28 Tax Audit Cl

8/9/2019 28 Tax Audit Cl

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Tax Audit Checklist for JCB Staff

Clause Clauses under Form 3CD Step recommended WP Ref By

FORM 3CD

P A R T - A

1 Name of the Assessee :

2 Address : Check the address as perIncome Tax record andobtain any evidenceavailable in this regard.

If there is any change inthe address till the dateof signing of thereport, check that newaddress is mentioned inForm 3CD.

3 Permanent AccountNumber

: Verify from the PA Card orany other document.

4 Status : Company/Firm/AOP etc.

5 Previous Year Ended : 31st March 2008

6 Assessment Year : 2008-09

P A R T B

7 (a) If firm or Association of Persons, indicate names ofpartners/ members andtheir profit sharing ratios.

: Verify from the PartnershipDeed/AOP agreement.

(b) If there is any change inthe partners or membersor in their profit sharingratio since the last date ofthe preceding year, theparticulars of such change.

: - do -

Note: In case of any changeattach copy of partnershipdeed with the Income-tax

return if required.

8 (a) Nature of business orprofession (if more thanone business or professionis carried on during theprevious year, nature ofevery business of profession).

: In respect of each classof business, it isnecessary to mentionwhether assessee ismanufacturer, dealer,service provider, etc.

(b) If there is any change inthe nature of business orprofession, the particulars

of such change.

: Review audited BalanceSheet and other relevantrecords to ascertain

whether there is anyapparent change in the

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business carried out bythe assessee, which mayneed to be highlightedunder this clause. In

particular, examinewhether any business oractivity has beendiscontinued, any newactivity has beencommenced or whetherthere has been anyexpansion of the existingbusiness.

Additional activity startedwith in the same businesscarried on by theassessee does not mean

change in nature of business or profession e.g.if the assessee is in thebusiness of manufacturingshirts also startsmanufacture of trousers.

Obtain managementrepresentation.

For change in businessbesides LOR go throughthe following : Any notes given in

Notes to Accounts. Any notes given by

Board of Directors intheir report.

Compare theSegment Reporting ofthis year with last year.

Compare quantitativedetails of this year withlast year.

9 (a) Whether books of accountare prescribed under

section 44AA, if yes, list ofbooks so prescribed.

: Applicable for assesseecarrying profession for the

time being.

(b) Books of accountmaintained.(In case books of accountare maintained in acomputer system, mentionthe books of accountgenerated by suchcomputer system)

: Check complete list of allprimary books of accountsmaintained by theassessee.

Check whether books ofaccounts have beengenerated from computersystem or not.

Obtain management

representation.

(c) List of books of account : Disclose the list of books of

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examined. account examined.

10

Whether the profit and lossaccount includes any

profits and gainsassessable on presumptivebasis, if yes, indicate theamount and the relevantsection (44AD, 44AE, 44AF,44B, 44BB, 44BBA, 44BBBor any other relevantsection).

: Generally Not applicable.However go through the

consolidated Profit & Lossaccount to see whether itincludes any such profit.

11

(a) Method of accountingemployed in the previousyear.

: Review Accountingpolicies from auditedaccounts. Check whetherassessee is following

Mercantile or Cashmethod of accounting.

While followingMercantile basis ofaccounting, checkwhether any item ofincome or expense isaccounted for on cashbasis. Since Hybridmethod of accounting isnot allowed, state thenature and amounts ofsuch items.

(b) Whether there has beenany change in the methodof accounting employedvis-a-vis the methodemployed in theimmediately precedingprevious year.

: Scrutinize the last week oflast months journalvouchers thoroughly tosee provisions forexpenses made &whether they are on samebasis as in earlier year.Payment vouchers for firsttwo months of subsequentyear should be scrutinizedto verify the correctness

thereof. Ensure that following

heads of accounts arescrutinized thoroughlyand compared with earlieryear to check whetheraccounting is on samebasis as in earlier years.; Refund for income-

tax, sales tax, etc. Export incentives

Claims for loss ordamage

Grants/Subsidies Interest on delayed

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payments

Determine whether therehas been any change inthe method of accounting

employed vis--vis themethod employed in theimmediately precedingyear.

(c) If answer to (b) above is inthe affirmative, givedetails of such change,and the effect thereof onthe profit or loss.

: Ensure that any change inthe method of accountingemployed is appropriatelydisclosed and the effectthereof on the profit/lossis also disclosed.


(d) Details of deviation, if any,in the method of accounting employed inthe previous year fromaccounting standardsprescribed under section145 and the effect thereofon the profit or loss.

: Check whether there isany deviation from theAccounting Standard (IT) I & AccountingStandard (IT) II notifiedunder section 145(2) ofIT Act regarding;a) Fundamental

accountingassumption of Accrual, Consistency

& Going Concern.b) Prudence, Substanceover form &Materiality inaccounting policies.

c) Disclosure of significant accountingpolicies and changesin such policies withthe resultant impact,if material onaccounts of year ofchange or

subsequent year.d) Disclosure of prior

period andextraordinary itemsor change inaccounting estimatein Profit & LossAccount and reportthe effect thereof onprofit & loss.

Ensure that deviationfrom such standards isappropriately disclosed

and the effect thereof onthe profit/loss is also

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indicated.

12

(a) Method of valuation of closing stock employed in

the previous year.

