PPT-ON-TAX-AUDIT.pdf

Clause 44

1. By CA ANIKET S. TALATI
M.COM., FCA.,
Regional Council Member-WIRC of ICAI

2. Genesis
GovernmentofIndiaconstitutedahighpowercommitteeofexpertsunderthe
chairmanshipofSriJusticeK.N.Wanchoo,retiredChiefJusticeofIndia,to
examineandsuggestlegalandadministrativemeasuresforcounteractingevasion
andavoidanceofdirecttaxesinthecountry
TheFinanceMinister’sspeechpresentingtheUnionBudgetfor1984-85explainsthe
rationaleas“intendedtoensurethatthebooksofaccountandotherrecordsare
properlymaintainedandfaithfullyreflectthetrueincomeofthetaxpayer.”Hence
thewholeideaofauditu/s44ABoftheIncomeTaxAct,1961wastoensurethatthe
booksarecorrectlymaintainedandincomeisrightlycomputedaspertheprovisions
ofthelaw.

3. Introduction
EverytradewithrevenuemorethanacertainthresholdundergoestheIncome
TaxAuditwhereQualifiedTaxAuditorsverifytheparticularsoftheprescribed
Formandsubmitthereportbyevaluatingfinancialrecordsoftheenterprises
todeterminewhetherthetaxpayercompliestotheIncometaxlaws.Income
taxAuditcomesundertheCentralBoardofDirectTaxeshavingayearlyreport
tobesubmittedtotheIncome-taxdepartmentbytheTaxauditorsafter
furnishingtheirinformationaccordingly.DuedateforthesubmissionofAudit
Reportisonorbefore30thSeptemberoftheAssessmentYear.

4. Provisions of Tax Audit for A.Y. 2018-19
TaxAuditrequirements/thresholdsasperSection44ABofIncomeTax
Act,1961
In case of Business –Turnover Exceeds Rs. 1 Crore(Assesseeopting for Presumptive
Taxation Scheme u/s. 44AD of the Act, the Turnover limit is exceeding Rs2 Crore)
IncaseofProfession-ReceiptsExceedsRs.50Lakhs.
Business u/s 44AE /44BB /44BBB; income is less than deemed profits;
Profession u/s 44ADA-Deemed profit is less than 50% & Total Income exceeds
Amount Not Chargeable to Tax

5. Provisions of Tax Audit for A.Y. 2018-19
ComplianceRequirements
Form3CA–ReportincaseofaPersonwhoisrequiredtogethisaccounts
auditedunderanylaw.
Form3CB-Reportinanyothercase.
Form 3CD-Particulars as required under Form 3CA or Form 3CB.
PENALTY PROVISION: ½ % OF TURNOVER SUBJECT TO MAXIMUM RS. 1.50
LAKHS

6. Recent Changes in Form Tax Audit
CBDT has revised Tax Audit
Form3CDRevisedvideNotification
33/2018dated20.07.2018(effectivefrom
20.08.2018)bywhichithasmade 6
Amendmentsand9InsertionsinTax
AuditReportForm3CD

7. Highlights of Amendments
ClauseNo.4–GSTINtobementioned.
ClauseNo.19–AllowanceunderSection32ADistobereported.
ClauseNo.24–DeemedgainsunderSection32ADtobereported.
ClauseNo.26–Clause(g)ofSection43B(sumpayabletoIndianRailwaysforuseof
assets)hastobereported.
ClauseNo.31–CashreceiptsmorethanINR2,00,000underSection269STistobe
reported.
ClauseNo.34–DetailswithrespecttotransactionsnotdisclosedinTDSReturn/TCS
Returnistobereported.

8. Summary of Insertions:
Clause29A–Advancereceivedoncapitalassetforfeitedtobereportedhere
{Section56(2)(ix)}.
Clause29B–IncomeofgiftsexceedingINR50,000tobereportedhere{Section
56(2)(x)}.
Clause30A–Detailsabout“PrimaryAdjustments”intransferpricingtobereported
hereasperSection92CE.
Clause30B–LimitationofInterestdeductionsforborrowingsfromaAEupto30%of
EBITDAistobefurnishedhere.
Clause30C–DetailsofImpermissibleAvoidanceAgreementtobefurnishedasreferred
toinSection96.

9. Summary of Insertions(Cont..)
Clause36A–DividendreceivedunderSection2(22)(e)isrequiredtobereported
here.
Clause42–Detailsw.r.t.Form61(detailsofnoPANForm60received),FormNo.
61A(SFT)andFormNo.61B(SRA)istobeprovidedhere.
Clause43–Detailsw.r.t.CbCReportingasreferredtoinSection286isrequiredto
bereported.
Clause44–BREAKUPoftotalexpenditureinrespectofGSTRegisteredand
UnregisteredEntitiesisrequiredtobegiven.

