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Presentation by CA Nitin S Bangad Partner M/S. S M BANGAD & CO. CHARTERED ACCOUNTANTS.

Presentation by CA Nitin S Bangad Partner M/S. S M BANGAD & CO. CHARTERED ACCOUNTANTS. E-Filing & care to be taken. More than one auditor can be appointed & their reports can be uploaded.

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Presentation by CA Nitin S Bangad Partner M/S. S M BANGAD & CO. CHARTERED ACCOUNTANTS.

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  1. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai Presentation by CA Nitin S Bangad Partner M/S. S M BANGAD & CO. CHARTERED ACCOUNTANTS.

  2. E-Filing & care to be taken • More than one auditor can be appointed & their reports can be uploaded. • Cross referencing of similar items reported at more than one place is important since mismatch of TAR & ITR data leading to notices from the deptt. • In case of difference of opinion with the assessee, details not given by the assessee, the various judgments relied on by the auditor & the assessee, etc., proper disclosure in the report needs to be given. • For the reporting requirements, if all the details / information cannot be given in the formats/ space provided, separate annexures for the same can be uploaded with the TAR • Sign of all partners / director to be taken on Form 3CD in case of any dispute amongst partners / directors to avoid our liability in future. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  3. Form 3 CA / 3 CB • Where Statutory audit not completed Form 3CB to be issued other wise Form 3CA. • Compliance of SA-700 required in Form 3CA/3CB. • SA-700 disclosure.pdf • Form 3CA requires “True & Correct” & Form 3CB requires “True & Fair” view. • Para 3 of Form 3CA & para 5 of Form 3CB gives space to the auditor to give his comments/ discrepancies/observations/ qualifications, etc. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  4. CLAUSE 4 : Details of Registrations under Indirect Taxes • Other tax laws applicable for part of the year hence, registration under the other tax laws also to be given. • Applicability of GST needs to be checked. Eg: exempt items • Along with the registration no’s. under other tax laws, GSTIN under Goods & Service Tax, needs to be mentioned. • If multiple GSTIN is obtained for registrations under other states/ same state then all GSTIN to be mentioned. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  5. CLAUSE 8 :Relevant clause of section 44AB under which the audit has been conducted • The appropriate clause of sec. 44AB under which audit is conducted to be reported. Important from the angle of limitation on the no. of Tax Audits by ICAI. • The case of an assessee may fall under more than one clauses e.g. an assessee carrying on both a business as well as a profession • Is it possible to mention more than one clauses on the portal? • Definition of business u/s 2(13) & Profession u/s 2(36) may be referred. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  6. CLAUSE 10 :Nature of Business / Profession & changes during the year • The principal line of each business should be determined and stated in this clause. • In case of a person belongs to service sector the nature of each type of service should be stated. • The appropriate sub sector relating to the main business / profession needs to be selected. • Important from industry angle to compare financial ratios. • Details of changes in business / profession to be given if any • Discontinuation of segment of business ? • Backward & / or forward integration of business ? • Increase / decrease in installed manufacturing capacity? CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  7. CLAUSE 11 :Books of Accounts prescribed / maintained / examined • Rule 6F prescribes the books to be maintained by specified professionals • As per sec. 44AA(1) specified professional are legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or authorised representative or film artist. • As per section 2(12A) of the Income-tax Act, 1961, “books or books of account” include ledgers, day books, cash books account-books and other books, whether kept in the written form or as print outs of data stored in a floppy, disc, tape or any other form of electromagnetic data storage device • If accounts of the business or profession have been audited under any other law, the requirement for maintenance of books of account is contained in the relevant statutes. In the case of other assessees, normal books of account to be maintained. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  8. CLAUSE 11 :Books of Accounts prescribed / maintained / examined …Contd. • Address where the books are maintained needs to be taken from the assessee. In case of company assessee’s if the books are not kept at registered office, the copy of forms filed with ROC regarding the address where the books are kept needs to be taken. • Where books are maintained & generated from computer system the address where the server is located needs to be given. • As per para 20.10 of the GN on Tax Audit by ICAI, relevant documents means Bills, Vouchers, DR / CR notes, Inventory register, Agreements, Bank Statements, etc. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  9. CLAUSE 13 :Applicability of ICDS, effects on Income & Disclosures • Effect of ICDS to be given only in computation of income & not in the accounts prepared • A check list on verification to be done for compliances of ICDS needs to be prepared & implemented for each assessee. • The calculation of impact due to implementation of ICDS needs to be worked out & a track / reconciliation of the same needs to be maintained. • Disclosure of compliance to ICDS needs to be made • Wherever not complied due to different interpretation jurisprudence etc. the same needs to be properly disclosed. • Delhi High Court in the case of CTC v Union of India (400 ITR 178 vide order dated November 8 2017) - struck down various provisions of the ICDS as being ultra vires since they sought to override the provisions of the Act. • FA 2018 amended the Act retrospectively to ensure legality of ICDS CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  10. Amendment to the Act to incorporate ICDS provisions • 36(1)(xviii) rws 40A(xii) Marked to market loss or other expected loss calculated inaccordance with ICDS to be allowed as deduction • Section 43AA - any gain or loss arising on account of effects of changes in foreign exchange rates arising out of foreign currency transactions shall be charged to tax and computed in accordance with ICDS. • Section 43CB - profits or gains arising out of a construction contract or a contract for providing services will be computed on the basis of POCM except for certain service contracts. Contract revenue to include retention money and the contract costs shall not be reduced by any interest income, dividends or capital gains. • Section 145A - valuation of inventory as per ICDS for the purpose of determining income • Section 145B -interest received on compensation or on enhanced compensation, shall be deemed to be the income of the year in which it is received. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  11. ICDS – I (Accounting Policies) CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  12. ICDS – II (Inventories) CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  13. ICDS –III (Construction Contracts) CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  14. ICDS –IV (Revenue Recognition) CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  15. ICDS –V (Tangible Fixed Assets) CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  16. ICDS –V (Tangible Fixed Assets) Contd…. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  17. ICDS –IX (Borrowing Costs) CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  18. ICDS –IX (Borrowing Costs) Contd…. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  19. CLAUSE 14 :Sec. 145A, Closing Stock Valuation • Accounting is mostly done following the “exclusive” method of accounting for taxes, while sec145A requires “Inclusive method” • AS-2 recognizes only exclusive method for accounting & so there is bound to be deviation as per sec145A • As per AS-2 cost of purchases cannot include taxes & duties which are recoverable. But ICDS-II & Sec145A requires that the taxes are included in the value of sales , purchases, inventories. • Section 145A amended vide Finance Act 2018 to bring it in line with ICDS II – Inventories and ICDS VIII – Securities. • Grossing up of Purchases, Sales and Inventory to be done , however no change in gross profit. • Chart for sec. 145A • GST on closing stock of Finished goods ? CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  20. CLAUSE 18 :Depreciation • Determination of correct classification of particular assets is important • Depreciation on intangible such as good will, one time license fees, non compete fees, etc. • Additional depreciation u/s 32(1)(iia) on P&M put to use in last year. • Service tax / GST will be considered in CENVAT • Explanation 9 to sec. 43(1) of the I. T Act, 1961 & Rule 4(4) of CENVAT CREDIT Rules 2004 requires that CENVAT on capital good should be reduced from the cost of the assets so as to be eligible to claim the credit. • GST on Fixed assets capitalised • Max. rate of depreciation restricted to 40%. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  21. CLAUSE 21 :Expenses disallowable • Clause 21(b)(ii) Relating to TDS on payments to resident not deducted / not paid : • To reconcile with the figures reported in clause 34 • Clause 21(c) Relating to Interest / remuneration to partners: Circular 739 dtd 25th Mar 96 specifies that the deduction of remuneration/ int will be allowed only if the partnership deed either specifies the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration. • Clause 21(d) Relating to cash payment disallowable u/s 40A(3): • The limits for the AY 18-19 will be Rs 10000/- only instead of Rs 20.000/- CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  22. CLAUSE 26 :Expenses allowable / disallowable u/s 43B • Part A relates to previous years & only the payments made during the year upto the end of the FY needs to be specified. • Exgratia to employees – not bonus, hence not covered. • Conversion of interest into loans does not amount to payment of interest, not allowable [Expln 3C & 3D] • Interest paid to Co-op banks, or primary co-op agricultural & rural development bank also now covered for reporting in sub clause-e from AY 18-19. • New sub clause –g inserted regarding amt payable to IR for use of railway assets. • Timing difference between uploading the Tax Audit Report and • filing Income Tax Return. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  23. CLAUSE 29A :Advance Received & forfeited u/s 56(2)(ix) • Section 56(2)(ix) was inserted by the Finance (No 2) Act 2014, w.e.f. AY 2015-16 • New reporting clause inserted from AY 2018-19 • Reporting of any sum received as an advance during negotiation for transfer of immovable property which is forfeited, when there is no transfer of capital assets during the FY 2017-18 needs to be made. • In respect of personal capital assets, not reflected in the books of accounts of the business of the assessee and advance forfeited not to be reported. • Advance not forfeited not required to be reported. • Notice of forfeiture, given by the assessee and contested by the purchaser not required to be reported. • Auditor to obtain certificate from the assessee regarding advances received, forfeiture made during the year & verify the same with appropriate documents / agreements / contracts, etc. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  24. CLAUSE 29B :Transactions without adequate consideration u/s 56(2)(x) • Section 56(2)(x) was inserted by the Finance Act 2017, w.e.f. Amounts or assets received after 1st April, 2017 i.e. AY 2018-19. • New reporting clause inserted in Form 3CD from AY 2018-19. • 56(2)(x) provides that where any person receives from any person or persons, • Any sum of money without consideration exceeding Rs 50,000/- or • Any immovable property, without consideration, having stamp duty value exceeding Rs 50,000/- or • Any immovable property, for consideration which is less than the stamp duty value of the property, by an amount exceeding Rs 50,000/- • Any movable property without consideration having FMV exceeding Rs 50, 000/- • Any movable property for consideration less than the FMV by more than Rs 50,000/- • Then such amount would be treated as income from other sources of the assessee for the relevant AY. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  25. CLAUSE 29B :Transactions without adequate consideration u/s 56(2)(x) • Exemption from the above is provided for receipts from relatives, certain organisations and in specific situation, where the amounts received would not be taxable u/s 56(2)(x). Reporting in TAR in these circumstances is not required. • In case of disputes / doubt on the valuation of any assets, valuation report may be obtained and reporting in TAR to be made accordingly. • Tax auditor to scrutinize the books of accounts under audit & in respect of any such receipts obtained appropriate certificate from the assessee. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  26. CLAUSE 31 :New sub-clauses (ba),(bb),(bc),(bd), relating to sec. 269ST • Section 269ST was inserted by the Finance Act 2017, for amounts or assets received after 1st April, 2017 i.e. AY 2018-19. • New reporting clause inserted in Form 3CD from AY 2018-19. • Sec. 269ST provides that “No person shall receive an amount of Rs 2 lacs or more • - (a) In aggregate from a person in a day or • - (b) in respect of a single transaction or • - (c) in respect of transactions relating to one event or occasion from a person • - other wise then by an A/c. payee chq. Or an A/c. payee bank draft or use of ECS through a bank account”. • While the sec. 269ST deals with receipt of money, reporting is required for both receipt or payment in contravention of provisions of sec. 269ST. • Clause (ba)/(bc) relates to receipt/ payment in cash, (bb)/ (bd) for receipts / payment in bearer chq/ draft CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  27. CLAUSE 31 :New sub-clauses (ba),(bb),(bc),(bd), relating to sec. 269ST • Sec. 269ST does not distinguish between capital & revenue receipts. • Provisions of sec. 269ST not applicable for receipts / withdrawal from bank account. • [Notification No. 28/2017, F.No.370142/10/2017-TPL] dated 5th April, 2017] • Provisions of sec. 269ST not applicable for foll’g. transactions. • Receipt by business correspondent on behalf of bank. • Receipt by white label ATM operator on behalf of bank. • Receipt by an agent on behalf of issuer of prepaid payment instruments • Receipt by company issuing credit cards against bills. • Receipt by any person of an award or reward from CG/ SG not taxable u/s 10(17A). • [No. 57 /2017,F.No.370142/10/2017-TPL] dated 3 July 2017] • Receipt or payment to Govt. not to be reported under any of the four sub clauses. Important Clauses of Tax Audit Report Aurangabad Branch ICAI

