Tax Audit Checklist

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Client:

Period:

Tax Audit Checklist for the revised Form 3CD

Part A

1. Name of the Assessee

2. Address

3. Permanent Account No.

4. Status

5. Previous Year Ended

6. Assessment Year

Part B

Clause Particulars of the Clause as per Form 3CD7. (a) If firm or Association of Persons, indicate names of

partners/members and their profit sharing ratios.(b) If there is any change in the partners/members or their profit

sharing ratios, the particulars of such change.

Verification Outline CWP Ref. Comments, if any

i. Verify Deed of Partnership for the names of the partners and their profit sharing ratios.

ii. Cross verify the names of the partners and their profit sharing ratios with that in the accounts of the current year and that of the previous year to ascertain any change.

Notes

Only share in profit to be disclosed i.e. remuneration, if any should not be

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disclosed in this clause.

Every change in the ratio should be disclosed.

Ratio for sharing losses, if different from the profit sharing ratio, should also be disclosed.

Conclusion :

Clause Particulars of the Clause as per Form 3CD8. (a) Nature of business or profession.

(b) If there is any change in the nature of business or profession the particulars of such change.


i. Obtain list of activities/principal lines of business from client and changes from previous year (if any) (i.e both new and discontinued businesses)

ii. Verify above with the financial statements of the current year, board and general meeting minutes, and previous years Return of Income.

iii. Identify and disclose new activities in pre-operative stage, even if no revenues are generated from the same. For this purpose scrutinise accounts such as capital w.i.p., pre-operative expenditure, interest costs, etc.

iv Disclosure :(a) Under broad heads viz.,

manufacturing, trading services and financial services,

(b) Nature of product/ services under each broad head.

Conclusion :

Clause Particulars of the Clause as per Form 3CD9. a. Whether books of account are prescribed under Section 44AA?

If yes, list of books so prescribed.b. Books of accounts maintained.

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(In case books of account are maintained in a computer system, mention the books of account generated by such computer system)

c. List of books of account examined

`Verification Outline CWP Ref. Comments, if any

i. For persons carrying on legal, medical, engineering or architectural professions or the profession of accountancy or technical consultancy or interior decoration or authorised representative or film artist the following books are prescribed u/s 44AA:a. cash book;b. journal, if the accounts are

maintained according to the mercantile system of accounting;

c. Ledger; d. Carbon copies of bills; ande. Original bills wherever issued to the

person and receipts in respect of expenditure incurred by the person.

ii. Obtain list of books of account maintained by the assessee. If books of account maintained on computer then obtain certificate from software developer/vendor for books of account generated by the computer.

iii. Compare list of books maintained with previous year’s schedule.

Notes

Disclose only those books that are verified for the purpose of expressing true and fair view on financial statements.

MIS and other reports generated by the computer system should not be included.

Marks of identification should be affixed on each and every book and document examined.

Lists of books maintained and examined will be common unless not produced for audit thereby placing limitation on the scope of our audit. Reason/note should be

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given for such difference.

Conclusion :

Clause Particulars of the Clause as per Form 3CD10. Whether the profit and loss account includes any profits and gains

assessable on presumptive basis, if yes, indicate the amount and the relevant section (44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB or any other relevant section)


Profit and gains assessable on presumptive basis would be of the following businesses:• Civil Construction• Plying, hiring or leasing of goods

carriages• Retail business• Shipping business in case of non-

residents• Business of exploration, etc. of mineral

oils• Operation of aircraft in case of non-

residents• Foreign companies engaged in the

business of civil construction, etc., in certain turnkey projects.

Scrutinise the income accounts for the nature of income to ascertain whether the same would fall in any of the above categories and the conditions/requirements prescribed under the Income Tax Act, 1961 are satisfied/complied.

Conclusion :

Clause Particulars of the Clause as per Form 3CD11. (a) Method of accounting employed in the previous year.

(b) Whether there has 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) Details of deviation, if any, in the method of accounting

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employed in the previous year from accounting standards prescribed u/s 145 and the effect thereof on the profit or loss.


i. Verify Notes to Account for disclosure of significant accounting policies.

ii. Compare with previous year’s tax audit report for basis adopted.

iii. Scrutinise Notes to Accounts, Auditors’ report and MAOCARO for change in method of accounting and the quantification thereof.

