COMPILED BY: CHATTER & CHATTER, CHARTERED ACCOUNTANTS
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TAX AUDIT REPORT 3CD REVISED
• Significant changes in Form 3CD notified on 25th July 2014.
• The audit season is already in full swing and all our offices are
currently completing the statutory audits and tax audits. Just as we
are nearing various deadlines, the CBDT has notified significant
changes in Form 3CD and increased the scope and reporting
requirements of tax audits.
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TAX AUDIT REPORT 3CD REVISED
• Broadly speaking 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.
• Form 3CB has also been amended. Observations and qualifications,
subject to which report is given in form 3CD, are to be mentioned in
details in the report in Form 3CB.
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CLAUSE 21(a)
• Old clause 17 (a) to (e) replaced by Clause 21(a) which says:
• Please furnish the details of amounts debited to the profit and loss
account, being in the nature of capital, personal, advertisement
expenditure etc:
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17 Amount debited to the profit and loss account , being :a
expenditure of capital nature
b
Expenditure of personal nature
c
Expenditure on advertisement in any souvenir,
brochure, tract, pamphlet or the like,
published by a political party
expenditure incurred at club,(i) As entrance fees and subscriptions
d
(ii) As cost for club services and facilities used;
e
(i) Expenditure by way of penalty or fine for
violation of any law for the time being in force
(ii) Any other penalty or fine.
(iii) Expenditure incurred for any purpose
which is an offence or which is prohibited by
law
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Nature
Serial number
Particulars
Amount in Rs.
Capital
Expenditure
1
Building
Construction
2,00,000.00
1
Donation
50,000.00
2
Car Expenses
(20%)
20,000.00
3
Income Tax
25,000.00
2
Personal
Expenditure
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1
Advertisement
Expenditure
2
3
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Advertisement Expenses
• In new 3CD the words used are Advertisement expenses. Now a
doubt arises that whether all kind of advertisement expenses to be
reported or only the ones disallowed as was reported previously.
• The old 3CD specifies the following:
“Expenditure on advertisement in any souvenir, brochure, tract,
pamphlet or the like, published by a political party”.
In my opinion the new 3CD will take color from the old 3CD and
we should report only the similar expenditure to political party
only until any clarification in this regard is received.
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Expenditure incurred at
clubs being cost for club
services and facilities used.
Expenditure by way of
penalty or fine for violation
of any law for the time
being force
Expenditure by way of any
other penalty or fine not
covered above
Expenditure incurred for
any purpose which is an
offence or which is
prohibited by law
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Clause 21b
• Old Clause 17(f) is replace by New clause 21(b):
• Old clause simply asks
Amounts inadmissible under section 40(a);
New clause is detailed one. It asks to bifurcate the amount paid to
Residents and Non Residents u/s 40(a)(i) and section 40(a)(ia). The
details required by revised 3CD Form are:
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Clause 21(b)(i) of Revised 3CD
(b) Amounts inadmissible under section 40(a):(i) as payment to non-resident referred to in sub-clause (i) of section
40(a).
(A) Details of payment on which tax is not deducted:
• (I) date of payment
• (II) amount of payment
• (III) nature of payment
• (IV) name and address of the payee
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(B) Details of payment on which tax has been deducted but has not
been paid during the previous year or in the subsequent year before
the expiry of time prescribed under section 200(1)
• (I) date of payment
• (II) amount of payment
• (III) nature of payment
• (IV) name and address of the payee
• (V) amount of tax deducted
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Clause 21(1)(b)
(ii) as payment referred to in sub-clause (ia) of
section 40a
(A) Details of payment on which tax is not deducted:
• (I) date of payment
• (II) amount of payment
• (III) nature of payment
• (IV) name and address of the payee
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(B) Details of payment on which tax has been deducted but has not
been paid on or before the due date specified in sub- section (1) of
section 139.
• (I) date of payment
• (II) amount of payment
• (III) nature of payment
• (IV) name and address of the payer
• (V) amount of tax deducted
• (VI) amount out of (V) deposited, if any
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Amounts Inadmissible under section 40a
• (iii) under sub-clause (ic) [Wherever applicable]
[Any sum paid on account of Fringe Benefit Tax (FBT) under ch.XII H]
• (iv) under sub-clause (iia)
Any sum paid on account of Wealth Tax.
