01

Standards on Auditing

(II) The Auditor's Responsibilities for the Audit of F.S. section of the auditor's report shall
further:

To exercises professional judgment and maintains professional

skepticism throughout the audit as per SAs;

To identify and assess the risks of

material misstatement of the FS

Auditor's Responsibilities in Audit of FS

To obtain an understanding of a/c policies used

internal control relevant for

To Describe an audit by audit to design audit procedures

stating that the auditors Reasonableness

responsibilities are : To evaluate the appropriateness of: of accounting

estimates

To conclude on the

To describe the auditor's appropriateness of mgt use Related

responsibilities in a group of going concern assumption disclosures

audit engagement as made by mgt

per SA 600. To evaluate overall presentation,

content & structure of F.S.

(III) The Auditor's Responsibilities for Audit of Financial Statements section of auditor's
report also shall:
(a) State that auditor communicates with TCWG regarding, among other matters: planned
scope and timing of audit and significant audit findings, including any significant deficiencies
in internal control that auditor identifies during audit;

(b) State that auditor provides TCWG with a statement that auditor has complied with relevant
ethical requirements regarding independence and communicate with them all relationships
and other matters that may reasonably be thought to bear on auditor's independence, and
where applicable, related safeguards; and

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NBFC Audit

11 Bonds of PS Banks 20
12 Post commercial operations date (PCOD) projects exist over 1 yr
operation 50
13 Others 100

Income Recognition: Based on recognised accounting principles. Income on NPAs to be

recognised on realisation basis. Any such income, which was recognised before asset
became NPA & is unrealised Reversed

Asset Classification:

6/3* Months 18/12* Months

Due Sub std Doubtful

NPA
Date

*3/12 months in case of NBFC NDSI or deposit taking

Spl point for NPA: The lease rental and hire purchase instalment, which has become
overdue for period of 12 months or more; (NBFC NDSI & deposit taking its 3 months only)

Provisioning:
Loss Assets: 100%
Doubtful Assets: Unsecured 100%
Period for which Secured Asset has been % of Provision
considered as doubtful
Up to 1 year 20
1-3 years 30
More than 3 years 50
Sub std asset: 10%
Std asset: 0.40% for NDSI & Deposit Taking & 0.25% for non-systemically imp. non
deposit taking

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NBFC Audit

Eg. AF Ltd. is a NBFC and was in business of accepting public deposits and giving loans
since 2015. Co. was having net owned funds of ₹1.5 Cr & was not having registration
certificate from RBI and applied for it on 30.03.21. The Co. appointed Mr. Kabra as its
statutory auditors for the year 2020-21. Advise auditor with reference to auditor
procedures to be taken and reporting requirements in view of CARO 2020 ?
As per Clause (xvi) of Para 3 of CARO 2020, auditor is required to report that "whether
the Co. is required to be regd. u/s 45-IA of RBI Act, 1934 and if so, whether registration
has been obtained.”
Auditor is reqd to examine whether Co. is engaged in the business which attract the
requirements of registration. Registration is required where financing activity is a principal
business of Co. RBI restrict companies from carrying on business of a non-banking financial
institution without obtaining certificate of registration.
Audit Procedures and Reporting:
(i) Auditor should examine transactions of Co. with relation to activities covered under RBI
Act and directions related to NBFCs.
(ii) F.S. should be examined to ascertain whether Co's financial assets constitute more than 50%
of total assets and income from financial assets constitute > 50 % of gross income.
(iii) Whether Co. has net owned funds as required for registration as NBFC.
(iv) Whether Co. has obtained registration as NBFC, if not, reasons should be sought from
management and documented.
(v) The auditor should report incorporating the following:-
(1) Whether the registration is required u/s 45-IA of the RBI Act, 1934.
(2) If so, whether it has obtained the registration.
(3) If registration not obtained, reasons thereof.

In given case AF Ltd. is a NBFC and was in business of accepting public deposits and giving
loans since 2015. Co.was having net owned funds of ₹1.5 Cr which is less than prescribed limit
i.e. 2 Cr & was also not having registration certificate from RBI (thoug applied for it on
30.03.21). Auditor is required to report as per Clause (xvi) of Para 3 of CARO 2020.