: Closing stock wouldinclude raw material,

finished goods, work inprogress, stores, spareand loose tools andshares/units in case ofinvestment companies..

Change in the method ofvaluation of opening andclosing stock, includingeffect of change, is nowcovered under clause 11.

Agree the method ofvaluation with auditedworking papers andaudited financialstatements.

(b) Details of deviation, if any,from the method of valuation prescribed undersection 145A, and theeffect thereof on the profitor loss.

: Deviation normally occurs incase of stock of RawMaterial, Stores, WIP etc.only and in case of finishedgoods to the extent of costof raw material etc.comprised therein which arevalued net of VAT. Althoughthere may not be any impact

due of Cenvat and VAT.Give appropriatenote/working (existing noteif any needs amendment).

12

A Give the followingparticulars of the capitalasset converted into stock-in-trade:-

Verify any fixed assetconverted into stock intrade. Give the necessarydetails.

(a) Description of capitalasset;(b) Date of acquisition;(c) Cost of acquisition;

(d) Amount at which theasset is converted intostock-in-trade

13

Amounts not credited tothe profit and loss account,being -

:

(a) The items fallingwithin the scope ofsection 28;

: Enquire whether any itemof income chargeableunder `Profit and Gains ofBusiness of Professionhas not been credited tothe profit and loss

account. Section 28covers :

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- Profits and gains ofbusiness orprofession

- Compensation

received ontermination of employment, agency,etc.

- Income of trade orprofessional orsimilar associationfrom specific servicesto members

- Export incentives- Perquisites received

during the course ofbusiness

- Interest, salary,bonus, remuneration,etc. received by apartner from firm,which is allowableunder section 40B.

- Amount receivedunder key mansinsurance policy

Thus, if any such item istaken to any accountdirectly in the BalanceSheet, it will be coveredunder this clause.

Review the auditedschedules and financialstatements to determinewhether such income hasbeen credited directly toreserves or retained as acredit under the head`current liabilities andprovisions or any otherhead.

Obtain management

representation.(b) The proforma credits,

drawbacks, refunds ofduty of customs orexcise, or service tax,or refund of sales taxor value added taxwhere such credits,drawbacks or refundsare admitted as dueby the authoritiesconcerned;

: Obtain a scheduleindicating the details ofthe following claimsadmitted as due by theconcerned authoritiesbut not credited to theprofit and loss account. The schedule should alsoindicate the year in whichit was admitted as due.

- Proforma credits- Duty drawbacks

- Excise/Custom dutyrefunds

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- Sales tax refunds- Service tax refunds- VAT refunds

Obtain an understanding

of the relevant accountingpolicies [refer clause11(a)].

Agree the schedule withthe claim papers andrelevant correspondencefiles. Further ensure thatthe claims have beenadmitted as due by theconcerned authorities.

Review the relevantassessment orders todetermine whether anysuch claims are due.


(c) Escalation claimsaccepted during theprevious year;

: Obtain a scheduleindicating details ofescalation claimsaccepted during the yearbut not credited to theprofit and loss account.The schedule should alsoindicate the year in which

it was accepted as due.Certain instances ofescalation claims may bein relation of contract withgovernment customersand other sales tocustomers havingescalation clause incontracts.

Obtain an understandingof the relevant accountingpolicies [refer clause11(a)].

Agree the claims acceptedwith contracts and otherrelevant documents andensure that claims havebeen accepted by theconcerned authorities.


(d) Any other item ofincome;

: Enquire whether any itemof income chargeable totax under heads of

income other than `Profitsand Gains of Business orProfession has not been

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credited to profit and lossaccount.

Report all items of incomewhich are credited to

expense heads with anote that this has noimpact on the net profit.

Review the auditedschedules and financialstatements to determinewhether such income hasbeen credited directly toreserves or retained as acredit under the head`current liabilities andprovisions or any otherhead.


(e) capital receipt, if any. : Enquire whether anycapital receipt ha s notbeen credited to profitand loss account. Forinstance, capital receiptsmay be in the nature ofgrants/subsidies,

Note: In case of non-compete fees directly

taken to reserves orcapital account reportthe same in clause13(a) also.

Furnish details of giftsreceived during the year.

Share premium account. Share forfeiture.

Capital reserve arising onmerger and demerger.

Furnish details of theamount of capital naturereceived or receivable ontransfer of technology,knowhow, and patentduring the financial yearand treatment thereof inaccounts.

Obtain an understandingof the relevant accountingpolicies [refer clause11(a)].

Review the auditedschedules and financialstatements to determine

whether such capitalreceipt has been crediteddirectly to reserves or

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retained as a credit underthe head `currentliabilities and provisionsor any other hand.


14

(a)

(b)(c)

(d)

(e)(f)

Particulars of depreciationallowable as per theIncome-tax Act,1961 inrespect of each asset orblock of assets, as thecase may be, in thefollowing form :-Description of asset/blockof assetsRate of depreciation.

Actual cost or written downvalue, as the case may be.Additions/deductionsduring the year with dates;in the case of any additionof an asset, date put touse; including adjustmentson account of-(i) Modified Value

Added Tax creditclaimed andallowed under theCentral ExciseRules, 1944, inrespect of assetsacquired on or after1st March, 1994,

(ii) Change in rate of exchange of currency, and

(iii) Subsidy or grant orreimbursement, bywhatever namecalled.