• (v) under sub-clause (iib)
Any amount paid by way of Royalty, License Fee or any other Fee
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(vi) under sub-clause (iii)
Any payment which is chargeable under the head salaries , if it payable
outside India or to a Non Resident and if Tax has not been paid thereon
nor deducted therefrom under Chapter XVII-B.
• (A) date of payment
• (B) amount of payment
• (C) name and address of the payee
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Clause 21b continues:
(vii) under sub-clause (iv)
Payment to PF or any other fund for employee benefits unless tax is
deducted from payments from fund chargeable to tax.
(viiii) under sub-clause (v)
Any tax actually paid by employer referred to in section 10(10CC).
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Clause 21c is same as Clause 17g of old 3CD
• (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;
• Payment to non working partner
• Payment not authorized by or in accordance with the terms of
Partnership deed.
• Interest payment though authorized by deed is in excess of 12% per
annum.
• Remuneration payments exceeds the limits specified u/s 40(b)(v).
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Clause 21(d) - Disallowance/deemed income
under section 40A(3)/(3A):
(A) Section 40A(3)
On the basis of the examination of books of account and other
relevant documents/evidence, whether the expenditure covered under
section 40A(3) read with rule 6DD [Payment in excess of Rs. 20,000]
were made by account payee cheque drawn on a bank or account
payee bank draft. If not, please furnish the details:
Serial number
Date of payment
Nature of payment Amount
Name and
Permanent Account
Number of the
payee, if available
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• (B) On the basis of the examination of books of account and other
relevant documents/evidence, whether the payment referred to in
section 40A(3A) read with rule 6DD were made by account payee
cheque drawn on a bank or account payee bank draft If not, please
furnish the details of amount deemed to be the profits and gains of
business or profession under section 40A(3A);
Serial number
Date of payment
Nature of payment Amount
Name and
Permanent
Account Number
of the payee, if
available
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Clause 21 continues (No change in these
clauses)
• (e) provision for payment of gratuity not allowable under section
40A(7);
• (f) any sum paid by the assessee as an employer not allowable under
section 40A(9);
• (g) particulars of any liability of a contingent nature;
• (h) amount of deduction inadmissible in terms of section 14A in
respect of the expenditure incurred in relation to income which does
not form part of the total income;
• (i) amount inadmissible under the proviso to section 36(1)(iii).
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Clause 22
[Similar to Clause 17A of old 3CD]
• Amount of interest inadmissible under section 23 of the Micro, Small
and Medium Enterprises Development Act, 2006.
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Clause 23
[Similar to Clause 18 of old 3CD]
Particulars of payments made to persons specified under section
40A(2)(b)
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Clause 24
[Similar to Clause 19 of old 3CD] with little change
in respect of section 32AC.
Amounts deemed to be profits and gains under section 32AC or 33AB
or 33ABA or 33AC.
32AC has been added to this clause which is newly inserted section in
relation to 15% deduction on Investment in new Plant and Machinery
for specified assets.
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Clause 25
[Similar to Clause 20 of old 3CD]
Any amount of profit chargeable to tax under section 41 and
computation thereof
This is in respect of recovery of any benefit in cash or any other manner
by assesse or his successor out of allowance or deduction made out of
expenditure/ loss/ trading liability incurred by the assesse.
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Clause 26
[Similar to Clause 21 of old 3CD]
In respect of any sum referred to in clause (a),(b), (c), (d), (e) or (f) 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
• (a) paid during the previous year;
• (b) not paid during the previous year;
(B) was incurred in the previous year and was
• (a) paid on or before the due date for furnishing the return of income of the previous year under
section 139(1);
• (b) not paid on or before the aforesaid date.
(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.)
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Clause 27a
[Similar to Clause 22a of old 3CD]
with change of word to CENVAT in place of MODVAT
Amount of Central Value Added Tax credits availed of or utilised during
the previous year and its treatment in the profit and loss account and
treatment of outstanding Central Value Added Tax credits in the
accounts.