10. Clause by Clause Analysis of Changes
Clause
no. of TAR
Description Background Amendment made in TAR
Addition of
new clause
29A
Reporting of
receipt of
forfeitedadvance
fortransferof
capitalasset
FinanceAct2014inserted
provisionfortaxationofadvance
moneyreceivedfortransferof
capitalasset,ifsuchamountis
forfeitedandthetransferof
capital asset is not
successful.{Section56(2)(ix)}.
Accountant to certify
whetherthetaxpayerhas
receivedanysuchincome
andifyes,thenature&
amountofsuchincome.
Addition of
new clause
29B
Reportingofgift
received
FinanceAct2017expandedscope
oftaxationonmoneys/
propertiesreceivedbyataxpayer
withoutconsiderationorfor
inadequate
consideration
Accountant to certify
whetherthetaxpayerhas
receivedanysuchincome
andifyes,thenature&
amountofsuchincome.

11. Clause by Clause Analysis of Changes
Clause
no.ofTAR
Description Background AmendmentmadeinTAR
Additionof
new clause
30A
Secondary
Adjustment
underTransfer
Pricing
FinanceAct2017introducedSecondary
Adjustmentprovisionswhichtriggerina
casethereisaprimarytransferPricing
Adjustmentundertheprescribed
scenarios.Inacasewhereduetoa
primaryadjustmentinthehandsofthe
taxpayer,thereresultsanexcesscash
withtaxpayer’sassociatedenterprise(AE)
outsideIndia,suchexcesscashisrequired
toberepatriatedtoIndiawithinthe
prescribedtimelimits.Incasewherethe
excessmoneyisnotrepatriatedtoIndia
withintheprescribedtime,suchamount
isdeemedtobeanadvancemadebythe
taxpayertoitsAEandinterestislevied
onthedeemedadvanceinaprescribed
manneruntilrepatriationofthemoneyto
India.
Followingdisclosurestobe
made
Whethertherehasbeena
primaryadjustmentduring
theyear,category&amount
ofprimaryadjustmentmade
Whethertheexcessmoney
availableisrequiredtobe
repatriatedtoIndiaandif
yes,whethertheexcess
moneyhasbeenrepatriated
toIndiawithinthe
prescribedtimelimit.
Iftheexcessmoneyisnot
repatriatedtoIndiawithin
theprescribedtime,amount
ofimputedinterestonsuch
deemedadvance

12. Clause by Clause Analysis of Changes
Clause
no.ofTAR
Description Background AmendmentmadeinTAR
Additionof
newclause
30B
Disallowanceof
interest
deduction
under new
limitationrule
asperBEPS
Action4
PursuanttoBEPSAction4
recommendedbyOECD,FinanceAct
2017insertedanewprovisionwhich
limitsinterestdeductionorsimilar
paymentsmadebyIndiancompany/
permanentestablishmentofforeign
companyfordebtborrowedfromor
guaranteedbynon-residentAE.The
provisionappliesifinterestorsimilar
paymentsexceedsINR10millionin
whichcase,interestdeductionis
limitedtolowerofactual
expenditureinfavourofAEor30%of
Earnings before interest
depreciation,taxandamortization
(EBIDTA)
Accountanttocertifydetails
ofexpenditureincurredby
wayofinterestorsimilar
nature,EBIDTAofthe
relevantyear,quantumof
interestexpenditureor
similarnature which
exceeds30%ofEBDITA,&
unclaimed interest
expenditureeligiblefor
carryforwardtosubsequent
year.

13. Clause by Clause Analysis of Changes
Clause
no.ofTAR
Description Background AmendmentmadeinTAR
Additionof
newclause
30C
GeneralAnti
AvoidanceRule
(GAAR)
impacted
transactions
GAAR provisionswere
introducedfrom1April
2017onwardstodealwith
aggressivetaxplanning.
TARtoreportwhetherthetaxpayer
hasenteredintoanimpermissible
avoidancearrangement.Ifyes,nature
ofsuchimpermissibleavoidance
arrangement&theamountof
aggregatetaxbenefitarisingtoallthe
partiesconcerned.
Additionof
newclause
31(ba)/(bb)
/
(bc)/bd)
Receipt of
cashinexcess
ofINR2lakh
FinanceAct2017inserted
provisiontoprohibit
taxpayersfromreceiving
cashinexcessofINR2
lakh,exceptincertain
situations.Thiswasdone
towardsmovingtoamore
digitizedeconomy.
TARtodisclosetransactionsnot
complyingwithsaidrequirement.