Notes

Presently, the standards prescribed under Section 145 of the Income Tax Act, 1961 are :• Disclosure of accounting policies• Prior period items• Extraordinary items• Changes in accounting policies

Differences if any, between above standards and those carried by ICAI need to be identified and effect there of disclosed.

A change in an accounting policy will not amount to a change in the method of accounting and hence such change in the accounting policy need not be mentioned under sub-clause (b).

Conclusion :

Clause Particulars of the Clause as per Form 3CD12. (a) Method of valuation of closing stock employed in the previous

year.(b) Details of deviation, if any, from the method of valuation

prescribed u/s 145A and the effect thereof on the profit or loss.


i. Ensure disclosure is consistent with Significant Accounting Policies under

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Notes to Accounts.

ii. Check that the following is included in the valuation of stocks: tax, duty, cess or fee (by whatever name called).

iii. If the items mentioned in (ii) above are not included, then quantify the effect thereof on opening and closing stock valuation.

Note

The effect on the profit and loss account of deviation from method of valuation prescribed under Section 145A should be given individually on the opening and closing stocks. Both the effects should be disclosed separately and not netted off. In case of netting off, there should be proper disclosure.

Conclusion

Clause Particulars of the Clause as per Form 3CD13. Amounts not credited to the profit and loss account, being:

Clause Particulars of the Clause as per Form 3CD13(a). The items falling within the scope of Section 28


i. Scrutinise liability and capital reserve accounts to ascertain any amount in the nature of income.

ii. Scrutinise audit report and notes to accounts for comments, if any, on deferment/non-accounting of income.

iii. Identify whether the business of the assessee enjoys the benefit of any import license, cash assistance for exports, claims for duty drawback, proforma credits, refunds, etc.

`Note : Verify whether income when (i) to (iii)

above is accrued, in accounts, if due. If not accounted, quantify separately.

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iv. Review the items of financial statements, that considering the propriety of transaction, would be generating revenue but are provided free of cost or at subsidised rates. Disclose such items separately and quantify the effect wherever possible.

v. Discuss with the management by making prima facie inquiry of any facilities or other benefits provided to others out of gratis or otherwise.

Note:

Put appropriate disclaimer note on management representation about facilities provided for use by the company and not charged for or services subsidised.

Conclusion

Clause Particulars of the Clause as per Form 3CD13(b). The proforma credits, drawbacks, refunds of duty of customs or

excise, or refunds of sales tax, where such credits, drawback, refunds are admitted as due by the authorities concerned


i. Discuss with the management for any of the above claims admitted as due by the authorities concerned at the year end.

ii. Verify whether the above claims have been credited to the profit and loss account and, if not, obtain reasons.

iii. Scrutinise subsequent receipts of customs or excise refunds, drawbacks and refund of sales tax. Ascertain when these claims were admitted as due by the authorities concerned.

iv. Verify recent sales tax assessment orders to determine whether any refund is due.

v. Cross check with notes to accounts

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and qualifications in auditors, report for such credits.

Conclusion

Clause Particulars of the Clause as per Form 3CD13(c). Escalation claims accepted during the previous year


i. Check the accounting policy followed for accounting for escalation claims as also any adverse comments in auditors’ report/ notes for non-accounting of claims.

Conclusion

Clause Particulars of the Clause as per Form 3CD13(d). Any other item of income


i. Scrutinise the notes to account and auditors’ report for any undisclosed/unaccounted revenue/income. (Refer items listed in Section 2(24).

Conclusion

Clause Particulars of the Clause as per Form 3CD13(e). Capital receipts, if any.


i. Review items representing credits in the nature of capital receipt particularly those credited to capital reserve.

ii. Check whether any of these could be credited to revenue under tax laws. If yes, ensure appropriate disclosure.

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Notes

All capital receipts which are not directly related to assets/liabilities should be disclosed here. Conclusion

Clause Particulars of the Clause as per Form 3CD14. 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(d) Additions/deductions during the year with dates; in case of

addition of an asset, date put to use; including adjustments on account of(i) Modified Value Added Tax credit claimed and allowed

under the Central Excise Rules, 1944, in respect of assets acquired on or after March 1, 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.


i. Obtain a schedule in the form required under the clause. Description of asset/block of asset should be under the following heads:

• Building• Plant and Machinery• Furniture and Fixtures• Vehicles/Cars (acquired after 1.4.90)• Other Specified Assets and• Intangible Assets• Computers

ii. Identify the opening block of WDV from previous year’s return of income.

iii. Check/vouch adjustments to the block of fixed assets during the year from statutory audit file or relevant supports.