“Be a Warrior, not a Worrier”

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19 Direct Tax Audit

Audit Report
Form 3CA: Person carrying Business/profession + reqd audit under any other law (Eg
Company)
Form 3CB: Person carrying business/profession but no audit reqd by other law
Form 3CD: Particulars to be furnished with Audit Report

Who should get accounts audited?

· Business T/o > 1 Cr* w.e.f AY 22-23 its 10 Cr if 95% transn through banking channels
· Profession Gross receipts > 50 L
· Business u/s 44AE, 44BB, 44BBB claims profits lower than deemed
· Profession profits deemed u/s 44ADA claims profits lower than deemed
Business provision of Sec 44AD (4) applicable i.e. declares profits as per 44AD for AY &
fails to do that in any 5 succeeding AY ineligible to claim benefit of 44AD
Notes:
· 44AD isn't applicable to commission income
· Computation of Turnover to determine eligibility of Tax Audit
(i) Discount allowed in sales invoice deducted from turnover.
(ii) Cash discount not allowed in a cash memo/sales invoice is in nature of a financing
charge and is not related to turnover. Therefore, should not be deducted from the
turnover.
(iii) Turnover discount is normally allowed to a customer if sales made to him exceed a
particular quantity. As per trade practice, it is in nature of trade discount and should
be deducted from the figure.
(iv) Special rebate allowed to customer can be deducted from sales if it is in nature of
trade discount. If it is in nature of commission on sales, then it cannot be deducted.
(v) Price of goods returned should be deducted from turnover even if returns are from
sales made in earlier year/s.
(vi) Sale proceeds of any shares, securities, debentures, etc., held as investment will not
form part of turnover. However, if shares, securities, debentures etc., are held as
stock-in-trade, sale proceeds thereof will form part of turnover.

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Audit of Public Trust

Auditor should conduct routine checking during course of audit, in following manner:
(i) Check books of account and other records having regard to system of accounting and internal
control;
(ii) Vouch the transactions of trust to ensure that:
• transaction falls within ambit of trust;
• the transaction is properly authorized by trustees or other authority permissible in law;
• all incomes due to trust have been properly accounted for on basis of system of accounting
followed;
• all expenses and outgoings appertaining to trust have been recorded on basis of system of
accounting;
• amounts shown as applied towards object of trust are covered by objects of trust as
specified in the document governing the trust.
(iii) Obtain trial balance on closing date duly certified by trustee;
(iv) Obtain Balance Sheet and Profit & Loss Account of trust authenticated by trustees and check
with trial balance with which they should agree.
Notes:
1 Charitable or religious trust or institution to make an application for registration within 1 year
from date of creation of trust or establishment of institution.
2 The report of audit of accounts of a trust or institution which is required to be furnished
under Clause (b) of Section 12A should be in Form No. 10B.

Considerations while furnishing particulars in Form 3CD

i.
I If item of income/expenditure is covered in more than one of specified clauses in
statement of particulars, suitable cross reference to such items be given at appropriate
places.
ii. If there is difference in opinion of tax auditor and assessee in respect of any info
furnished in Form, auditor should state both viewpoints and relevant info to enable tax
authority to decide in the matter.
iii. If any clause is not applicable, he should state that same is not applicable.
iv. In computing allowance or disallowance, he should keep in view law applicable in relevant
year, even though form of audit report may not have been amended to bring it in

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conformity with amended law.

v. The info in Form should be based on books of accounts, records, documents, information
and explanations made available to tax auditor for examination.
vi. In case auditor relies on judicial pronouncement, he may mention the fact.

Income Computation and Disclosure Standards (ICDS)

Sec 145 of Income Tax Act, 1961 deals with Method of Accounting: Under Sec 145(1),
income chargeable under heads PGBP or IFOS shall be computed in accordance with
either the cash or mercantile system of accounting regularly employed by the assessee.

Further, Sec 145(2) empowers CG to notify in Official Gazette from time to time, ICDS to
be followed by any class of assessee or in respect of any class of income.

Accordingly, CG has notified 10 ICDSs to be followed by all assesses (other than an

individual or a HUF who is not required to get his accounts of one previous year audited in
accordance with the provisions of section 44AB), following the mercantile system of
accounting, for the purposes of computation of income chargeable to income-tax under the
head PGBP or IFOS from A.Y. 2017-18.