Depreciation allowable.

Written down value at theend of the year.

: Obtain a scheduleproviding the relevantdetails indicated in theaforesaid clause inrespect of each asset orblock of assets. Inparticular, ensure that thefollowing have beenincluded :

- Written down value

at the beginning ofthe year.

- Assets acquiredduring the year havebeen segregatedbetween the assetsput to use for lessthan 180 days andthose used for morethan 180 days

- Deductions duringthe year representthe sale proceeds ofassets sold

- Rates of depreciation.(i) Refer

Appendix 1 andAppendix 1A asthe case may be.

(ii) Appendix 1Ais applicable inrespect of PowerGenerationcompanies.

- Even in a case where

the auditee hasdecided not to claimdepreciation in partor full, give fulldetails of depreciationallowable.

Review assessmentscompleted/ prior year taxreturns to examine thebasis adopted in earlieryears for determination ofdepreciation allowable.

Also ascertain whetherany aggressive positions

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have been adopted by theclinet and examineimplications thereof.

For additions during the

year ensure that theclassification of assets orblock of assets and therates of depreciation is inaccordance with therequirements of theIncome Tax Act, 1961.

Agree the written downvalue at the beginning ofthe year to the return ofincome of theimmediately procedingyear.

Agree the additions withthe audited schedules andensure that adequatetests have been carriedout for `actual costcapitalized and the datesthe assets were `put touse. Obtain areconciliation to theadditions as per theaudited schedules, wherenecessary. Certain

instances of suchreconciling items may becapital expenditure onscientific research,leasehold improvements,etc.

Ensure that the policiesfollowed are consistentwith the requirements ofthe Income Tax Act, 1961.

For assets acquired duringthe year, obtain anunderstanding of the

accounting policy for thefollowing :

- Modvat credit- Exchange fluctuation

including in respectof realized gains/losses, unrealizedgain/losses andtreatment of forwardexchange contracts.

- Subsidy or grant orreimbursement.

Depreciation capitalized. Any expenditure which

does not relate to

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acquisition of P&M butcapitalized as part ofpreoperative expense.

Ensure capitalisation of

interest in respect ofborrowed capital as perSection 36(1)(iii).

Agree the amountsincluded as adjustmentson account of modvat,change in exchange ratesand subsidy/grant withthe audited schedules andother relevant supportingdocuments.

Check the implications ofsection 43A of Income TaxAct.

Agree the deductionsduring the year withaudited schedules andensure that such amountreconciles with theamount considered fordetermining the profit/losson assets sold, discardedetc.

Review the depreciationcomputation and ensure

the arithmetical accuracyof the depreciationallowable and the writtendown value at the end ofthe year.

Ensure that additionaldepreciation u/s 32(ii)(a)is compiled and reducedfrom WDV.

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Amounts admissible undersections-(a) 33AB

(b) 33ABA(c) 33AC (wherever

applicable)(d) 35(e) 35ABB(f) 35AC(g) 35CCA(h) 35CCB(i) 35D(j) 35DD(k) 35DDA(l) 35E

(a) Debited to the profitand loss account

:

:

:

Obtain a schedule givingdetails of deductionadmissible under the

relevant sections,indicating separately, theamounts debited to profitand loss account and notdebited to profit and lossaccount. The relevantsections are as follows:

- 35 Expenditure onscientificresearch

- 35CCA Expenditure byway of payment toassociations andinstitutions for carryingout rural development

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(showing the amountdebited and deductionallowable under eachsection separately);

(b) not debited to theprofit and lossaccount.

programmes.- 35CCB Expenditure by

way of payment toassociations and

institutions carrying outprogrammes of conversa-tion of natureresources.

- 35D Amotisation ofcertain preliminaryexpenses.

- 35DD- 35DDA

Review the computationof the amounts admissibleunder the aforesaidsections and agree the

same with the auditedschedules, financialstatements and otherrelevant supportingdocuments.


16

(a) Any sum paid to anemployee as bonus orcommission for servicesrendered, where such sumwas otherwise payable tohim as profits or dividend[Section 36(1)(ii)].

: Furnish details of bonus orcommission, if any, to anemployee for servicesrendered which otherwise

was payable as profits ordividend. Normal bonus or

commission to employeesincluding directors evenas percentage of profits isnot covered under thissub-clause unless thesame was otherwisepayable as profits ordividend.

(b) Any sum received from

employees towardscontributions to anyprovident fund orsuperannuation fund orany other fund mentionedin section 2(24)(x) and duedate for payment and theactual date of payment tothe concerned authoritiesunder section 36(1)(va).

: Furnish details of any sum

received from theemployees towards thecontribution to:a) Provident Fundb) ESI Fundc) Superannuation Fundd) Any other fund for the

welfare of employees. Furnish details of due date

of payment and actualdates of payment for theamount received fromemployees towardsvarious funds stated inabove para.

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The due date of PFContribution is 15 daysand in case of ESIContribution is 21 days

from the end of the monthto which salary relates.

Refer to Circular No.E128(I) 60- III dated19.03.1964 as modifiedby circular E11/128/73dated 24.10.73 issued bythe concerned authoritiesgranting 5 days of graceperiod for payment forpayment of PFContribution . The duedate will be determined

accordingly.