The reconciliation of CENVAT Credit needs to be given which may be
given as:
Opening Credit available:
Add: Credit Availed/ Earned:
Less: Credit Utilised
Balance: Credit available at year end
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Clause 27b
[Similar to Clause 22b of old 3CD]
Particulars of income or expenditure of prior period credited or debited
to the profit and loss account
28
Newly inserted Clause 28
Whether during the previous year the assessee has received any
property, being share of a company not being a company in which the
public are substantially interested, without consideration or for
inadequate consideration as referred to in section 56(2)(viia), if yes,
please furnish the details of the same.
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Newly inserted Clause 29
Whether during the previous year the assessee received any
consideration for issue of shares which exceeds the fair market value of
the shares as referred to in section 56(2)(viib), if yes, please furnish the
details of the same.
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Clause 30
[Similar to Clause 23 of old 3CD]
Details of any amount borrowed on hundi or any amount due thereon
(including interest on the amount borrowed) repaid, otherwise than
through an account payee cheque. [Section 69D]
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Clause 31a
[Similar to Clause 24a of old 3CD]
Particulars of each loan or deposit in an amount exceeding the limit specified in
section 269SS taken or accepted during the previous year :(i) name, address and permanent account number (if available with the assessee)
of the lender or depositor;
(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 otherwise than by an
account payee cheque or an account payee bank draft.
*(These particulars needs not be given in the case of a Government company, a
banking company or a corporation established by a Central, State or Provincial Act.)
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Clause 31b
[Similar to Clause 24b of old 3CD]
(b) Particulars of each repayment of loan or deposit in an amount
exceeding the limit specified in section 269T made during the previous
year :(i) name, address and Permanent Account Number (if available with
the assessee) of the payee;
(ii) amount of the repayment;
(iii) maximum amount outstanding in the account at any time during
the previous year;
(iv) whether the repayment was made otherwise than by account
payee cheque or account payee bank draft.
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Clause 31c
[Replaced Certificate required under Clause 24c of
old 3CD]
Old 3CD Requires to state that Whether a certificate has been obtained from
the assessee regarding taking or accepting loan or deposit, or repayment of
the same through an account payee cheque or an account payee bank draft.
NOW we have to report that:
(c) Whether the taking or accepting loan or deposit, or repayment of the
same were made by account payee cheque drawn on a bank or account
payee bank draft based on the examination of books of account and other
relevant documents
(The particulars (i) to (iv) at (b) and comment at (c) above need not be given
in the case of a repayment of any loan or deposit taken or accepted from
Government, Government company, banking company or a corporation
established by a Central, State or Provincial Act)
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Clause 32(a) and (b)
[Similar to Clause 25(a) and (b) of old 3CD with
few changes]
32.(a) Details of brought forward loss or depreciation allowance, in the
following manner, to the extent available :
Assessment
Serial Number
Year
Nature of loss Amount as
/ allowance (in returned (in
rupees)
rupees)
Amounts as
assessed (give
Remarks
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.
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Clause 32(c), (d), (e)
[New clauses added to clause 32]
(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.
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Clause 33
[Similar to Clause 26 with slight change]
Section-wise details of deductions, if any, admissible under Chapter VIA
or Chapter III (Section 10A, Section 10AA).
Previously only details of Chapter VIA were to be given. Now amount of
deduction under section 10A/ AA under Chapter III is also included.
Section under which deduction is claimed
Amounts admissible as per the provision of the
Income Tax Act, 1961 and fulfils the conditions, if
any, specified under the relevant provisions of
Income Tax Act, 1961 or Income Tax Rules,1962
or any other guidelines, circular, etc, issued in
this behalf.
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Clause 34
[Replaced with changes for Clause 27 of old 3CD]
The old Clause 27 needs to report that:
Whether the assessee has complied with the provisions of Chapter
XVII-B regarding deduction of tax at source and regarding the payment
thereof to the credit of the Central Government.
Only if the provisions were not complied with, we need to report the
details required under sub clause b of said clause 27:
(i) Tax deductible and not deducted at all
(ii) Shortfall on account of lesser deduction than required to be
deducted
(iii) Tax deducted late:
(iv) Tax deducted but not paid to the credit of the central govt
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Clause 34 contd..
