Before you begin Tax Audit for FY 2019-20, Know important points in Form No. 3CD

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Before you begin Tax Audit for FY 2019-20, Know important points in Form No. 3CD

 

There are some of the important points one must know before completion of the audit for the FY 2019-20. Mistakes in compiling data may result in penalty u/s 271J of the Income Tax Act. Needless to say, the penalty u/s 271J is in addition to the disciplinary action that may be taken by ICAI. In the past, non mentioning of amount of disallowance towards cash payment u/s 40A(3) has resulted in removal of members name from ICAI records. Readers may refer-

https://thetaxtalk.com/2018/10/19/negligence-in-reporting-40a3-40aia-violation-is-professional-negligence-ca-awarded-punishment-of-removal-of-his-name-from-the-register-of-members/

 

Let us not complete the audit in a hurry. Let clients provide the data early so that the professional assignment could be completed with a caution.

Here is a compilation of few issues out of my earlier experiences:

  1. Due to COVID-19, loan account has been restructured so as to offer moratorium for a period of 6 month. However, there is no consequential amendment in section 43B. One need to be careful while auditing the assessee having enjoying banking facilities. Non-payment of interest to scheduled payment results in disallowance u/s 43B. It needs to be mentioned in tax audit report. Note that Conversion of outstanding interest into loan does not amount to “actual payment” U/s 43B.  –

a)https://thetaxtalk.com/2020/10/31/before-you-sign-the-tax-audit-report-know-rbi-moratorium-scheme-section-43b-reporting/

b)https://thetaxtalk.com/2019/05/10/conversion-of-outstanding-interest-into-loan-does-not-amount/

2. Compliance with ICDS clause is important now. Judgment in favor of Taxpayer in the case filed by Chamber of Tax Consultants is now overruled by way of amendment in the Income Tax Act-1961 by FA -2018. Here is a draft disclosure – https://thetaxtalk.com/2018/08/15/icds/

 

3. Ensure the valuation of closing inventor rules keeping in view ICDS & section 145A. Note the following: –
https://thetaxtalk.com/2019/04/29/excise-duty-to-be-included-in-value-of-closing-stock-even-if-it-was-due-but-not-paid-by-assessee/

4. Don’t forget to take GSTIN & reconcile it with GST returns.

5. There is column for reporting of amount Chargeable under section 56(2)(ix) as income from other sources. Do note it carefully. Even if the amount is not forming the part of books of accounts in case of proprietary firm, same is required to be reported.

6. Similarly, there is a column for reporting of Amount Chargeable under section 56(2)(x) as income from other sources. Note it carefully. Even if the amount is not forming the part of books of accounts in case of proprietary firm, same is required to be reported.

7. Don’t forget to mention sum payable to Railways under section 43B(g) which is not allowable as deduction for non-payment. Is to be carefully reported.

8. Reporting in section 269SS & 269T requires even advance received against property. Don’t forget to mention it.

9. Do reporting details of transactions not disclosed / specified in form 61/ 61 A/ 61 B.

10.  Though limited application, one need to incorporate impermissible avoidance arrangements as referred in Section 96 in audit report in Form No. 3CD.

11. Even though reported in SFT, still in audit report in 3CD also there is a requirement to show transactions of every cash receipt or payment in excess of the limit specified under section 269 ST

12. Now, auditor can take deep breath as the requirements of giving Break-up of total expenditure into expenditure with registered or not registered entities under the GST is deferred for another one year.

13. Compliance to Section 32AD is often ignored in the report. Allowances under Section 32 AD to be reported(Additional Depreciation, Investment Allowance etc). Deemed Gains under section 32AD to be reported

 

In case you have special observation, request you to kindly share it in the comment box below for the benefit of all the professionals.

[There are lot many taxpayers who are receiving Section 43B disallowance notices. May refer article titled –

“Mismatch in the Tax Audit Report & Income Tax Return – Dis-allowance u/s 43B- Remedy” at –

https://thetaxtalk.com/2019/03/29/mismatch-in-the-tax-audit-report-income-tax-return-dis-allowance-u-s-43b-remedy/

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