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Amounts debited to theprofit and loss account,being :-

:

(a) expenditure of capitalnature;

: Furnish detail of followingexpenditure debited toProfit & Loss Account:a) Capital Expenditure;b) Capital Items which

are fully or partlywritten off in P&L

Account;c) Scientific ResearchExpenses & TechnicalKnow How Fees;

d) Write of advance paidfor capitalexpenditure/ capitalproject.

e) Fees or Expenditureconnected withincrease in authorisedcapital, issue of bonusshares, travelling &

other expensesconnected withpurchase of capitalassets etc.

f) Amount debited onaccount of preliminaryexpenses (35D), VRSexpenses (35DDA),Merger/Demergerexpenses (35DD).

Check the following headof accounts minutely:a) Store & spare parts

consumedb) Repair &

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Maintenancec) Misc. Expensesd) Legal & Professional

If in your opinion, any

item of expendituredebited to the P&LAccount is not of capitalnature but there ispossibility of holding sucha view, furnish detailswith your views on thesame.

Obtain an understandingof the capitalization policyfollowed by the client.

If any amount reported ascapital expenditure is inthe nature of fixed assetitem include the same inclause No.14.

Obtain managementrepresentation letter.

(b) expenditure of personalnature;

: Under section 227(1A)(c)of the Companies Act,1956, the auditor isrequired to enquirewhether personalexpenses have been

charged to the revenueaccount. If there is anysuch comment in theauditors statutory reportthen obtain a schedule ofpersonal expensesdebited to the profit andloss account.

In case of expenditureincurred at club the sameare to be reported underclause 17(d). However tothe extent of personal

element in the saidexpenditure, the sameshould be reported herealso.

Expenses of personalnature paid under acontractual obligationneed not be disclosed.

Agree with the auditedschedules supporting thecomments in the auditorsstatutory report.

Review the relevantaccounts to ensure thatno other expenditure of

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personal nature has beencharged to the profit andloss account.

Obtain management

representation.

(c) expenditure onadvertisement in anysouvenir, brochure,tract, pamphlet or thelike, published by apolitical party;

: Furnish details of theexpenses incurred onadvertisement if anypublished for a politicalparty

Furnish details of expenditure incurred onadvertisement insouvenir, brochure, tract,pamphlet or journalpublished by trade union,labour union or any otherbody formed by politicalparty.

Agree the schedule withthe relevant supportingdocuments.

Note : Political parties wouldinclude both national andregional parties, which areapproved by the ElectionCommission. Review the

advertisement, salespromotion and otherrelevant accounts toensure that all suchexpenditure has beenappropriately disclosed.


(d) expenditure incurred atclubs -

:

(i) as entrancefees and

subscriptions;

(ii) as cost for clubservices andfacilities used;

Furnish the detail ofexpenses made to clubs

under following heads:- Entrance fees- Subscriptions- Catering Bills- Residential

AccommodationCharges

- Expenditure towardsuse of club servicesand facilities i.e.health club. Bar.Conference &entertainmentexpenses etc.

Reimbursement of club

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payments todirectors/employeesshould be included in theabove statement.

Subscriptions and otherpayments made to serviceorganizations like LionsClub, Rotary Club, Giants,Jaycees etc. would not beincluded under thisclause.

Payments made to creditagencies like Diners Clubwould not be includedunder this clause.

Payments to clubs wouldinclude payments toGymkhanas.

Review the relevantaccounts and ensure thatall expenditure incurred atclubs has beenappropriately disclosed.


(e) (i) expenditure byway of penalty orfine for violation of

any law for thetime being in force;(ii) any other

penalty or fine;(iii) expenditure

incurred for anypurpose which isan offence or whichis prohibited by law;

: Furnish the detail ofexpenditure by way ofpenalty or fine debited

during the financial year. Furnish detail of

compensation debited forbreach of contract duringthe financial year.

Furnish copies of penaltyorders passed during thefinancial year underrelevant laws, which areapplicable to assessee.

Furnish detail of giftsgiven to governmentofficials.

Furnish details of expenditure incurred suchas protection money,extortion money, regularhafta, bribe etc.

Furnish detail of penaltydebited which are in thenature of interest underany statue.

Review the legal andprofessional fees, ratesand taxes, sales tax paid

or any other taxes paid,general charges account

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and other relevantaccounts and ensure thatall such expenditure hasbeen appropriately

disclosed. Obtain management

representation. Unsupported expenditure

may need to be reviewedto determine whether itneeds to be includedunder `expenditure, whichis an offence or prohibitedby law.

(f) amounts inadmissibleunder section 40(a);

: Furnish detail of Interest,royalty, fees for technicalknow how, services andother sums, which arepayable outside India, onwhich tax has not beenpaid or deducted ordeducted and paid at rateless than the prescribedrate.

Furnish detail of expensespayable asreimbursement of expenses outside India on

which tax has not beendeducted or paid atsource.

Furnish details of payment, which ischargeable under thehead salaries payableoutside India and onwhich Tax has not beendeducted.

Furnish any interest,commission, brokerage,fees for professional

services or for technicalservices, amountpaid/payable to contractorand rent, royalty on whichtax has not deducted ordeducted at rate less thanthe prescribed rate orafter deduction of TDS isnot deposited within thedue date (Ignore latedeposit of TDS cases if thesame is deposited by theend of financial year).[Section 194C, 194A,194H, 194I, 194J and

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section 9(1)(vii) & 9(1)(vi)].