All notified ICDSs are applicable for computation of income chargeable under the head
PGBP or IFOS and not for purpose of maintenance of books of accounts. In the case of
conflict between the provisions of the Income‐tax Act, 1961 and notified ICDSs,
provisions of the Act shall prevail to that extent.

Those following cash system of accounting need not follow ICDSs notified.

Revision of Tax Audit Report

(a) Normally, report of tax auditor cannot be revised later.
(b) However, when accounts are revised in following circumstances, tax Auditor may have to
revise his Tax audit report also.
i. Revision of accounts of company after its adoption in AGM.
ii. Change in law with retrospective effect.

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iii. Change in interpretation of law (e.g.) CBDT Circular, Notifications, Judgments, etc.
The Tax Auditor should state it is a revised Report, clearly specifying the reasons for
such revision with a reference to the earlier report.
Clause (1) → Name of the Assessee
Clause (2) → Address of Assessee
Clause (3) → PAN of Assessee

Disclosure of GST Registration (Clause 4)

· Clause 4 requires auditor to ensure whether assessee is liable to pay indirect tax like
excise duty, service tax, sales tax, goods and service tax, custom duty, etc.
· If yes, furnish registration no. or GST no. allotted for same.
· Thus, auditor is primarily required to furnish details of registration nos. as provided to
him by assessee. The reporting is required to be done in manner or format specified by e-
filing.
· Check online portal For locations for which registration certificate hasn't been obtained
· Auditor should check returns filed & obtain specific representation from management.

Clause (5) → Status of Assessee

Clause (6) → Previous Year & Clause (7) Assessment Year
Clause (8) → Under which clause of 44AB audit has been conducted
Clause (8A) → Whether assessee has opted for taxation under any of the Sec 115BA/
115BAA/ 115BAB/115BAC/115BAD [Applicable to Co. assessees only]
Clause 9(a) → Indicate name of partners/members & their PSRs
Clause 9(b) → If any change in name of partners/members since preceding year,
particulars of change
Clause (10) → Nature of business/profession in which assessee is engaged + any change
from preceding year
Clause (11) → Books of Accounts
(a) Whether books of a/c prescribed u/s 44AA, if yes, list of books prescribed
(b) List of books maintained & address at which they are kept
(c) List of books of a/c & nature of relevant docs examined

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Clause (12) Presumptive Scheme

Whether P&L a/c includes any profits & gains assessable on presumptive basis, if yes
indicate the amount & relevant sections (44AD, 44ADA, 44AE, 44AF, 44B, 44BB, 44BBA,
44BBB)
Eg :NR Co. engaged in extraction of mineral oils claiming lower than deemed income u/s 44BB
Clause 8: Auditor reqd to mention clause of sec 44AB under which tax audit is
conducted.
Clause 12: If p&l includes profits & gains assessable to tax on presumptive basis, indicate
the amount & relevant sections. Tax auditor will state clause (c) of sec 44AB under
clause 8 & as per clause 12 report profits u/s 44BB of Income Tax Act 1961.

Method of accounting [Clause 13]

· It requires to state method of accounting employed in PY.
· It also requires to state change in method of accounting vis-à-vis the preceding year.
· If so, details of change and effect on profit or loss are to be stated.
· Also details of deviation thereof, if any, from accounting standards prescribed under
section 145 and effect thereof on profit or loss are stated.
· Section 145 provides that method of accounting be either cash or mercantile. Hybrid
system is not permitted.

Method of Valuation of Closing stock (Clause 14)

(a) Method of valuation of closing stock employed in PY.
(b) Details of deviation from method of valuation prescribed under section 145A and effect
on P&L.

Capital Asset converted to Stock in Trade [Clause 15]

Give the following particulars of the capital asset converted into stock-in-trade:-
(a) Description of capital asset;
(b) Date of acquisition;
(c) Cost of acquisition;
(d) Amount at which the asset is converted into stock-in-trade.
Audit checklist:

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· Ask the assessee whether he has converted any capital asset into SIT during PY.
· Details of capital assets converted into SIT during the year to be given.
· Check whether assessee has converted any capital asset into SIT during year under audit.
· If yes, then obtain details as to nature of such capital asset, its date and cost of
acquisition and amount at which asset has been converted into stock-in-trade.

