SELECTED ISSUES IN TAX AUDIT

Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,

Form no 3CD information can be divided into five segments

I. II. III. IV.
V.

Basic information of assessee Relating to Computation Compliance of provision and violation Information about the health and performance of the assessee Detail of Computation of value of Fringe benefit
Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,

I) Basic information of assessee

Name , Pan , nature of business, method of accounting, list of maintenances of books , payment to a relative etc , cost audit and excise duty etc.

II) Relating to Computation a) Income not an exhaustive list but the information of ; Income not included in profit and loss account Income under section 41 Deemed income u/s 33AB or 33ABA or 33AC Not an exhaustive list but the information of ; (Clause 15) 33AB, 33 ABA, 33 AC, 35 D 35 DDA etc. Partner salary and interest as per section 40 b Capital exp, personnel exp, due to non deduction of TDS , income tax, wealth tax etc.

b) Admissible expenses

c) Inadmissible expenses

d) brought forward loss and deprecation e) deductions Under chapter VI A

Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,

III compliance of provision violation

and Loan taken and given over Rs. 20000/other than accounting payee cheque. TDS Compliance Maintenance of books as prescribed Following the accounting system Deposit of divided distribution tax

IV) information about the health Accounting ratios, stock movements, and performance of the assessee annexure I Credit side of the balance sheet, interest, commission ,Deprecation and tax paid V) Detail of Computation of value of Fringe benefit

Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,

A)

DEPRECIATION ( section 32) Opening - WDV Put to use for less than 180 days. (Assessee is eligible for 50% of rate) 180 days mean additions on or after 3rd October. 3. Additional depreciation is available on new P & M (Section 32 (iia)) 20% of cost of assets conditions : - manufacturing of articles and things i. ii. not used before installation (means new Assets ) not installed in office premises or residential accommodation not available to office appliance or road transport vehicle.

iii.

Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,

4.

Addition of building check separate value - cost of land Immovable Assets - when possession taken, payment made but registration pending (allowable depreciation). Depreciation on vehicle in the name of partner or Director of company, loan is being paid from firm / company and being use for business. Section 43 A vs AS-11 (revised ) Finance lease treatment in Income Tax
Renovation of office taken on leasehold (Deprecation as building ) Current repairs Vs. capital expenditure (explanation add to Section 30 & 31 )
Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,

5.

6.

BROUGHT FORWARD LOSS AND DEPRECIATION : All loss to be reported a) Income from house property b) Income from business
i. ii. iii. business loss speculation loss unabsorbed depreciation

c)
i. ii.

income from capital gain

short term capital gain long term capital gain

d) e)

Income from other source : Horse maintenance for running in horse races.
Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,

Return filed date of return filed Status of assessment/appeals etc. put in remarks Brought forward loss Due date of fling of return Not file in due date (section 139(3) and 80) Effect on current year business / capital / income from other sources loss only Not effecting Earlier year business / capital / income from other sources losses Unabsorbed depreciation u/s 32(2) (current year as well of earlier year) Income from house property

Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,

Change in constitution
Company shareholding more than 50 % Report as per section 79 And check Change in firm constitution section 78 Change due to Amalgamation Merger De-merger Takeover

Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,

REQUIREMENT AND PROVISION U/S 269SS & 269T 269SS Its only relate to transaction of current year. If loan account payee paid directly to seller than whether it is violation ? Security deposit adjusted by book entries rent/contractor ?

Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,

43B Vs. 36(1)(va) Employee contribution u/s 36(1) (va) Still required to pay is due date and to be report 43B employers contribution may deposit before due date of filing of return.

Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,

EXPENSES ABOVE Rs. 20,000 OTHER THAN ACCOUNT PAYEE CHEQUE Section 40A(3) and Rule 6DD Cross cheque Vs. Account payee cheque Certificate from management to be obtain as required in form No. 3CD. Regarding _- Payment made by crossed cheque and account payee cheque and further not maintaining record of copy of issued cheque.
Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,

New rule 6DD w.e.f. AY 2008-09 Permitted Use of electronic clearing system through bank credit card debit card
disallowance 20% ( upto AY 07-08 ) Vs. 100% w.e.f AY 08-09 disallowance ( proviso to 40A(3)) Vs. income ( 40A(3)(a)) expenses incurred in earlier year paid during the year by other than A/c. payee cheque. Upto A. Y. 2007-08 disallowance in the year in which expense claim w.e.f. A. Y. 08-09 treated as income Cash payment in single day- consolidate
Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,

AMOUNT INADMISSIBLE U/S 40(a) Disallowance on non Compliance of TDS Except for TDS on salary to resident in India. All expenses which are subject to TDS are covered under this clause and section Further disallowance of income tax including deferred tax , wealth tax, FBT Reconcile the amount shown in the clause No. 27(b) with above disallowance Not complied the Chapter XVII-B not deducted short fall not deposited If shortfall proportionate disallowance

Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,

INTEREST ON LOAN Section 30(1)(iii) Vs. AS-16 (borrowing cost) extension of business Vs. qualifying assets. PAYMENT TO CLUB :- Only for information , no disallowance if incurred for the business. FINE & PENALTY : VIOLATION OF ANY LAW Not covered contractual breach or for redressal or for contractual wrongs. Concept of materiality Not to express opinion of allowability of expenses Purely compensatory is nature allowable expenses not an fine and penalty PRAKASH COTTON MILLS PVT.LTD. (1983) 201 ITR 684 (SC) SWADESHI COTTON MILLS (1998) 233 ITR 199 (SC) CIT Vs. AHMEDABAD COTTON MFG. CO. LTD. (1993) 205 ITR 163 (SC) MALWA VANASPATIC CHEMICALS CO Vs. CIT (1997) 225 ITR 383 (SC)
Baldev Raj, FCA DISA (ICAI), S.P. Puri & Co.,