Furnish any paymentmade towards a provident

fund or other fundestablished for the benefitof employees for whichtax has not beendeducted at source.

Furnish any tax actuallypaid u/s 10(CC).

Furnish Fringe benefit tax(below the line or abovethe line).

Furnish Securitiestransaction tax if debitedto Profit & Loss account orif not debited to Profit &Loss Account.

In case STT component isadjusted in the cost ofinvestment/sale price thenappropriate amount shallalso be disclosed asamount not debited toProfit & Loss Account.

Furnish any amount paidon account of rate or taxlevied on profits (including

any tax paid on profitoutside India). Review all expenses

payable and provision forexpenses for 43B & TDSdefault.

Furnish details of IncomeTax & Wealth Tax debitedto P&L Account during theyear.

Agree the details withaudited schedules andother relevant supportingdocuments.


(g) interest, salary,bonus, commission orremunerationinadmissible undersection 40(b)/ 40(ba)and computationthereof;

: Applicable only forpartnership firms.

(h) (A) whether acertificate hasbeen obtained

:

Obtain a schedule of allpayments made in excessof Rs.20,000 made in

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assessee.

Review the payments inthe cash book andadjustments to

advances/deposits toensure that all cashpayments exceedingRs.20,000 have beenincluded in the schedule.

Obtain certificate fromauditee that all paymentsexceeding 20,000/- forexpenses if made bycheque/ draft are made byAccount payee cheque orAccount payee draft.

(i) provision for paymentof gratuity notallowable under section40A(7);

: Furnish a copy of theorder of the Commissionerof Income Tax grantingrecognition to the gratuityfund.

Furnish certificate that thecontribution made doesnot exceed permissiblelimit as per rules 103 &104 of Income Tax Rules.

Obtain a scheduleindicating the provision

for payment of gratuitynot allowable undersection 40A(7)..

Agree the amountsprovided with the auditedschedules, financialstatements and otherrelevant supportingdocuments and ensurethat all such expenditurehs been appropriatelydisclosed.

Whether contributions

have been made toapproved gratuity fund,review the copy of thetrust deed and rules.


Enquire whether CIT orRPFC has withdrawn theexemption during theyear.

Verify that the PF Trustrecognized by CIT is also

recognized by PFauthorities.

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(j) any sum paid by theassessee as anemployer notallowable under section

40A(9);

: Obtain a scheduleindicating the sum paid bythe assessee as anemployer, not allowable

under section 40A(9) i.e.towards setting up orformation or contributionto any fund, trust,company, etc. other than ;

- Recognised providentfund

- Any PF for exemptionis withdrawn by CIT.

- Recognised gratuityfund

- Recognisedsuperannuation fund

- As required by orunder any other law.

Agree the details withaudited schedules andother relevant supportingdocuments.

Review the staff welfareand other relevantaccounts to ensure that allsuch sums not allowableunder section 40A(9) havebeen appropriately

disclosed. Obtain management

representation.

(k) particulars of anyliability of a contingentnature.

: Furnish the detail ofcontingent liabilitiesdebited to the profit andloss account indicatingthe nature of the demandand the reasons formaking provisions in theaccounts.

Review the audited

accounts, in particular thenotes to the accounts toensure that all liabilities ofa disputed nature havebeen identified for furtherdiscussion.

Note : As per the ICAI theseare normally expensesconnected with disputedclaims which will be revealedonly on the basis of thescrutiny of correspondencerelating to cases pending ina court of law.

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(l) amount of deductioninadmissible in termsof section 14A inrespect of the

expenditure incurred inrelation to incomewhich does not formpart of the totalincome.

i) Go through the returnfiled and assessmentorder for last 2 to 3 yearto verify details and

categories of exemptincome.ii) Obtain management

representation as toincome which it is goingto claim as exempt inthis year.

iii) Go through theexpenses disallowed inthe earlier year.

iv) Obtain details of expenses pertaining toexempt income such as

interest on fundsborrowed, personal cost,rent, traveling and otheradministrative cost.

v) In case there are nodirect expenses thendisallowance has tobe worked out as perRule 8D.

vi) If adhoc expenses arestated then givenote/disclaimer.

vii) In case of companyhaving undertaking ofthe nature of 10A/10B/10C then theappropriate note begiven disclosing bothincome and expenditureas per the Audit Reportissued u/s 10A/10B.

(m)amount inadmissibleunder the proviso tosection 36(1)(iii).

(a) Obtain detailsof fixed asset which areacquired by borrowing

loans.(b) In case of funds of C/C accountused and which cannotbe correlated determineinterest cost as per AS-16.

18

Particulars of paymentsmade to persons specifiedunder section 40A(2)(b).

: Obtain a schedule fromthe client indicating thefollowing:

- List of persons

specified undersection 40A(2)(b)

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- Details of paymentsmade to personsspecified in abovelist.

Agree the schedule with ;- Relevant contracts/

agreements withspecified persons.

- Relevant supports forpayments made tosuch specifiedpersons.

Review the relevantaccounts to identify anypayments made topersons specified undersection 40A(2)(b).

Compare the detail shownunder Tax Audit with theRelated Party Schedule ofIGAAP.


