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Major Changes in 3CD from Clauses 21 to 41

Major Changes in 3CD from Clauses 21 to 41. TAX AUDIT REPORT 3CD REVISED. Significant changes in Form 3CD notified on 25th July 2014.

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Major Changes in 3CD from Clauses 21 to 41

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  1. Major Changesin 3CDfrom Clauses 21 to 41 COMPILED BY: CHATTER & CHATTER, CHARTERED ACCOUNTANTS

  2. TAX AUDIT REPORT 3CD REVISED • Significant changes in Form 3CD notified on 25th July 2014. • The audit season is already in full swing and all our offices are currently completing the statutory audits and tax audits. Just as we are nearing various deadlines, the CBDT has notified significant changes in Form 3CD and increased the scope and reporting requirements of tax audits.

  3. TAX AUDIT REPORT 3CD REVISED • Broadly speaking changes have been made with a view to have more information and analysis in standard forms. Many details will have to be furnished in comprehensive, tabular and analytical forms. • Form 3CB has also been amended. Observations and qualifications, subject to which report is given in form 3CD, are to be mentioned in details in the report in Form 3CB.

  4. CLAUSE 21(a) • Old clause 17 (a) to (e) replaced by Clause 21(a) which says: • Please furnish the details of amounts debited to the profit and loss account, being in the nature of capital, personal, advertisement expenditure etc:

  5. Advertisement Expenses • In new 3CD the words used are Advertisement expenses. Now a doubt arises that whether all kind of advertisement expenses to be reported or only the ones disallowed as was reported previously. • The old 3CD specifies the following: “Expenditure on advertisement in any souvenir, brochure, tract, pamphlet or the like, published by a political party”. In my opinion the new 3CD will take color from the old 3CD and we should report only the similar expenditure to political party only until any clarification in this regard is received.

  6. Clause 21b • Old Clause 17(f) is replace by New clause 21(b): • Old clause simply asks Amounts inadmissible under section 40(a); New clause is detailed one. It asks to bifurcate the amount paid to Residents and Non Residents u/s 40(a)(i) and section 40(a)(ia). The details required by revised 3CD Form are:

  7. Clause 21(b)(i) of Revised 3CD(b) Amounts inadmissible under section 40(a):- (i) as payment to non-resident referred to in sub-clause (i) of section 40(a). (A) Details of payment on which tax is not deducted: • (I) date of payment • (II) amount of payment • (III) nature of payment • (IV) name and address of the payee

  8. (B) Details of payment on which tax has been deducted but has not been paid during the previous year or in the subsequent year before the expiry of time prescribed under section 200(1) • (I) date of payment • (II) amount of payment • (III) nature of payment • (IV) name and address of the payee • (V) amount of tax deducted

  9. Clause 21(1)(b)(ii) as payment referred to in sub-clause (ia) of section 40a • Details of payment on which tax is not deducted: • (I) date of payment • (II) amount of payment • (III) nature of payment • (IV) name and address of the payee

  10. (B) Details of payment on which tax has been deducted but has not been paid on or before the due date specified in sub- section (1) of section 139. • (I) date of payment • (II) amount of payment • (III) nature of payment • (IV) name and address of the payer • (V) amount of tax deducted • (VI) amount out of (V) deposited, if any

  11. Amounts Inadmissible under section 40a • (iii) under sub-clause (ic) [Wherever applicable] [Any sum paid on account of Fringe Benefit Tax (FBT) under ch.XII H] • (iv) under sub-clause (iia) Any sum paid on account of Wealth Tax. • (v) under sub-clause (iib) Any amount paid by way of Royalty, License Fee or any other Fee

  12. (vi) under sub-clause (iii) Any payment which is chargeable under the head salaries , if it payable outside India or to a Non Resident and if Tax has not been paid thereon nor deducted therefrom under Chapter XVII-B. • (A) date of payment • (B) amount of payment • (C) name and address of the payee

  13. Clause 21b continues: (vii) under sub-clause (iv) Payment to PF or any other fund for employee benefits unless tax is deducted from payments from fund chargeable to tax. (viiii) under sub-clause (v) Any tax actually paid by employer referred to in section 10(10CC).

  14. Clause 21c is same as Clause 17g of old 3CD • (c) Amounts debited to profit and loss account being, interest, salary, bonus, commission or remuneration inadmissible under section 40(b)/40(ba) and computation thereof; • Payment to non working partner • Payment not authorized by or in accordance with the terms of Partnership deed. • Interest payment though authorized by deed is in excess of 12% per annum. • Remuneration payments exceeds the limits specified u/s 40(b)(v).