Clause 16: Amounts not credited to the profit and loss account, being,-
(a) the items falling within the scope of section 28;
(b) proforma credits, drawbacks, refund of duty of customs or excise or service tax, or sales
tax or VAT, where such credits, drawbacks or refunds are admitted as due by authorities
concerned;
(c) escalation claims accepted during the previous year;
(d) any other item of income;
(e) capital receipt, if any.

Proforma Credits, Drawbacks, Refund of Duty, Etc. [Clause 16(b)]

◊ Enquire whether there has been admitted any claim in respect of proforma
credits/drawbacks/refund of duties of customs or excise or both/sale tax/service
tax/VAT by authorities.
◊ If yes, then obtain schedule from assessee indicating details of all such claims admitted
by authorities but not credited to P&L a/c.
◊ Cross check the details contained in schedule with the claim papers and other relevant
correspondence including assessment orders.
◊ Ensure that claims have been admitted as due by concerned authorities.
◊ Note that the item admitted by authorities will mean the item admitted before closing of
a/cs.
◊ Ensure that accounting of such claims is in accordance with method of accounting regularly
followed by assessee.
◊ Ensure that all claims admitted have been cr. to p&l a/c. Any exception should be
reported.
◊ Where cash system of accounting is followed then this fact should be stated in the
report.

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Escalation claims to Customers not accounted as income [Clause 16(c)]

◊ This inquiry is particularly relevant to assessee engaged in real estate, construction, EPC
and infrastructure business.
◊ The auditor may check some agreements on sample basis in respect of any contract
undertaken by assessee during PY and find out whether there is any escalation clause
therein. If yes, then check whether any escalation claims have been made by assessee
during PY under audit.
◊ Obtain a schedule indicating details as to escalation claims made by assessee during PY.
Check claims that have been accepted by assessee clients/ customers. Ensure that claims
have been accepted as due during PY. It may happen that only a part of claim has been
accepted.
◊ Check whether claims accepted have been accounted for and amount involved has been
credited to P&L a/c. If claims have not been accounted for, then state the fact and
amount involved.
◊ If assessee follows cash system of accounting, then working of claims would be of no
significance till the amount involved is received. Because in that case nothing would be
credited to p&l a/c. But auditor should state the fact and amount involved even in such
cases.

Instances of Capital Receipt not cr. to P&L A/c [Clause 16(e)]

Guidance for reporting capital receipts: Capital receipts are not generally credited to p&l
hence auditor should check such transaction generating capital receipts by –
· Enquiring whether assessee is in receipt of any amount of capital nature during PY.
· Going through FS, in particular reserve a/c, to ascertain whether assessee has received
any such receipts and credited them directly to reserve a/c.
· Enquiring whether assessee has credited such receipts to p&l a/c.
· Checking that any such receipts is accounted in terms of method of accounting followed by
assessee.

Illustrative examples of capital receipts:

(a) Capital subsidy received in form of Government grants, which are in nature of promoters'
contribution. For e.g., Capital Investment Subsidy Scheme.

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(b) Government grant in relation to specific fixed asset where such grant is shown as a
deduction from gross value of asset by concern in arriving at its book value.
(c) Compensation for surrendering certain rights.
(d) Profit on sale of fixed assets/investments to the extent not credited to profit and loss

Sale of Property at Price < Stamp duty Value

Clause 17 of Form 3CD requires tax auditor to furnish information if land or building is
transferred during PY for consideration less than value adopted by any authority of a
State Government as under:
Details Consideration Value adopted Whether provisions of 2nd proviso to
of Received or or assesses or subsection (1) of section 43CA or 4th
Property Accrued assessable proviso to clause (x) of sub-section
(2) of section 56 applicable? [Yes/No]

· Auditor should obtain list of all properties transferred by assessee during PY and furnish
amt of consideration received or accrued, as disclosed in books of account of assessee.
· For reporting value adopted or assessed or assessable, auditor should obtain from
assessee copy of registered sale deed. In case property is not registered, auditor may
verify relevant docs from relevant authorities or obtain third party expert like lawyer,
solicitor representation to satisfy compliance of sec 43CA / section 50C of the Act.

Clause 18: Particulars of depreciation allowable as per 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.
(ca) Adjustment made to the written down value under section 115BAC/115BAD (for
assessment year 2021-22 only).
(cb) Adjustment made to written down value of Intangible asset due to excluding value of
goodwill of a business or profession.
(cc) Adjusted written down value.
(d) Additions/deductions during the year with dates; in the case of any addition of an asset,

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date put to use; including adjustments on account of –

(i)
. Central Value Added Tax credits claimed and allowed under the Central Excise Rules,
1944, in respect of assets acquired on or after 1st March, 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.