14. Clause by Clause Analysis of Changes
Clause
no.ofTAR
Description Background AmendmentmadeinTAR
Addition
of new
clause
34(b)
Enhanced
reportingof
TDS/TCS
statement
Earlier,TARdidnotrequire
disclosureofunreported
transactions in TDS
statementsiftheywere
furnishedwithinduedate.
Thedisclosureofunreported
transactionswasrequired
onlyifTDSstatementswere
notfurnishedwithindue
date.
TAR to now disclose
details/transactions not
reportedeveninTDS
statements which are
furnishedwithinduedate

15. Clause by Clause Analysis of Changes
Clause
no.ofTAR
Description Background AmendmentmadeinTAR
Additionof
newclause
36A
Deemed
Dividend
Anyloan/advancegiven
byacloselyheldcompany
to its substantial
shareholderoraconcern
wheresuchshareholder
holdssubstantialinterest
oranypaymentmadeby
suchcompanyforbenefit
ofsuchshareholderis
deemedtobe“dividend”
to the extent of
accumulated profits
possessed by payer
company.Suchpayment
triggeredtaxationinthe
handsoftherecipient
shareholder
AmendedTARrequirestherecipientof
suchdividendtoreportthequantum
ofdividendreceivedanddateofsuch
receipt.Newreportingrequirement
appliestotherecipientofthe
dividendwhoisliabletotaxauditand
nottothecompanypayingdividend.

16. Clause by Clause Analysis of Changes
Clause
no.ofTAR
Description Background AmendmentmadeinTAR
Additionof
newclause
42
Specified
Financial
Transaction
s (SFT)
Foreign
AccountTax
Compliance
Act(FATCA)
Forms 61 & 61A -Taxpayers to
furnish details of SFTsand the
parties with whom such transactions
were entered. The reporting entity
is required to submit details in Form
61A. Similar reporting requirement
exists in Form 61 for a separate list
of PAN reportable transactions where
counter party to the taxpayer does
not possess PAN.
Form 61B -Indian tax law requires
prescribed financial institutions to
furnish a statement in Form No. 61B
of ‘reportable accounts’ maintained
by them. This was done to collect
required information to enable India
to meet its obligation of automatic
exchange of information under
FATCA.
Accountanttoreportwhether
thetaxpayerisrequiredto
furnishFormNo.61/61A/61B
andifyes,therelevantdetails
suchasTaxpayer‘sidentification
number,duedateoffurnishing
respectiveforms,dateof
furnishingthesaidform.
AmendedTARalsorequiresthe
Accountanttoreportwhether
submittedformscontainsall
detailsortransactionswhich
wererequiredtobereported
andifnot,listofdetails/
transactionswhicharenot
reported.

17. Clause by Clause Analysis of Changes
Clause
no.ofTAR
Description Background AmendmentmadeinTAR
Additionof
newclause
43(a)
CountryBy
Country
(CByC)
Reporting
Provisions
CbyCreportingprovisionsrequiresMulti
NationalEntities(MNEs)toreportthe
amountofrevenue(relatedandunrelated
party),profits,incometaxpaidandtaxes
accrued,employees,statedcapitaland
retainedearnings,andtangibleassets
annuallyforeachtaxjurisdictioninwhich
theydobusiness.Inaddition,MNEsare
alsorequiredtoidentifyeachentity
withinthegroupdoingbusinessina
particulartaxjurisdictionandtoprovide
anindicationofthebusinessactivities
eachentityconducts.Thisinformationis
tobemadeavailabletothetax
authoritiesinalljurisdictionsinwhichthe
MNEoperates.Thedocumentation
requirementfollowsa3-tierapproach:
CByCReport,MasterFile,LocalFile.
Accountanttoreport
whetherthetaxpayerorits
parententityoralternate
reportingentityisliableto
furnishtheCbyCreport
andifyes,particulars
relatingtofurnishingof
suchreport.

18. Clause by Clause Analysis of Changes
Clause
no.ofTAR
Description Background AmendmentmadeinTAR
Additionof
newclause
44
GST Introducedfrom1April
2017,GSTisoneindirect
taxforwholeofIndiaon
supplyofgoodsand
services,rightfromthe
manufacturer/service
providertotheultimate
consumer.GSTisa
comprehensivelevyand
allowstaxcollectionon
bothgoodsandservices
basedontheprincipleof
valueaddedtax.
AmendedTARrequiresreportingof
detailsofGSTi.e,break-upoftotal
expenditurewithGSTregisteredand
unregisteredentities.Inrelationto
expenditurewithGSTregistered
entities,itfurtherrequiresthe
break-upofexpenditurerelatingto
exemptsupplycoveredunderthe
compositionschemeandother
registeredentities.

19. 19
Challenges for Chartered Accountants due to changes in
Form 3CD

20. Challenges for CA
1
23
4
5
Report the Impermissible
Avoidance Arrangements as
referred to in Section 96 of
Act.
GST Reco. Of Total
Expenditure
Additional
Particulars of
TDS/TCS
Investigation by
Auditor about
applicability of
Section 2(22)(e) of
the Act
Additional Burden of studying
requirements of Form 61,61A or
61B Compliance in case of assessee

21. Biggest Challenge
MoreLiabilitiesarenowimposeduponAuditors.
ToTraintheStaffandequipthemwithnecessaryskillsetsfor
gearingupcompletionofAuditTargets-INTIME.

22. Million Dollar Question ??????
ChangesinForm3CDimposedadditionalburdenwhich
willdemandextratimefromCAProfessionals–But
whetheritwillyieldextraRemunerationfromclients?