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iv. Identify separately and vouch for adjustments on account of the following:

• MODVAT, from RG 23A Part II and RG 23C Part II registers• Change in rate of exchange of currency, from the financial statements/audit work papers• Subsidy / grant / reimbursement, etc., verify the scheme under which it is received and ensure appropriate treatment in books.

v. Confirm whether rates and amount for claim of depreciation are as per Section 32 and Rule 5 of the Income Tax Act and Rules respectively.

Notes

Suitable note should be put for our reliance on last return of income for opening WDV of the asset, since that may be subject to change during assessment.

An assessee may not desire to claim depreciation in respect of any block of asset in any year. In that case, a specific mention about the assessees not to claim depreciation should be stated. The relevant decision case laws on which reliance is placed by the assessee for exercising his option not to claim depreciation should also be stated by way of a note.

It is possible that there may be certain disputes about the rate of depreciation in respect of any block of assets or with reference to the computation of WDV, etc. in the earlier years. Therefore, the figures of WDV of block of assets or the rates of depreciation may change. Suitable note with regard to such items in respect of which disputes of earlier years are not resolved upto the date of giving the audit report and it should be clarified that the figure of depreciation allowable may change as a result of any decision which may be received after the audit report is given.

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Conclusion

Clause Particulars of the Clause as per Form 3CD15. Amounts admissible under Sections 33AB, 33ABA, 33AC, 35,

35ABB, 35AC, 35CCA, 35CCB, 35D, 35E.(a) Debited to the profit & loss account. (showing the amount

debited and deduction allowable under each section separately);

(b) Not debited to the profit and loss account.


i. Discuss whether any of the sections referred are applicable to the assessee. The business activities/expenditures covered are:

• Growing and manufacturing of tea (33AB)• Prospecting/extraction/production of petroleum and/or natural gas (33ABA)• Operation of ships (33AC)• Scientific research (35)• Telecommunication services (35ABB)• Eligible projects or schemes for promotion of social and economic welfare (35AC and rules 11F to 11-O)• Rural development programmes (35CCA)• Conservation of natural resources (35CCB)• Preliminary expenses (35D)• Prospecting/extraction/production of any minerals (35E)

ii. Scrutinise general ledger for items of allowable expenses, particularly those in the nature of capital expenditure, which under tax laws are allowed as deduction (e.g. licence fees, preliminary expenses as defined under 35D)

iii. Check depreciation schedule for any capitalised asset, is claimed as an allowance under tax laws and ensure

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separate disclosure.

iv. Ensure appropriateness of deductions (particularly weighted deductions)

claimed under the relevant sections.

For items in (i) above, verify and classify items which have been charged to current statement of profit and loss, and those that are not.

Conclusion

Clause Particulars of the Clause as per Form 3CD16 (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(1)(ii)]


i. Obtain a schedule of bonus, exgratia and commission paid/payable to employees stating the name of the employee, designation, amount of bonus/exgratia/ commission paid/payable, etc.

Note

Disclose particulars of the above payments only if payable in lieu of dividends or profits. Conclusion

Clause Particulars of the Clause as per Form 3CD16.(b) Any sum received from employees towards contributions to any

provident fund or superannuation fund or any other fund mentioned in Section 2(24)(x); and due date for payment and the actual date of payment to the concerned authorities [Section 36(1)(va)].


i. Check payroll records for any

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deductions on account of provident fund, superannuation fund, ESIC or contribution towards any other fund for the welfare of employees.

ii. Obtain and verify chart for employees contribution towards the above funds with their respective due dates and actual dates of payment.

Conclusion

Clause Particulars of the Clause as per Form 3CD17 Amounts debited to the profit and loss account, being:

Clause Particulars of the Clause as per Form 3CD17(a) Expenditure of capital nature


i. Scrutinise audited accounts and schedules for expenditures:

a. Repair & Maintenanceb. Travelling expensesc. Salaries & Wagesd. Stores & spare parts consumptione. Depreciationf. Legal, Professional & Consultancy chargesg. Filing Feesh. Capital losses written offi. Miscellaneous Expenditure written off (Balance Sheet item)j. Miscellaneous/general expenses, for capital expenditure written off.k. Computer software expenses to ensure that it does not include any system software.

