clause 37 Whether any cost audit was carried out, if yes, give the details if any, of disqualification or
(CNO- disagreement on any matter/ item/ value/ quantities may be reported/identified by the cost
553.000) auditor.

 Clause 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.
 Clause 39 Text –
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 the disqualification or
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disagreement on any matter/ item/ value/ quantity as may be reported/identified by
the auditor.
Notes –
 The tax auditor need not express any opinion in a case where such audit has been
ordered but the same has not been carried out.
 In cases where audit which might have been ordered is not completed by the
time the tax auditor issues his report, he has to report appropriately in this report
stating that since audit is not completed and the report is not available with the
Assessee.
 The tax auditor should examine the time period for which the audit if any has
been required to be carried out. Information is required to be given only in
respect of such report the time period of which falls within the relevant previous
year. In effect, the information is required to be given in respect of that report
which is received up to the date of tax audit report.
 Clause 40
(CNO-
554.000)

Text –
Details regarding turnover, gross profit, etc., for the previous year and preceding
previous year:
(a) Total Turnover
(b) Gross Profit/Turnover
(c) Net Profit/Turnover
(d) Stock in trade/Turnover
(e) Material Consumed/Finished Goods Produced
Notes –
These ratios have to be calculated only for assesses who are engaged in manufacturing or
trading activities Moreover, the ratios have to be given for the business as a whole and
need not be given product wise. Further, the ratio mentioned in (5) need not be given for
trading concern or service provider.
 Clause 41
(CNO-
555.000)

Text –
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.
Notes –
 It may be noted that even though the demand/refund order is issued during the
previous year, it may pertain to a period other than the relevant previous year. In
such cases, also, reporting has to be done under this clause.

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 If there is any adjustment of refund against any demand, the auditor shall also
report the same under this clause.
 Clause 42

(a) Whether the assessee is required to furnish statement in Form No.61 or Form No. 61A
or Form No. 61B? (Yes/No)
(b) If yes, please furnish:
Income-tax Type of Due date Date of Whether the Form contains
Department Form for furnishing, information about all details/
Reporting furnishing if furnished transactions which are required
Entity to be reported. If not, please
Identification furnish list of the
Number details/transactions which are
not reported.
 Clause 43

(a) Whether the assessee or its parent entity or alternate reporting entity is liable to furnish
the report as referred to in subsection (2) of section 286 (Yes/No)
(b) if yes, please furnish the following details:
(i) Whether report has been furnished by the assessee or its parent entity or an
alternate reporting entity
(ii) Name of parent entity
(iii) Name of alternate reporting entity (if applicable)
(iv) Date of furnishing of report

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 Clause 44

Break-up of total expenditure of entities registered or not registered under the GST:

Sl. No. Total Expenditure in respect of entities registered under GST Expenditure
amount of relating to
Expenditur entities not
e incurred registered under
during the GST
year
Relating Relating to entities Relating to Total payment
to goods falling under other to registered
or services composition registered entities
exempt scheme entities
from GST

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AUDIT OF PUBLIC TRUSTS (CNO 561.000)
 Audit
Programme
/ Routine
Checking

An auditor should conduct routine checking during the course of audit of a public trust, in the
following manner:
Internal Control / System of Accounting / Books of Account
Check the books of account and other records having regard to the system of accounting
and internal control.
Vouching
Vouch the transactions of the trust to satisfy that;
 Objects / Ambit / Authorization
o amounts shown as applied towards the object of the trust are covered
by the objects of the trust as specified in the document governing the
trust.
o the transaction falls within the ambit of the trust;
o the transaction is properly authorized by the trustees or other
delegated authority as may be permissible in law;
 Proper Accounting
o all incomes due to the trust have been properly accounted for on the
basis of the system of accounting followed by the trust;
o all expenses and outgoings appertaining to the trust have been recorded
on the basis of the system of accounting followed by the trust; and
Trial Balance
Obtain a trial balance on the closing date certified by the trustees.

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BS and P&L
Obtain the Balance Sheet and Profit & Loss Account of the trust authenticated by the
trustees and check the same with the trial balance with which they should agree.
 Annexure to List of Persons
the Audit  Obtain from the trustees, a certified list of persons covered by Section 13(3).
Report  The Auditor can accept as correct the list of persons covered by Section 13(3)
as given by the managing trustees.
 Where a list of persons specified in Section 13(3) is not available, indicate
against Sections II and III of the items specified in the annexure the appropriate
qualifying remarks.
Form 10B
 Obtain from the trustees, a statement enlisting the various items specified in
the Annexure to Form No. 10B and giving the information against each item
together with explanatory or supporting schedules.
 Verify the information supplied by the trustees in the statements specified
above in the light of available material.
Audit Report & Effect if Not Available
 The audit report is required to be furnished to the relevant year. Failure to
furnish the report will disentitle the trust or institution to the benefit of Sections
11 and 12.

UNIQUE MCQS
 CNO- 530.500 Matters tax auditor should consider to while furnishing the particulars in Form No, 3CD
 CNO 558.020 Applicability of SAs & GNs in Tax Audit
 CNO 560.000 Tax Audit of Co-Operative

UNIQUE MCQS
 MCQ No. FL.7
 MCQ No. FL.10

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