Capital expenditure incurred for scientific research assets [Clause 19]

Expenditure on Scientific Research covered under Sec 35 of IT Act, 1961, is to be
reported by tax auditor under clause 19 of Form 3CD.
The tax auditor is required to report following:
(a) amount debited to profit and loss account, and
(b) amounts admissible as per provisions of the Income-tax Act, 1961 and also fulfils specified
conditions.
Clause (20)(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)].
Clause 20(b): Details of contributions received from employees for various funds as referred
to in section 36(1)(va)

Clause 21(a): Details of amounts debited to p&l a/c, being in nature of Capital, personal,
advertisement expenditure, clubs, penalty/fine, etc.:
Payment to Clubs [Clause 21(a)]
· As per Clause 21(a) of Form 3CD, amt of expenditure incurred at clubs by assessee during
year being entrance fees and subscriptions, and cost for club services and facilities used
should be indicated.
· The payments made may be for directors and other employees in case of companies, and
partners or proprietors in other cases.
· The fact whether such expenses are incurred in course of business or whether they are of
personal nature should be ascertained.
· The tax auditor is required to furnish details of amounts debited to P&L a/c, being in
nature of capital, personal, advertisement expenditure etc.

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Advertisement expenditure in Brochure of political Party [Clause 21(a)]

As per Clause 21(a), auditor is required to furnish details of amts debited to P&L a/c,
being in nature of advertisement exp. in any souvenir, brochure, tract, pamphlet or the
like published by political party in tax audit report.

Clause 21(b): Amounts inadmissible under section 40(a):

(i) As payment to non-resident referred to in sub-clause (i) [Pay to NR]
(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
(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
(ii) As payment referred to in sub-clause (ia) [Pay to Resident]
(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
(B) Details of payment on which tax has been deducted but has not been paid on or
before the due date specified in subsection (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

Cash Payments to Parties > Limit u/s 40A(3) [Clause 21(d)]

· Rs 35,000 for Goods Carriage & 10,000 for others per party per day
· If client says cash payment made because other party insisted then also report them
· Limit is per party not per bill
· Limit of 35k applies only if payee is engaged in goods carriage business not payer

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 Clause 21(e): Provision for payment of gratuity not allowable u/s 40A(7)
As per Sec 40A(7), deduction shall be allowed for any provision made by assessee for any
contribution towards approved gratuity fund, or payment of any gratuity, that has
become payable during PY. In case provision made for payment of gratuity disallowed u/s
40A(7), same is to be stated under this sub-clause.
Audit Procedure: Obtain trust deed/CIT Order for approval/Rules of Fund/Calculations as
per rules + Check excess provision not made + Check staff related a/c or provision a/c +
For Contribution to AGF [check proof of deposit + review copy of deed/letter of approval]

Clause 21(f): Any sum paid by assessee as an employer not allowable u/s 40A(9).
Any payment made by employer towards setting up/formation of or contribution to any
fund, trust, Co., AOP,BOI, regd Society, or institutions (other than contributions to RPF
or approved superannuation fund or NPS or approved gratuity fund) is disallowed.
Audit Procedure: Obtain particulars + Identify payments allowed + Check ledger a/cs for
staff welfare/donations/PF/Gratuity/Misc Exp + Other payments as per client to be reported

Clause 21(g): Particulars of any liability of a contingent nature.

Assessee is reqd to furnish particulars of any liability of contingent nature debited to p & l
a/c. Tax auditor may not be able to immediately ascertain details of contingent liabilities
debited to p&l a/c without detailed scrutiny of various a/c heads e.g. o/s liabilities,
provision etc.
Audit Procedure: Obtain Schedule + Scrutinise Correspondence of pending court cases +
Refer a/c std to determine CL + Ask if any CL dr to p&l a/c

Clause 21(h) : Amount of deduction inadmissible in terms of Sec 14A for expenditure incurred
in relation to income which doesn't form part of total income.
An assessee may claim that no expenditure has been incurred by him in relation to income
which doesn't form part of the total income under the Act. Even in such a case the
provisions of section 14A will apply.
Audit Procedure : Scrutinize expense a/cs particularly intt account to check whether there
is included any expense is relatable to exempt income. If yes, note amt and mention in this
clause.