Notes

Common examples of such write offs would be – expenses on increasing authorised capital, share issue expenses written off, obsolete assets written off, etc.

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Legal opinions for specific accounting treatment to be brought to Partner’s /Managers attention.

Conclusion

Clause Particulars of the Clause as per Form 3CD17(b) Expenditure of personal nature


i. Verify whether Directors’ remuneration and r perquisites covered by contractual obligations.

ii. Scrutinise report under MAOCARO for any personal expenses being reported.

iii. Scrutinise earlier years assessment orders for any expenses being disallowed as personal expenses by the Income-Tax Department, whether disputed or not by the assessee.

iv. Scrutinise schedules/vouchers for expenses like – Staff Welfare, Entertainment, Rent, General Expenses, Sales Promotion, Travelling, Hotel & Club bills, Guest house expenses, Drivers Salary, Telephone expenses, Electricity expenses and Motor Car expenses.

Conclusion

Clause Particulars of the Clause as per Form 3CD17(c) Expenditure on advertisement in any souvenir, brochure, tract,

pamphlet or the like, published by a political party


i. Refer to the Companies Act checklist in the file for comments on contribution to political parties.

ii. Verify the supporting documents such as souvenirs or pamplets issued by

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the political party.

Notes

Contribution to trade union affiliated to a political party should also be reported. Disclosure is not required, if trade union separately recognised

Conclusion

Clause Particulars of the Clause as per Form 3CD17(d) Expenditure incurred at clubs –

(i) as entrance fees and subscriptions(ii) as cost for club services and facilities used


i. Check the payments to clubs for expenditure of personal nature or entertainment. Disclose if the same item is included in another clause of the Statement of Particulars.

ii. Check the other revenue heads of account for payments to clubs.

Notes

Payments to clubs would not include payments to service organisations like Lions, Rotary, Giants, Diners, etc.

Conclusion

Clause Particulars of the Clause as per Form 3CD17(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.


i. Make prima facie inquiry about the

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applicable laws to the organisation with the management and also identify specific statutes based on review of clients business.

ii. Verify from audit work papers for expenditure in the nature of penalty, fine, illegal payments.

iii. Verify Income Tax, Sales Tax, excise, P.F. and other orders for penalty and other payments.

Conclusion

Clause Particulars of the Clause as per Form 3CD17(f) Amounts inadmissible u/s 40(a).


i. Obtain statement of payments made outside India, (with corresponding TDS amount) on account of interest, royalty, fees for technical services or other sum paid outside India chargeable under the Act.

ii. Cross check with expenditure in foreign currency disclosed in the notes to account.

iii. Verify whether adequate tax has been deducted and paid on the above payments. If not, then give details of non/short deductions.

iv. Disclose the amount of income tax and wealth tax charged to the statement of profit and loss.

v. Obtain an employee wise statement of salaries paid outside India with corresponding tax withheld and verify the accuracy of the deduction.

vi. 40(a)(iv) Provident fund – TDS – Salaries – pending

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Note:

Where taxes are paid abroad and are grouped under rates and taxes/any other account head, the same should be disclosed.

In cases where taxes are not deducted properly during the year but on an overall basis the amount deducted for the year is correct, then non-deduction/short deduction for a particular month need not be reported.

Conclusion

Clause Particulars of the Clause as per Form 3CD17(g) Interest, salary, bonus, commission or remuneration inadmissible

under Section 40(b)/40(ba) and computation thereof.


i. Verify the details of payments to partners/members for interest, salary, bonus, commission or remuneration with reference to the deed of partnership/other documents (in case of AOP or Body of Individuals) and books of account.

ii. Work out payments in excess of limits prescribed under Section 40(b)/40(ba) and report the same in the Statement of Particulars.

Notes

Payments to the partner only in the capacity as partner should be stated (i.e. payments for specific professional services, etc. should not be reported). However, obtain particulars thereof for the purposed.