Notes :(i) Salaries and

perquisites etc paid todirectors or personshaving substantial

interest in the companyshould be included inthe list referred toabove.

(ii) Sincedisallowance in thiscase is at the discretionof the Income TaxOfficer the totalamount paid to suchpersons should beindicated in theschedule.

(iii) As per the ICAI, inthe case of a largecompany, it may not bepossible to verify thelist of all personscovered by this sectiontherefore theinformation supplied bythe assessee can berelied upon. It hasfurther stated that itmay be difficult toidentify all payments in

each and every casewhere the volume of

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transactions is ratherhuge and voluminous,and therefore, it maybe necessary to restrict

the scrutiny only tosuch payments inexcess of certainmonetary limitsdepending upon thesize of the concern andvolume of the businessof the assessee.

(iv) Suggesteddisclosure where theinformation is notavailable with client isas follows :

The company does nothave necessaryinformation in respectof the following :(a) directors

and their relativesof companieshaving asubstantial interestin the company;and

(b) any person,in whose businessor profession, thedirectors or theirrelatives have asubstantial interestas defined in theexplanation toSection 40A(2)(b).

19

Amounts deemed to beprofits and gains undersection 33AB or 33ABA or

33AC.

: Go through the relevantsections.

20

Any amount of profitchargeable to tax undersection 41 andcomputation thereof.

: Obtain a scheduleindicating amount of profitchargeable to tax underthe aforesaid clause andthe computation thereof.

Agree the details withaudited schedules andother relevant supportdocuments.

Review the relevantaccounts to ensure that all

such sums have beenappropriately disclosed.

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2

1*

(i) In respect of any sum

referred to in clause (a),(b),(c),(d),(e) or (f) ofsection 43B, the liabilityfor which;

(A) pre-existed on thefirst day of theprevious year but wasnot allowed in theassessment of anypreceding previousyear and was(a) paid during the

previous year;(b) not paid during

the previousyear;

(B) was incurred in theprevious year andwas(a) paid on or

before the duedate forfurnishing thereturn of incomeor the previousyear undersection 139(1);

(b) not paid on orbefore theaforesaid date.

:

Obtain a scheduleindicating the followinginformation in respect ofthe items referred to inclause (a), (b), (c), (d), (e)and (f) of section 43B :

- Liability at thebeginning of the year

- Amount paid during

the year including thedate of payment

- Amount not paidduring the year

Agree the amounts anddates with auditedschedules and relevantsupporting documents.

Obtain a schedule inrespect of the itemsmentioned above,

specifically indicating thefollowing :- Liability incurred

during the year- Amount paid on or

before the due datefor furnishing thereturn of incomeunder section 139(1)along with date ofpayment.

- Amount not paid onor before the

aforesaid date. The expenses, which are

capitalized, would also becovered under this clause.

Check that all the figureshown in annexure are inagreement with IGAAP.

In case there is anymismatch of figures withbooks of accounts,prepare reconciliation forthe same.

Take the copies of challanto verify that amountspayable as on last day of

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the financial year are paidin subsequent year.

To verify if any conversionof interest into loan or

funded interest has takenplace during the year.

Agree the amounts anddates with auditedschedules and relevantsupporting documents.

* State whether sales tax,customs duty, excise dutyor any other indirect tax,levy, cess, impost etc. ispassed through the profitand loss account.

22

(a) Amount of Modified ValueAdded Tax credits availedof or utilised during theprevious year and itstreatment in the profit andloss account andtreatment of outstandingModified Value Added Taxcredits in the accounts.

: (i) State thetreatment given in thebooks to Modvat/ Cenvat.Give details w.r.t.opening balance/ creditavailed/credit used/closing balance of allCenvat account as perAccount books andExcise record withreconciliation.

(ii) Go through thereconciliation and reportthe difference under therespective clause of 3CD.

(b) Particulars of income orexpenditure of prior periodcredited or debited to theprofit and loss account.

: Furnish a detail of income/expenditurerelating to prior periodcredited/ debited to theprofit and loss accountduring the year.

Agree the details withaudited schedules andrelevant supporting

documents. Review the items under

the head prior periodadjustment and the notesto the accounts to ensureall suchexpenditure/income hasbeen disclosed in theabove schedule.

In order to ascertain thecorrect meaning of termPrior Period Item referto the text of AccountingStandard- 5 issued byICAI.

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2

3

Details of any amount

borrowed on hundi or anyamount due thereon(including interest on theamount borrowed) repaid,otherwise than through anaccount payee cheque[Section 69D].

: Obtain a schedule of

borrowing andrepayments (includinginterest) of hundi loansotherwise than by accountpayee cheques.

Agree the details with theaudited schedules andrelevant supportingdocuments.


Obtain a schedule ofborrowing andrepayments (includinginterest) of hundi loansotherwise than by accountpayee cheques.

Agree the details with theaudited schedules andrelevant supportingdocuments.


Note : As per the ICAI in the

absence of conclusive orsatisfactory evidence asuitable comment in thereport as suggested inclause 17(h) shou0ld bemade. : As per the ICAI inthe absence of conclusive orsatisfactory evidence asuitable comment in thereport should be made.