  15. Clause 21(d) - Disallowance/deemed income under section 40A(3)/(3A): (A) Section 40A(3) On the basis of the examination of books of account and other relevant documents/evidence, whether the expenditure covered under section 40A(3) read with rule 6DD [Payment in excess of Rs. 20,000] were made by account payee cheque drawn on a bank or account payee bank draft. If not, please furnish the details:

  16. (B) On the basis of the examination of books of account and other relevant documents/evidence, whether the payment referred to in section 40A(3A) read with rule 6DD were made by account payee cheque drawn on a bank or account payee bank draft If not, please furnish the details of amount deemed to be the profits and gains of business or profession under section 40A(3A);

  17. Clause 21 continues (No change in these clauses) • (e) provision for payment of gratuity not allowable under section 40A(7); • (f) any sum paid by the assessee as an employer not allowable under section 40A(9); • (g) particulars of any liability of a contingent nature; • (h) amount of deduction inadmissible in terms of section 14A in respect of the expenditure incurred in relation to income which does not form part of the total income; • (i) amount inadmissible under the proviso to section 36(1)(iii).

  18. Clause 22 [Similar to Clause 17A of old 3CD] • Amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006.

  19. Clause 23 [Similar to Clause 18 of old 3CD] Particulars of payments made to persons specified under section 40A(2)(b)

  20. Clause 24 [Similar to Clause 19 of old 3CD] with little change in respect of section 32AC. Amounts deemed to be profits and gains under section 32AC or 33AB or 33ABA or 33AC. 32AC has been added to this clause which is newly inserted section in relation to 15% deduction on Investment in new Plant and Machinery for specified assets.

  21. Clause 25 [Similar to Clause 20 of old 3CD] Any amount of profit chargeable to tax under section 41 and computation thereof This is in respect of recovery of any benefit in cash or any other manner by assesse or his successor out of allowance or deduction made out of expenditure/ loss/ trading liability incurred by the assesse.

  22. Clause 26 [Similar to Clause 21 of old 3CD] In respect of any sum referred to in clause (a),(b), (c), (d), (e) or (f) 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. (State whether sales tax, customs duty, excise duty or any other indirect tax, levy, cess, impost, etc., is passed through the profit and loss account.)

  23. Clause 27a [Similar to Clause 22a of old 3CD] with change of word to CENVAT in place of MODVAT Amount of Central 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 Central Value Added Tax credits in the accounts. The reconciliation of CENVAT Credit needs to be given which may be given as: Opening Credit available: Add: Credit Availed/ Earned: Less: Credit Utilised Balance: Credit available at year end

  24. Clause 27b [Similar to Clause 22b of old 3CD] Particulars of income or expenditure of prior period credited or debited to the profit and loss account

  25. Newly inserted Clause 28 Whether during the previous year the assessee has received any property, being share of a company not being a company in which the public are substantially interested, without consideration or for inadequate consideration as referred to in section 56(2)(viia), if yes, please furnish the details of the same.

  26. Newly inserted Clause 29 Whether during the previous year the assessee received any consideration for issue of shares which exceeds the fair market value of the shares as referred to in section 56(2)(viib), if yes, please furnish the details of the same.

  27. Clause 30 [Similar to Clause 23 of old 3CD] 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]

  28. Clause 31a [Similar to Clause 24a of old 3CD] 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 was squared up 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 needs not be given in the case of a Government company, a banking company or a corporation established by a Central, State or Provincial Act.)

  29. Clause 31b [Similar to Clause 24b of old 3CD] (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 available 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.

  30. Clause 31c [Replaced Certificate required under Clause 24c of old 3CD] Old 3CD Requires to state that Whether a certificate has been obtained from the assessee regarding taking or accepting loan or deposit, or repayment of the same through an account payee cheque or an account payee bank draft. NOW we have to report that: (c) Whether the taking or accepting loan or deposit, or repayment of the same were made by account payee cheque drawn on a bank or account payee bank draft based on the examination of books of account and other relevant documents (The particulars (i) to (iv) at (b) and comment at (c) above need not be given in the case of a repayment of any loan or deposit taken or accepted from Government, Government company, banking company or a corporation established by a Central, State or Provincial Act)

  31. Clause 32(a) and (b) [Similar to Clause 25(a) and (b) of old 3CD with few changes] 32.(a) Details of brought forward loss or depreciation allowance, in the following manner, to the extent available : (b) Whether a change in shareholding of the company has taken place in the previous year due to which the losses incurred prior to the previous year cannot be allowed to be carried forward in terms of section 79.