Conclusion

Clause Particulars of the Clause as per Form 3CD

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17(h) Amount admissible under section 40A(3) read with rule 6DD and computation thereof


i. Obtain list of all payments exceeding Rs.20,000/- in cash or by cheques/drafts which are not crossed and cross verify the same with the bank statements.

ii. Scrutinise cash book to ensure completeness of list provided by the assessee.

iii. Ensure disclosure for disclaimer with regard to cheque/draft payments through bank. (See note below)

Notes

The details obtained from the assessee should also cover the payments falling within the exceptions provided in Rule 6DD(a) to (l), and payments not relating to expenditure such as advances and loans to employees, which are not to be reported in the Statement of Particulars.

Payments to employees in respect of salaries, wages, leave travel assistance, etc., are also to be reported if they are paid otherwise than by crossed cheque/draft.

Conclusion

Clause Particulars of the Clause as per Form 3CD17(i) Provision for payment of gratuity not allowable under

section40A(7)


i. Obtain schedule for provision for payment of gratuity.

ii. Cross tally schedule with the amount as per audited accounts.

iii. Check the provision for gratuity

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which has become payable to employees who have left the services.

iv. Check the actual date of payment in case of funds set up by the Company and the due date as per the trust deed.

v. Indicate the following separatelya. Provision towards approved gratuity fund contributionb. Provision for gratuity that is due and payable during the year.c. Other provisions.

Conclusion

Clause Particulars of the Clause as per Form 3CD17(j) any sum paid by the assessee as an employer not allowable under

section 40A(9)


i. Obtain list of payments made by an employer towards the setting up or formation or contribution to any fund, trust, company, etc., other than:

a. Recognised provident fund.b. Recognised gratuity fund.c. Recognised superannuation fund.d. As required by or under any other law.

ii. Indicate in the Statement of Particulars the payments made by the employer other than those mentioned in (i) above.

Conclusion

Clause Particulars of the Clause as per Form 3CD17(k) Particulars of any liability of a contingent nature.


i. Scrutinise liability accounts to identify any liability of contingent

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nature debited to the profit and loss account.

Notes

State that this does not include provision for leave encashment debited to the profit and loss account and provided in accordance with Accounting Standard 15.

Conclusion

Clause Particulars of the Clause as per Form 3CD18. Particulars of payments made to persons specified under section

40A(2)(b)


i. Obtain duly certified list of persons specified under Section 40A(2)(b) and cross tally with previous years list. Also check whether the entities/parties listed in the register maintained under Section 301 of the Companies Act, 1956 or referred to in any Board Minutes fall in category of specified persons.

ii. Obtain list of expenditures in respect of which payment has been made or is to be made for goods, services and facilities (including remuneration and interest to partners) to the above mentioned category of persons and check with:

• Agreements/authorisation.• Vouchers/entries in the general ledger• Personal accounts of the parties

Notes

Payment would include amounts paid/payable.

Only amounts debited to profit and loss account should be disclosed.

Conclusion

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Clause Particulars of the Clause as per Form 3CD19. Amounts deemed to be profits and gains under section 33AB or

33ABA or 33AC.


i. Confirm the workings of profits and gains as per the requirement of these sections.

ii. In respect of section 33ABA verify from the accountants’ report required under sub section (2) of this section.

Conclusion

Clause Particulars of the Clause as per Form 3CD20. Any amount of profit chargeable to tax under section 41 and

computation thereof


i. Obtain a statement of written back during the year. Inquire whether allowance in tax returns was claimed in earlier years.

ii. Scrutinise other income and reserves account and report receipts, upon succession of business.

iii. For Power Companies only - In case of sale of fixed assets, check whether the sale value exceeds the WDV of that particular asset. If yes, report difference under this clause. However, this should be restricted to the difference between cost and WDV of that particular asset.

iv. In case of sale of assets used for scientific research,

the excess of sale proceeds (together with deduction under 35(2)(i), 35(2)(ia), 35(2B)(c)) over capital expenditure; orthe amount of deduction above, whichever is lower should be reported.

v. Obtain a statement of recovery of debts earlier written off. Report to the

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extent amount allowed as deduction in the past assessments.

vi. In case assessments are not complete for the years in respect of which bad debts are recovered, ensure appropriate disclosure by way of note.

vii. Obtain list of amounts withdrawn from special reserve created under section 36(1)(viii) with corresponding deduction allowed in earlier assessments. Report with note as discussed under verification point (vi) above.

viii. In case business (in respect of which all the above income is received) is discontinued, any unclaimed loss (other than speculation loss) of the year in which the business is discontinued for that particular discontinued business can be set off against these incomes. Consider the effect of the same in the computation under this clause.