24

(a)*

Particulars of each loan ordeposit in an amount

exceeding the limitspecified in section 269SStaken or accepted duringthe previous year:-

:

(i) name, address andpermanent accountnumber (if availablewith the assessee)of the lender ordepositor;

: Obtain a schedule of loansand deposits of Rs.20,000or more taken or acceptedduring the year giving therelevant details as per theaforesaid clause.

(ii) amount of loan ordeposit taken oraccepted;

: The amount of Rs.

20,000/- or more is tobe computed inclusiveof opening Balance in

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the party account andfor the purpose ofprepayment also,amount credited as

interest. For the purpose of this

clause, loan/depositwould include, amongothers, the following:a) Security Deposits

from staff, agents,customers with orwithout interest

b) Loans fromfinancialinstitutions.

c) Advance in the

nature of loandeposit.

d) Fixed deposit frompublic.

Agree the details with theaudited schedules andother relevant supportingdocuments.

(iii) whether the loan ordeposit wassquared up duringthe previous year;

: Review the loan, depositand other relevantaccounts to ensure all

such particulars havebeen appropriatelydisclosed.

(iv) maximum amountoutstanding in theaccount at any timeduring the previousyear;

: Obtain certificate frommanagement that loansaccepted during the yearand their repayment hasbeen through an accountpayee cheques/draft.

Note :(v) whether the loan or

deposit was takenor acceptedotherwise than byan account payeecheque or anaccount payee bankdraft.

: (i) As per the ICAI

information of each loanor deposit of Rs.20,000or more alone would berequired by this clauseand where each suchloan or deposit is lessthan Rs.20,000 andaggregate aloneexceeds Rs.20,000, theparticulars need not befurnished.

* (These particulars neednot be given in the case of

a Government Company, abanking company or a

(ii) Advance receivedagainst agreement of

sale of goods is not aloan/deposit.

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corporation established bya Central, State orProvincial Act).

(iii) Loan taken fromfinancial institutions arecovered under thisclause.

(iv) Security depositsagainst contracts etc.will be covered by thedefinition of `depositand the information forthe same will have to beprovided.

(b) Particulars of eachrepayment of loan ordeposit in an amountexceeding the limitspecified in section 269T

made during the previousyear :-

:

(i) name, address andpermanent accountnumber (if availablewith the assessee)of the payee;

: Obtain a schedule of loansand deposits of Rs.20,000or more repaid during theyear giving the relevantdetails as per theaforesaid clause.

(ii) amount of therepayment;

: Agree the details with theaudited schedules andother relevant supportingdocuments.

(iii) maximum amountoutstanding in theaccount at any timeduring the previousyear.

: Review the loan, depositand other relevantaccounts to ensure allsuch particulars havebeen appropriatelydisclosed.

(iv) whether therepayment wasmade otherwise

than by accountpayee cheque oraccount payee bankdraft.

: Obtain managementrepresentation.

Note :i) Refer note (i) to (v)

above.ii) Obtain a certificate from

the assessee asprescribed in aboveclause.

iii) This clause is notapplicable in respect ofloan taken and repaidfrom/to Bank, Govt.,Govt. company.

(c) Whether a certificate hasbeen obtained from the

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assessee regarding takingor accepting loan ordeposit, ore repayment ofthe same through an

account payee cheques oran account payee bankdraft (Yes/No)The particulars (i) to (iv) at(b) and the Certificate at(c) above need not begiven in the case of arepayment of any loan ordeposit taken or acceptedfrom Government,Government company,banking company or acorporation established by

a Central, State orProvincial Act

25

(a) Details of brought forwardloss or depreciationallowance, in the followingmanner, to the extentavailable :

Obtain a scheduleindicating the details asper the aforesaid clause. The clause will cover thefollowing :

Serial Number - Business loss (Section 72)

Assessment Year - Unabsorbed depreciation

Nature of loss/allowance(in rupees)

- Speculation loss (Section73)

Amount as returned (inrupees) - Loss under the head capitalgains.(Section 74)

Amount as assessed(give reference torelevant order)

Remarks

Furnish the information asto when returns of incomefor which the abovebrought forwardloss/depreciation ariseswere filed and whetherthey were filed in time asprovided under section139(1) or late (anyextension granted byCBDT to be indicated).

Agree the basis anddetails with the return ofincome, assessmentorders etc. and otherrelevant supportingdocuments.

If there are differences infigures as per returns filedand as assessed, alsofurnish separatelyreconciliations andwhether matters arepending in appeals and/orrectification or underrevision proceedings, etc.

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if appeal is decided butorder giving effect thereofis not received, indicatethe same.

Take the copies of allrelevant orders.

(b) Whether a change inshare-holding of thecompany has taken placein the previous year due towhich the losses incurredprior to the previous yearcannot be allowed to becarried forward in terms ofsection 79.

In case of all unlistedcompany to see whetherthere was any change inshareholding affecting thebenefit of C/F loss (Section79).

Details of shareholding beobtained at the end of 31st

March of all the yearsupto 31st March 2006 toverify whether 49% ormore shareholding haschanged during the periodfrom the year for whichloss is carried forward andupto 31st March 2006.

Any change inshareholding on accountof death of a shareholderor gift by the shareholderto the relative and as persecond proviso (applicable

in case shareholder is aforeign holding company)be ignored.

26

Section-wise details ofdeductions, if any,admissible under ChapterVIA.