  32. Clause 32(c), (d), (e) [New clauses added to clause 32] (c) Whether the assessee has incurred any speculation loss referred to in section 73 during the previous year, If yes, please furnish the details of the same. (d) whether the assessee has incurred any loss referred to in section 73A in respect of any specified business during the previous year, if yes, please furnish details of the same. (e) In case of a company, please state that whether the company is deemed to be carrying on a speculation business as referred in explanation to section 73, if yes, please furnish the details of speculation loss if any incurred during the previous year.

  33. Clause 33 [Similar to Clause 26 with slight change] Section-wise details of deductions, if any, admissible under Chapter VIA or Chapter III (Section 10A, Section 10AA). Previously only details of Chapter VIA were to be given. Now amount of deduction under section 10A/ AA under Chapter III is also included.

  34. Clause 34 [Replaced with changes for Clause 27 of old 3CD] The old Clause 27 needs to report that: Whether the assessee has complied with the provisions of Chapter XVII-B regarding deduction of tax at source and regarding the payment thereof to the credit of the Central Government. Only if the provisions were not complied with, we need to report the details required under sub clause b of said clause 27: • Tax deductible and not deducted at all • Shortfall on account of lesser deduction than required to be deducted • Tax deducted late: • Tax deducted but not paid to the credit of the central govt

  35. Clause 34 contd.. [Replaced for Clause 27 of old 3CD] BUT… Now we need to report the complete details of TDS made by the assesse if the provisions of TDS are applicable on him irrespective of fact that the provisions are complied with or not. We have to do complete analysis of TDS provisions on the assesse and need to calculate all the details which were required to be calculated at the time of TDS survey or assessments only. Probably this clause of 3CD is the most time consuming clause for we professionals.

  36. Clause 34(a) provides: Whether the assessee is required to deduct or collect tax as per the provisions of Chapter XVII-B or Chapter XVII-BB, if yes please furnish:

  37. Clause 34(a) contd… Thus, the auditor needs to report the following details: • TAN 2. Section under which tax deducted (eg. 194A/ 194C/ 194H etc.) 3. Nature of Payment i.e. Interest/ Contractual payment/ Commission etc. 4. Total Amount paid of the nature specified. (Whether tax deductible or not). 5. Total amount on which tax was required to be deducted. (Out of total payment, the amount on which tax is not required to be deducted needs to be reduced i.e. the amount on which tax is not deductible may be on submission of declaration forms like 15G or payment below limits liable for TDS say below 30000 for professional payments or 180000 for payment of rent etc.

  38. 6. Total amount on which tax was deducted at specified rates. (i.e at normal rates and not reduced rates as may be reduced by the AO). 7. Amount of tax deducted The actual amount of tax deducted needs to be reported. 8. Total amount on which tax was deducted at less than specified rates. Amount paid on which lower tax was deducted. 9. Amount of Tax Deducted at lower rate 10. Amount of Tax Deducted not deposited to the credit of CG

  39. Clause 34(b) whether the assessee has furnished the statement of tax deducted or tax collected within the prescribed time. If not, please furnish the details:

  40. Clause 34(c) whether the assessee is liable to pay interest under section 201(1A) or section 206C(7). If yes, please furnish: 201(1A): Interest @1% From date on which TDS deductible to the date on which tax deducted and @ 1.5% from date on which tax deducted to the date on which tax deposited. 206C(7): 1% Interest on TCS

  41. Clause 35a [Similar to Clause 28a of old 3CD] (a) In the case of a trading concern, give 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

  42. Clause 35b [Similar to Clause 28b of old 3CD] (b) In the case of a manufacturing concern, give quantitative details of the principal items of raw materials, finished products and by-products : 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.

  43. Clause 35b contd.[Similar to Clause 28b of old 3CD] B. Finished products/by- products : • (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.

  44. Clause 36.[Similar to Clause 29 of old 3CD with slight change] 36. 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) amount of reduction as referred to in section 115-O(1A)(i); (Newly added) • (c amount of reduction as referred to in section 115-O(1A)(ii); (Newly added) • (d) total tax paid thereon; • (e) dates of payment with amounts.

  45. Clause 37.[Similar to Clause 30 of old 3CD with slight change] 37. Whether any cost audit was carried out, if yes, give the details, if any, of disqualification or disagreement on any matter/ item/ value/ quantity as may be reported/identified by the cost auditor. • Thus now disqualification/ disagreement of cost auditor needs to be incorporated in 3CD report as against the attachment of cost audit report required earlier.

  46. Clause 38.[Similar to Clause 31 of old 3CD with slight change] 38. Whether any audit was conducted under the Central Excise Act, 1944, if yes, give the details, if any, of disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the auditor. • Thus now disqualification/ disagreement of Excise Audit done, if any, needs to be incorporated in 3CD report as against the attachment of Excise audit report required earlier.

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