Conclusion

Clause Particulars of the Clause as per Form 3CD21(i). * In respect of any sum referred to in clauses (a), (c), (d) or (e) 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.


i. Scrutinise previous years tax audit report, current liabilities & secured/ unsecured loans (for interest accrued and due) to identify any of the following amounts pertaining to earlier years:

• Tax, duty, cess or fee (by whatever name called) levied under

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any law (e.g. excise duty provision, customs duty, service tax, electricity duty, R&D cess, textile cess, municipal taxes, profession tax, octroi duty, etc);• Bonus or commission payable to employees;• Interest payable on any loans or borrowings from public financial institution, state financial corporation or industrial investment corporation, and• Interest payable on term loans availed from a scheduled bank.

ii. Verify payments relating to above (not allowed as a deduction in the earlier assessment years) with relevant supports viz. challans, receipts, bank advise, etc. Also disclose amounts unpaid out of above.

iii. For expenditures mentioned in (i) above debited to profit and loss account (including those not routed through the profit and loss account) of the current year, determine the amount remaining unpaid (i.e. shown as liabilities) as at 31st March. Also verify amounts paid subsequently on or before the filing of return of income, and balance outstanding.

iv. In respect of any tax, duty, cess or fee reported in clause 21(i) it is necessary to state whether it is routed through the profit and loss account. For this refer to the accounting policy on sales to confirm if sales include excise duty, sales tax, service tax, etc.

v. Verify report under MAOCARO for any statutory dues remaining unpaid.

Conclusion

Clause Particulars of the Clause as per Form 3CD21(ii)* In respect of any sum referred to in clause (b) of Section 43B, the

liability for which(A) pre-existed on the first day of the previous year but was not

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allowed in the assessment of any preceding previous year: (a) nature of liability; (b) due date of payment under second proviso to Section

43B; (c) actual date of payment;

(d) if paid otherwise than in cash, whether thesum has been realised within fifteen days of the aforesaid due date;

(B) was incurred in the previous year: (a) nature of liability;

(b) due date of payment under second proviso to section 43B; (c) actual date of payment;

(d) If paid otherwise than in cash, whether the sum has been realised within fifteen days of the aforesaid due date

* State whether sales tax, customs duty, excise duty, other indirect tax, levy, cess, imposts etc., are passed through the profit and loss account.


i. This clause applies to employers’ contribution to provident fund, gratuity fund or any other fund that has been established for the welfare of employees.

ii. Scrutinise previous years tax audit report and current liabilities to identify amounts pertaining to earlier years.

iii. Verify payments during the year pertaining to the above amounts (not allowed as a deduction in the earlier assessment years) with challans, receipts, bank advise, etc. Also ascertain amounts unpaid out of the above.

iv. Where payment made by cheque, etc. whether the sum has been realised within fifteen days of due date.

v. For each of the expenditures mentioned in (i) above that are debited to profit and loss account of current year, determine amount remaining unpaid (i.e. shown as liabilities) as at 31st

March. Also verify amounts subsequently paid on or before due date.

Notes

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Due dates:

The due date would be as follows:• PF/FPF/EDLI/admin charges – 15th of the

next month.• ESIC – 21st of the following month.• Gratuity fund – if funded with the LIC,

the date as mentioned in the premium letter. If the employer has established a separate gratuity trust, the date mentioned in the trust deed/regulations.

If the due date happens to be a public holiday, the due date will be the next working day.

Payments made should be verified from the respective challans. The date of tendering the challan will be considered as the date of payment.

Where the payment is made by cheque or demand draft, the transfer date stamped on the challan should be within fifteen days of the due date.

Conclusion

Clause Particulars of the Clause as per Form 3CD22 (a) Amount of Modified 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 Modified Value Added Tax credits in the accounts


Purchase of goods and materialsi. Document the system of accounting

excise at the time of purchase of goods and materials, point of availment or utilistion of modvat credit and entries passed at the time of availment/utilisation of modvat credit.

ii. Quantify and verify from excise records the amount of modvat credit available for the year, amount utilised and the

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balance outstanding.

iii. Provide a summary of above account with description and ensure disclosure of the same

Conclusion

Clause Particulars of the Clause as per Form 3CD22 (b) Particulars of income or expenditure of prior period credited or

debited to the profit and loss account


i. Check the items under the head prior period adjustments, or check the notes on accounts to ensure whether any expenditure or income of prior year is debited or credited to profit and loss account.

ii. Reference to be made to the method of accounting followed by the organization and stated at clause 11 of form 3CD.