: This is an exhaustiveclause to cover all eligibledeductions availableunder chapter VI-A ofIncome Tax Act, 1961.

Obtain a scheduleindicating the section-wisedetails of deductionsclaimed under Chapter

VIA. Ensure that deductions

claimed by the client areadmissible under ChapterVIA.

Agree the details with theaudited schedules andother relevant supportingdocuments.

If the assessee is claimingdeduction under aparticular section for the

first time, furnish a notegiving reasons as to howthe assessee is qualified

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for such a deduction withdue evidence and that theassessee has compiledwith all the conditions laid

down in the relevantsection. (with thenecessary documentaryevidence).

Review assessmentscompleted/ prior year taxreturns to examine thebasis adopted in earlieryears.

Verify the basis andcomputation of deductions.


ImportantIn case any report u/s 80IA/80IB or any other section ofchapter VIA is issued by anyother Chartered Accountantthen go through the same toverify whether the amountarrived is in accordance withthe Provisions of therelevant Section.

27 (a) Whether the assessee hascomplied with theprovisions of Chapter XVII-B regarding deduction oftax at source andregarding the paymentthereof to the credit of theCentral Government(Yes/No)

:

Obtain a scheduleindicating the details asper the aforesaid clause.

Agree the details with therelevant supportingdocuments and returnssubmitted for thepurpose.

Go through the quarterlyTDS returns filed.

(b) If the provisions of ChapterXVII-B have not been

complied with, please givethe following details*,namely:-(i) Tax deductible and not

deducted at all(ii) Shortfall on account of

lesser deduction thanrequired to bededucted

(iii) Tax deducted late(iv) Tax deducted but not

paid to the credit ofthe CentralGovernment

Please give the details of

Review the relevantaccounts to ensure that

tax has been deducted asper XVII-B e.g. salaries,interest on securities,other interest, dividends,royalties, payments tonon-residents, paymentsto contractors and sub-contractors etc.

Above detail should alsoinclude particulars of taxdeducted in the financialyear but paid to the Govt.in subsequent year.

Report cases where TDShas not been deducted or

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cases covered in (i) to (vi)above.

deducted at lesser ratesthan applicable.

TDS is required to bededucted on the

component of service taxalso.

Important note regardingTax Audit

Scrutinize balancesappearing at the end of theperiod of the followingaccount heads carefully:1) Provision for

expenses.2) Outstanding

liabilities.

3) Bill adjustables.4) Other liabilities or

any other accountopened in books which issimilar in nature toabove. The above accountsnormally comprise ofcredit entries pertainingto provision for expensesmade. Such expensesmay fall into followingcategories:

a) Governmenttaxes and statutorydues.b) Staff payments.c) Expensesliable to TDSdeduction.d) Other items.

i) Governmenttaxes andstatutory dues

have to bereported u/s 43B. This clause willalso include bonusand incentive tostaff by variousname called.

ii) Theexpenses whichare liable to TDSare to be reportedin the TDS clause(in case of

defaults) and alsosimultaneously in

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clause 17(l) of taxaudit report to theextent applicable.

iii) Further

sometime theinterest payableto parties is alsoincluded in theabove head whichis liable to TDS.

iv) For CAROpurposes onemust go throughthe tax auditreport of last yearand if items whichwere liable to

TDS are reportedbut the TDS hasnot beendeducted andpaid till 31st Marchthen the same willhave to bereported in CAROalso.

28

(a) In the case of a tradingconcern, give quantitativedetails of principal items ofgoods traded:

(i) Opening stock;(ii) Purchases

during theprevious years;

(iii) Sales during theprevious year;

(iv) Closing stock;(v) Shortage/excess

, if any

:

:

:

:::

Obtain a scheduleindicating the details asper the aforesaid clause.

Agree the details withaudited schedules and thestock records maintainedby the company.

Review the relevantaccounts to ensure allsuch particulars havebeen appropriatelydisclosed.

Furnish the reasons forshort/excess with properexplanation and state

whether it is normal orabnormal as per industrystandards.


(b) In the case of amanufacturing concern,give quantitative details ofthe principal items of rawmaterials, finishedproducts and by-products:

:

A. Raw Material :

(i) Opening Stock;(ii) Purchases

Furnish details as required.

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during theprevious year;

(iii) Consumptionduring the

previous year;(iv) Sales during theprevious year;

(v) Closing stock;(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 theprevious year;

(iii) Quantitymanufacturedduring theprevious year;

(iv) Sales during theprevious year;

(v) Closing stock;(vi) Shortage/excess

, if any.

Furnish details as required.

* Information may be givento the extent available.

29

In the case of a domesticcompany, details of tax ondistributed profits undersection 115O in thefollowing form:-(a) Total amount of

distributed profits;

(b) total tax paidthereon;(c) dates of payment

with amounts.

: Furnish the date of payment of tax ondividend with the copiesof receipted Challans,showing the date, amountand name of the bank.

Agree the details referred

to the audited schedulesand relevant supportingdocuments.

30

Whether any cost auditwas carried out, if yes,enclose a copy of thereport of such audit [Seesection 139(9)].

: Check if cost audit isapplicable; check whetherthe audit has been carriedout during the year.

If the Cost audit is notcarried by the time TaxAuditor gives the report,state the fact accordingly.

Obtain a copy of thereport if any cost audit

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28 Tax Audit Cl

Documents