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Clause 21(i) : Amount inadmissible under the proviso to section 36(1)(iii).

This Sec provide that intt paid for capital borrowed for business/profession would be
allowed as deduction in computing income u/s 28 of the Act. Proviso thereunder provides
that interest paid for capital borrowed for acquisition of an asset for extension of
existing business/profession (whether capitalized in books or not) for any period beginning
from date on which capital was borrowed for acquisition of asset till date on which such
asset was put to use, shall not be allowed as deduction.
Audit Procedure: Check new asset acquired for business expansion borrowing above
interest debited to p & L if yes then disallowed

Clause 22: Amt inadmissible u/s 23 of MSME Development Act, 2006.

Tax auditor is reqdto state amt of intt inadmissible u/s 23 of MSME Development Act, 2006.
Sec 23 of MSME Act lays down that intt payable or paid by buyer, as per this Act, shall
not be allowed as a deduction under Income Tax Act, 1961

Payment to Specified Persons u/s 40A(2)(b) [Clause 23]

Section 40(A)(2) provides expenditure for which payment has been to certain specified
persons (Related Party) may be disallowed if, in opinion of AO, expenditure is excessive or
unreasonable having regard to:
(i) fair market value of goods, services or facilities for which payment is made; or
(ii) for legitimate needs of business or profession of assessee; or
(iii) benefit derived by or accruing to assessee from such expenditure.

Clause 25: Any amount of profit chargeable to tax under section 41 and computation there
◊ The tax auditor should obtain a list containing all amounts chargeable under Sec 41 with
accompanying evidence, correspondence, etc.
◊ He should in all relevant cases examine past records to satisfy himself about correctness
of information provided by assessee.
◊ Tax auditor has to state profit chargeable to tax under this section. This information has
to be given irrespective of the fact whether relevant amount has been credited to P&L
account or not.
◊ The computation of the profit chargeable under this clause is also to be stated.

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The tax auditor should maintain following in his working papers for purpose of furnishing
details required in the format provided in e-filing utility:
S No. Name of Amt of Section Description of Computation if
person income transn any

Delay in depositing GST or other indirect tax/cess/fees [Clause 26]

Any amt of GST/Tax payable on last day of PY (opening balance) as well as on last day of
current year has to be reported in Tax Audit Report under clause 26(A) and 26(B) in
reference of Sec 43B.
Clause 26 (A) dealt GST/VAT payable pre-existed on the first day of previous year but
was not allowed in assessment of any preceding previous year and was either paid {clause
26(A) (a)}/ or/ and/ not paid during the previous year {clause 26(A)(b)}

Sec 26(A) The details will be as under in regard to opening balances:

S No. Section Nature of o/s opening Amount paid Amt Amt
Liability balance not /set off written unpaid at
allowed in PY during year back to p&l end of
(a) a/c year (b)

Sec 26(B) Liability incurred during the previous year:

S Section Nature Amount Amount paid/set-off Amount unpaid on
No of incurred in PY before due date of due of filing of
Liability but remaining filing return/date upto return/date upto
o/s on last day which reported in tax which reported in
of PY (a) audit report, whicheve tax audit report,
is earlier. whichever is
earlier (b)

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Clause 27(a): Amount of GST credits availed of or utilized during the PY and its
treatment in P & L account and treatment of outstanding GST credits in the accounts.
◊ Amount of CENVAT/GST availed and utilised should be reported under this sub-clause.
◊ In some cases, CENVAT/GST availed may be lesser than the CENVAT /GST credit
utilised during the year on account of opening balance in CENVAT/GST account or vice-
versa and as such it would be advisable, in order to avoid any misleading conclusion and
inferences, to report the opening and closing balances of CENVAT/GST.
◊ Further the sub-clause requires reporting of the credits availed of or utilized during the
previous year, it is desirable to report both the credits availed and the credits utilized.
◊ In so far as the reporting of accounting treatment of CENVAT/GST credit is concerned
the clause requires that its treatment in profit and loss account and the treatment of
outstanding CENVAT/GST credit in the account have to be reported upon.
◊ The tax auditor should verify and maintain the following information in his working
papers for the purpose of reporting in the format provided in the e-filing utility:
CENVAT/GSTOpening BalanceGST AvailedGST UtilisedClosing balance
CENVAT/GST Amount Treatment in P&L A/c
Opening Balance
GST Availed
GST Utilised
Closing balance