Notes

In case of cash system of accounting, there will not be any item appearing under this clause.

Conclusion

Clause Particulars of the Clause as per Form 3CD23. 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]


i. Obtain a statement of hundis borrowed and repaid during the year with the mode and amount of each individual payment.

ii. Also check the mode of payment of interest due on hundi during the year.

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iii. Obtain loan confirmations.

iv. Disclose all payments made for above otherwise than by account payee cheque.

v. Ensure disclosure of standard note of the firm for our inability to verify whether the payments are done through account payee cheque or not.

Notes

It should be noted that hundi does not include bills of exchange but bills of exchange includes hundi.

Where any amount is borrowed on hundi or repayment thereof (including interest) is otherwise than through and account payee cheque drawn on a bank, the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying for the previous year in which the amount was borrowed or repaid.

Conclusion

Clause Particulars of the Clause as per Form 3CD24 (a) *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 amount was squared 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 need 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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i. Obtain statement in the required format and check with relevant accounts in general ledger.

ii. Scrutinise loan accounts, current account and deposit accounts for similar items.

iii. Scrutinise advances account to find out whether such advances are in the nature of loans/deposits.

iv. Obtain loan confirmations

Notes:

Particulars to be disclosed above would apply only in cases where the loans/deposits taken exceeds Rs.20,000 during the year.

Adjustments made in the ledger accounts of the parties by journal entries would also amount to repayment or acceptance of loan/deposit.

In case details are not given because they are voluminous, ensure proper disclosure (like in respect of bank overdraft/cash credit, fixed deposits, etc.)

Ensure standard note in respect of disclaimer on inability to verify whether the loan/deposit was taken by an account payee cheque/draft.

Conclusion

Clause Particulars of the Clause as per Form 3CD24 (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 applicable

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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i. Obtain statement in the required format and check with relevant accounts in general ledger.

ii. Scrutinise loan accounts, current account and deposit accounts for similar items.

iii. Ensure that all the items, which are covered under 24 (a) above and in respect of which repayment is made during the year, disclosure is made under this clause.

Notes:

Particulars to be disclosed above would apply only in cases where the loans/deposits taken exceeds Rs.20,000/- during the year.

Adjustments made in the ledger accounts of the parties by journal entries would also amount to repayment or acceptance of loan/deposit.

In case details are not given because they are voluminous, ensure proper disclosure (like in respect of bank overdraft/cash credit, fixed deposits, etc.)

Ensure standard note in respect of disclaimer on inability to verify whether the loan/deposit was repaid by an account payee cheque/draft.

Though section 269T deals with only deposit, reporting will be for both loans and deposits since the form requires comment on both. However, if the client takes the view that section 269T does not cover repayment of loan then appropriate disclosure should be made.

Conclusion

Clause Particulars of the Clause as per Form 3CD

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25. Details of brought forward loss and depreciation allowance in the following manner to the extent available;


i. Verify the last return of income filed, and make a list of all the carry forward losses.

ii. Verify the recent assessment orders and ensure that the effect of such assessment, so far as applicable to the carry forward losses and depreciation, has been properly dealt in the annexure prepared.

iii. Ensure disclosure of amount of carry forward loss being subject to change on account of open assessments.

iv. Get the annexure so prepared verified by the T&BA Group.

Notes

All types of carry forward of losses, depreciation etc. should be included.

Remarks column should give the status under appeal, etc.

Conclusion

Clause Particulars of the Clause as per Form 3CD26. Section-wise details of deductions, if any, admissible under

Chapter VIA


i. Verify the return of income of earlier years to ensure that all the deductions claimed in the previous year, and if applicable in the current year, have been disclosed.

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ii. Scrutinise the current year financial statements and audit work papers for identifying any claims available under the chapter.

iii. In respect of sections under which independent certificates are required, ensure that a copy of the same is put on the file.

iv. Ensure full particulars of deductions with quantification thereof are verified and signed off by T&BA Group.