  28. CLAUSE 31 :Details of loans accepted / repaid u/s 269SS/ 269T • In item (c), in sub-item (v), for the words “taken or accepted”, the word “repaid” is substituted • In item (d)(e), in sub-item (ii), after the words “amount of”, the • words “repayment of” is inserted • Reporting under each sub-clause is for different items & situations , which prima facie may look similar. • Accounts having mixed transactions, how to be reported • Transactions of transfer entries/ journal entries. • Security deposits for contracts ?, retention money payable, advance received against sale of goods ?? • Share application money recd supported by appropriate docs?? • Availability of records for verification: ICAI guidance reg disclaimer to be given CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  29. CLAUSE 36A :Dividends Taxable u/s 2(22)(e) • New reporting clause inserted to report dividends taxable u/s 2(22)(e). • Sec. 2(22)(e) deems following transactions as dividend, in case of closely held companies. • (a) Advance or loan to a share holder holding more than 10% of the voting power or to a concern in which such share holder is a member / partner and has substantial interest in the said concern. • (b) Any payment on behalf of or for the individual benefit of such share holder to the extent company has accumulated profits. • Regular dividend received by the assesssee not to be reported other than u/s 2(22)(e). • Loan or advance given by closely held company to any firm / concern, the taxability of the dividend u/s 2(22)(e) will be in the case of individual share holder & not in the case of firm / concern. • CIT v Madhur Housing & Development Co. (Civil Appeal 3961 of 2013) (SC) CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  30. CLAUSE 36A :Dividends Taxable u/s 2(22)(e) • Compliance to various terms such as beneficial owner, closely held companies, accumulated profits, substantial interest, needs to be verified by the tax auditor & reporting made accordingly. • Form 26AS to be verified if TDS is made u/s 194 before reporting. • Litigation prone area & hence the auditor to also consider various judgments given by SC / HC before reporting. • Ascertaining of deemed dividend in case of indirect transfer of funds will be difficult, appropriate certificate from the assessee to be obtained • Trade advances in the nature of commercial transactions not covered u/s 2(22)(e) • CBDT Circular No. 19/2017 (F.No.279IMisc.l140/2015I1TJ) dated 12 June 2017 CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  31. CLAUSE 40 :Accounting ratios • Ratio’s are to be calculated for business as a whole & in value terms only • There should be consistency in the numerator & denominator taken in calculation of the ratios as compared to the last year. • Figures of previous years to be taken from the last years audit report. No figures to be given in the first yrs report • Figures of previous years may be changed with a suitable clarifications regarding the change in method of calculating the ratios CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  32. CLAUSE 42 :Details of filing of Form 61/ 61A/61B • New clause inserted for reporting filing of Form no. 61 / 61A /61B. • Second proviso to Rule 114B provides that any person who does not have PAN and who enters into a prescribed transaction, shall make a declaration in Form No. 60. Form 61 is to be filed by person receiving Form 60 • Form No 61A relating to statement of Financial Transactions (SFT) is required to be filed annually as per Sec 285BA & Rule 114E • Reporting in Form 61A is required for 13 types of transactions as per rule 114E such as • Purchase of DD/PO/BC in cash more than 10 lacs in a year • Purchase of prepaid instruments in cash more than 10 lacs in a yr. • Cash withdrawal/ deposit more than 50lacs in C/A in a year. • Cash deposit more than 10 lacs in other than C/A & TD in a year. • New TD more than 10 lacs in a year. • Payments to credit cards of more than Rs 1 lacs in cash & Rs 10 lacs other than cash in a year. CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  33. CLAUSE 42 :Details of filing of Form 61/ 61A/61B • Receipt of more than Rs 10 lacs for acquiring any bond, debentures etc. • Receipt of more than Rs 10 lacs in a year for acquiring shares in a company. • Buy back of shares of more than Rs 10 lacs from any person in a year. • Acquiring of units of mutual fund for more than Rs 10 lacs in a year. • Acquiring foreign currency of more than 10 lacs in a year. • Purchase / Sale of immovable property more than Rs 30 lacs in a year. • Receipt of cash more than Rs 2 lacs for sale of goods or services. • Form 61B is required to be filed for “Reportable accounts” under Rule 114F to 114H in compliance to FATCA • Auditor to verify if all these forms whichever applicable have been filed or not. If all the details are not reported than such details to be given CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai

  34. Questions ?THANK YOU CA Nitin S Bangad M/s. S M Bangad & Co. Aurangabad / Mumbai nbangad@gmail.com Visit us at : www.smbco.in

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