[Replaced for Clause 27 of old 3CD]
BUT…
Now we need to report the complete details of TDS made by the
assesse if the provisions of TDS are applicable on him irrespective of
fact that the provisions are complied with or not.
We have to do complete analysis of TDS provisions on the assesse and
need to calculate all the details which were required to be calculated at
the time of TDS survey or assessments only.
Probably this clause of 3CD is the most time consuming clause for we
professionals.
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Clause 34(a) provides:
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:
Tax
deduction
and
collection
Account
Number
(TAN)
Total
Total
amount
amount of
on which
payment
tax was
or receipt
Nature of
required
Section
of the
payment
to be
nature
deducted
specified
or
in column
collected
(3)
out of (4)
Total
amount
on which
tax was
deducted
or
collected
at
specified
rate out
of (5)
Total
amount
on which
Amount tax was
of tax
deducted
deducted or
or
collected
collected at less
out of (6) than
specified
rate out
of (7)
Amount
of tax
deducte
d or
collecte
d on (8)
Amount of
tax
deducted or
collected
not
deposited to
the credit of
the Central
Government
out of (6)
and (8)
(1)
(2)
(6)
(7)
(9)
(10)
(3)
(4)
(5)
(8)
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Clause 34(a) contd…
Thus, the auditor needs to report the following details:
1. TAN
2. Section under which tax deducted (eg. 194A/ 194C/ 194H etc.)
3. Nature of Payment i.e. Interest/ Contractual payment/ Commission etc.
4. Total Amount paid of the nature specified. (Whether tax deductible or not).
5. Total amount on which tax was required to be deducted. (Out of total payment,
the amount on which tax is not required to be deducted needs to be reduced i.e.
the amount on which tax is not deductible may be on submission of declaration
forms like 15G or payment below limits liable for TDS say below 30000 for
professional payments or 180000 for payment of rent etc.
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6. Total amount on which tax was deducted at specified rates. (i.e at
normal rates and not reduced rates as may be reduced by the AO).
7. Amount of tax deducted
The actual amount of tax deducted needs to be reported.
8. Total amount on which tax was deducted at less than specified rates.
Amount paid on which lower tax was deducted.
9. Amount of Tax Deducted at lower rate
10. Amount of Tax Deducted not deposited to the credit of CG
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Clause 34(b)
whether the assessee has furnished the statement of tax deducted or
tax collected within the prescribed time. If not, please furnish the
details:
Tax deduction and
collection Account
Number (TAN)
Type of Form
Due date for
furnishing
Whether the
statement of tax
deducted or
Date of furnishing, if collected contains
furnished
information about all
transactions which
are required to be
reported
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Clause 34(c)
whether the assessee is liable to pay interest under section 201(1A) or
section 206C(7). If yes, please furnish:
Tax deduction and collection
Account Number (TAN)
Amount of interest under
section 201(1A)/206C(7) is
payable
Amount paid out of column (2)
along with date of payment.
201(1A): Interest @1% From date on which TDS deductible to the date
on which tax deducted and @ 1.5% from date on which tax deducted
to the date on which tax deposited.
206C(7): 1% Interest on TCS
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Clause 35a
[Similar to Clause 28a of old 3CD]
(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
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Clause 35b
[Similar to Clause 28b of old 3CD]
(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;
• (vi) yield of finished products;
• (vii) percentage of yield;
• (viii) shortage/excess, if any.
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Clause 35b contd.
[Similar to Clause 28b of old 3CD]
B. Finished products/by- products :
• (i) opening stock;
• (ii) purchases during the previous year;
• (iii) quantity manufactured during the previous year;
• (iv) sales during the previous year;
• (v) closing stock;
• (vi) shortage/excess, if any.
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Clause 36.
[Similar to Clause 29 of old 3CD with slight change]
36. In the case of a domestic company, details of 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);
(Newly added)
• (c amount of reduction as referred to in section 115-O(1A)(ii);
(Newly added)
• (d) total tax paid thereon;
• (e) dates of payment with amounts.