Notes

Though the tax audit report is in relation to business and profession income, disclosure of information on deduction available under other heads should be made.

The information required under this clause can be given only when the return of income for the year has been made up.

Conclusion

Clause Particulars of the Clause as per Form 3CD27. (a) Whether the assessee has deducted tax at source and paid the

amount so decided to the credit of the Central Government in accordance with the provisions of Chapter XVII-B?

(b) If the answer to (a) above is negative, then give the following details:


i. Obtain a statement of TDS deducted showing the particulars of the head under which tax is deducted, amount deducted, due date of payment, payment date and amount and the delay in payment.

ii. Check the relevant vouchers, challans and returns submitted of the tax so deducted.

iii. Scrutinise other relevant accounts for expense heads such as salaries,

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interest, royalties, contractors/sub-contractors etc.

Notes

Only the tax deducted and not paid within the prescribed limits has to be reported. In case the tax was liable to be deducted and has not been deducted, no details are to be furnished. Ensure disclosure of appropriate note.

Conclusion

Clause Particulars of the Clause as per Form 3CD28 (a) In the case of a trading concern, 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:


i. Verify whether the quantitative information is given as per stock records maintained by the assessee or compiled from financial statements.

ii. Verify that at least the items, which constitute more than 10% of the value of purchases or consumption or turnover as the case may be are disclosed as a separate item.

iii. The information about percentage of yield, shortage of raw materials as well as shortage and percentage of finished products to be given to the extent data is available from the assessee’s records. Non-receipt of particulars, if any, should be stated.

Conclusion

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Clause Particulars of the Clause as per Form 3CD28 (b) In the case of a manufacturing concern, quantitative details of

principal items of raw materials, finished products and byproducts -

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

B Finished Products/Byproducts -

(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

*Information may be given to the extent available.


i. Verify quantitative details from the notes to account.

Conclusion

Clause Particulars of the Clause as per Form 3CD29. 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) Total tax paid thereon;(c) Dates of payment with amounts.


i. Ensure that total amount of profits distributed and the tax paid thereon is as per the audited profit and loss account.

ii. Verify and obtain copy of challan for payment of tax and date of payment.

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Notes

Only the dates of payment in respect of tax on dividend is to be given and not the date of payment of dividend.

Conclusion

Clause Particulars of the Clause as per Form 3CD30. Whether any cost audit was carried out, if yes, enclose a copy of

the report of such audit [See section 139(9)].


i. Verify the MAOCARO for any cost audit conducted under Section 233B of the Companies Act, 1956. Include whether cost audit has been conducted or not in the letter of representation.

ii. If yes, whether a copy of the same has been attached to the Tax Audit Report.

Notes

No verification is required in case the audit has been so conducted.

Also, if the audit was supposed to have been conducted and the same has not been conducted, this fact is to be disclosed in the report.

Conclusion

Clause Particulars of the Clause as per Form 3CD31. Whether any audit was conducted under the Central Excise Act,

1944, if yes, enclose a copy of the report of such audit.


i. Inquire with the client, whether any audit conducted under the Central Excise Act, 1944. Include whether audit under Central Excise Act, 1944 has been conducted or not in the letter of

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representation.

ii. If above audit has been conducted then attach copy of the same to the Tax Audit Report.

Notes

No verification is required in case the audit has been so conducted.

Conclusion

Clause Particulars of the Clause as per Form 3CD32 Accounting ratios with calculations as follows

(a) Gross profit/Turnover(b) Net profit/Turnover(c) Stock in trade/Turnover(d) Material consumed/Finished goods produced


i. Verify figures required for the purpose of ratios from the audited accounts and ensure that they are consistently followed.

ii. Give particulars of the components of the amounts considered in the ratios.

Notes

The manner in which the gross profit has been derived should be disclosed and be followed consistently.

Net Profit should be the profit before tax but after all the other adjustments.

Stock in trade should be the average of opening and closing stock of work-in-process and finished goods.

Finished goods produced would be derived by the following formula :

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Turnover xxxLess: Gross Profit xxx xxxAdd: Closing Stock Finished of goods xxx xxxLess: Opening stock of Finished goods xxxFinished goods produced xxx

The stock figures should be taken as per books of account and not the adjusted number as per section 145A.

Conclusion

Prepared by :

Date:

Reviewed by :

Date :

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