Income or Expenditure of Prior period cr/dr to P&L A/c [Clause 27(b)]

Particulars of income or expenditure of prior period credited or debited to P&L a/c to be
verified:
(i) Clause would be relevant only where assessee follows mercantile system of accounting.
(ii) Under cash system of accounting, expenses debited/ income credited to P&L a/c would be
current year's expenses/income even though they may relate to earlier years.
(iii) The tax auditor should obtain particulars of expenditure or income of any earlier year
debited or credited to p&l a/c of relevant PY when mercantile system of accounting is
followed.
(iv) Business or profession audited under any other law, info. may be available from annual
accounts.

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(v) Business or profession not required to get his accounts audited, close scrutiny of ledger in
regard to period for which expenditure or income is entered in books may be necessary.
(vi) Tax auditor should maintain following information in his working papers file for purpose of
reporting in format provided in the e-filing utility:
S No Type Particulars Amount Prior Period to which it
relates

IFOS Reporting [Clause 29]

Clause 29: Whether during PY assessee received consideration for issue of shares > FMV
of shares as ref in sec 56(2)(viib), if yes, furnish details.
29A: Amt included in IFOS u/s 56(2)(ix), if yes furnish details.
56(2)(ix): Amt recd as advance for capital asset forfeited treated as income
Audit Procedure : Obtain certificate from assessee for all such advances + Examine whether
any such advances has been written back during the year & examine basis of such write back to
determine if it was on a/c of forfeiture + Verify terms of contract to check condn to forfeit
of such advance & such conditions have occurred, then should verify whether amt has been
actually forfeited

29B: Amt of income chargeable to tax u/s 56(2)(x), if yes furnish details
Sec 56(2)(x): where any person receives, in any PY, from any person or persons on or
after 1.4.17,—
(a) any sum of money, w/o consideration, > 50,000, whole of aggregate value of such sum;
(b) any immovable property,—
(A) without consideration, SDV > 50,000, SDV of such property;
(B) for a consideration, (SDV- consideration), if amount of such excess is more than
higher of following amounts:—
(i) 50,000; and
(ii) amount equal to 10% of consideration:
(c) any property, other than immovable property,—
(A) without consideration, aggregate FMV of which exceeds 50,000, whole of aggregate
FMV of such property;

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(B) for a consideration < aggregate FMV of property by an amount exceeding 50,000,
(FMV- Consideration) shall be taxable
Audit Procedure : Obtain certificate of such receipts + if doubt over property valuation
request regd valuer report + if dispute over stamp duty mention the fact

Clause 30: 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].

Clause 30A : Transfer Pricing Adjustment

(a) Whether primary adjustment to transfer price, as referred to in Sec 92CE(1), has been
made during the previous year ? (Yes/No)
(b) If yes, please furnish the following details:-
(i) Under which clause of sub-section (1) of section 92CE primary adjustment is made ?
(ii) Amount (in Rs ) of primary adjustment:
(iii) Whether excess money available with associated enterprise is required to be
repatriated to India as per the provisions of of section 92CE(2)? (Yes/No)
(iv) If yes, whether excess money has been repatriated within prescribed time (Yes/No)
(v) If no, the amount (in Rs) of imputed interest income on such excess money which
has not been repatriated within the prescribed time.

Clause 30B – Limitation on Interest Deduction

(a) Whether the assessee has incurred expenditure during PY by way of interest or of similar
nature exceeding 1 Cr as referred to in section 94B(1)?(Yes/No)
(b) If yes, please furnish following details:-
(i) Amount (in Rs) of expenditure by way of interest or of similar nature incurred:
(ii) EBITDA during PY (in Rs):
(iii) Amount (in Rs) of expenditure by way of interest which exceeds 30% of EBITDA
(iv) Details of interest expenditure brought forward as per subsection (4) of section 94B
(v) Details of interest expenditure carried forward as per subsection (4) of section 94B

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Business Receipt in Cash

Clause 31 (a): Particulars of each loan or deposit in an amount exceeding limit specified in
section 269SS (i.e. 20,000) taken or accepted during PY:-
(i) name, address and PAN (if available with assessee) of lender or depositor;
(ii) amt of loan or deposit taken or accepted;
(iii) whether loan or deposit was squared up during PY;
(iv) maximum amt o/s in the account at any time during PY;
(v) whether loan or deposit was taken or accepted by cheque or bank draft or use of ECS
through a bank a/c; (v) in case loan or deposit was taken or accepted by cheque or bank
draft, whether the same was taken or accepted by an account payee cheque or an a/c
payee bank draft.
*(These particulars need not be given in the case of Govt co., banking company or
corporation established by a Central, State or Provincial Act.)