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Clause 37.
[Similar to Clause 30 of old 3CD with slight change]
37. Whether any cost audit was carried out, if yes, give the details, if
any, of disqualification or disagreement on any matter/ item/ value/
quantity as may be reported/identified by the cost auditor.
• Thus now disqualification/ disagreement of cost auditor needs to be
incorporated in 3CD report as against the attachment of cost audit
report required earlier.
49
Clause 38.
[Similar to Clause 31 of old 3CD with slight change]
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.
• Thus now disqualification/ disagreement of Excise Audit done, if any,
needs to be incorporated in 3CD report as against the attachment of
Excise audit report required earlier.
50
Newly inserted Clause 39
• 39. Whether any audit was conducted under section 72A of the
Finance Act,1994 in relation to valuation of taxable services, Finance
Act,1994 in relation to valuation of taxable services, if yes, give the
details, if any, of disqualification or disagreement on any
matter/item/value/quantity as may be reported/identified by the
auditor.
51
Clause 40.
[Similar to Clause 32 of old 3CD with slight change]
Previously accounting ratios needs to be given for the year under audit
only. Now it is required to give the ratios of previous year also so as to
make it comparable. Further comparative Turnover also needs to be
given. The clause reads as under:
40. Details regarding turnover, gross profit, etc., for the previous year
and preceding previous year:
(The details required to be furnished for principal items of goods
traded or manufactured or services rendered)
The format of ratios to be given is also specified which is as follows:
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Comparative figures to be given:
Serial number
Particulars
1.
Total turnover of the
assessee
2.
Gross profit/turnover
3.
Net profit/turnover
4.
Stock-in-trade/turnover
5.
Material
consumed/finished goods
produced
Previous year
Preceding previous year
53
Newly inserted Clause 41
41. Please furnish the details of demand raised or refund issued during
the previous year under any tax laws other than Income Tax Act, 1961
and Wealth tax Act, 1957 along with details of relevant proceedings.
54
OTHER IMPORTANT ISSUES OF NEW 3CD
• The annexure 1 of old 3CD form i.e. the comparative figures of
current year with previous year is no longer a part of 3CD and thus is
dispensed with.
• Deleted requirement to furnish certificate from the assessee
regarding payments relating to any expenditure covered under
section 40A(3) of the IT Act that the payments were made by
account payee cheques drawn on a bank or account payee
bank draft, as the case may be.
55
CBDT on 29th of July has issued
another clarification on its e-filing website,
• The existing Form No. 3CA, Form No. 3CB and Form No. 3CD have
been substituted vide Notification No.33 dated 25/07/2014 with
immediate effect. Taxpayers and CAs are advised to await the release
of the new schema and utility to submit in the newly notified
aforementioned Forms. Taxpayers and CAs are advised that any
upload using the old Forms will not be valid even for previous AYs in
view of the notification of CBDT. The new schema and updated utility
for e-Filing of the same will be deployed shortly"
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OTHER IMPORTANT ISSUES OF NEW 3CD
Form 3CB changes to incorporate any qualification/ observation in 3CD:
In *my/our opinion and to the best of *my / our information and
according to explanations given to *me / us, the particulars given in the
said Form No.3 CD are true and correct subject to following
observations/qualifications, if any:
• a.
• b.
• c.
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• Due to the amendments made in the Form No. 3CD, the reporting
responsibilities of the assessee and the auditor have increased.
• On the direct tax front, the revised Form No. 3CD now requires
submission of the valuation related details of transfer of land, building
or both for a lower consideration, receipt of share of private limited
company without consideration or for inadequate consideration and
receipt of any consideration for issue of shares which exceeds the fair
market value of the shares.
• As information on indirect taxes are now required to be reported, this
highlights that there is a change in the perspective of computation of
income by the CBDT. The assessee may have to put in place systems
and processes to collect the information required by the amended
Form No. 3CD.
58
The bottom line
• The revision to the tax audit report has added new
responsibilities for most companies and auditors. These
changes require immediate attention given the potentially short
timeframe for implementation.
59
: vivekchatter@yahoo.com
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