For reference:
Sec 269SS: Prohibits Accepting loan/deposit from a person(cumulatively) > = 20,000
otherwise than by a/c payee cheque/bank draft
Section 269ST: no person shall receive >=2L from a person/day in a single
transaction/event/occasion during PY other than a/c payee cheque/bank draft/ECS

Clause 31 (ba) particulars of each receipt in an amount exceeding limit specified in Sec
269ST (i.e. 2L), in aggregate from a person in a day or in respect of a single transaction or
in respect of transactions relating to one event or occasion from a person, during PY,
where receipt is otherwise than by cheque or bank draft or use of ECS through bank
account:-
i. Name, address and PAN (if available with assessee) of payer
ii. Nature of transaction
iii. Amount of receipt
iv. Date of receipt

Particulars need not be given in case of receipt by or payment to a Govt. company, a

banking Company, a post office savings bank, cooperative bank.

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Speculation loss on Purchase & sale of securities [Clause 32(e)]

A tax auditor has to furnish details of speculation loss incurred during PY, under Clause
32(e) of Form 3CD, regarding whether Co. is deemed to be carrying on speculation
business as referred in expln to Sec 73.
Expln. to sec 73 provides that where any part of business of Co. consists in purchase and
sale of shares of other companies, such Co. shall, for purpose of this section, be deemed
to be carrying on speculation business to extent to which business consists of purchase
and sale of such shares.

Clause 33 Sec. wise details of deductions, if any admissible under chap VIA or chapter III

Clause 34 TDS Reporting

As per Clause 34 (b) of the Form 3CD, the auditor has to report whether the assessee is
required to furnish the statement of TDS or TCS. If yes, please furnish the details:
Tax deduction Type Due date Date of Whether the statement If not, please
and collection of for furnishing, of tax deducted or furnish list of
Account Form furnishing if collected contains details/trans
Number (TAN) furnished information about actions which
alltransactions which are not
are required to be reported
reported

Accordingly, clause 34 (b) requires, a list of details/transactions which are not reported in
the statement of TDS and statement of TCS are required to be furnished. The reporting
requirement is notwithstanding the fact that assessee has furnished the statements of
TDS and TCS within the prescribed time.

Stock Details : Clause 35

Clause 35(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;

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(iv) Closing stock;

(v) shortage / excess, if any.
The tax auditor should obtain certificates from assessee in respect of principal items of
goods traded, balance of opening stock, purchases, sales and closing stock and extent of
shortage/ excess/damage and reasons thereof.
Clause 35(b) In the case of a manufacturing concern, give quantitative details of the
principal items of raw materials, finished products and by-products.
Eg : Non- Maintenance of Stock Register by Printing Entity that receives variety of job
Orders & having variety of Materials Is it fine ?
· Explanation of entity for use of varieties of raw materials for different jobs may be valid.
· Auditor needs to verify specified job-orders received and different raw materials
purchased for each job separately.
· The use of different papers (quality, quantity and size) ink, colour etc. may be examined.
· Auditor enquire with other similar printers in locality to ensure prevailing custom.
· At the same time, he has to report and certify under the clause 35(b) and clause 11(b) of
Form 3CD read with the Rule 6G(2) of the Income-tax Act, 1961, about details of stock
and account books (including stock register) maintained.
· He (or his deputy) must verify closing stock of raw materials, work-in-progress and
finished goods of the concern, at least on date of its balance sheet.
· In case the said details are not properly maintained, he has to specifically mention the
same with reasons for non-maintenance of stock register by the entity.

Disqualifications in Cost Audit Report

· A tax auditor is reqd to check under Clause (37) of Form 3CD whether cost audit was
carried out & if yes, provide details of disqualification or disagreement on any
matter/item/value/qty as may be reported/identified by cost auditor.
· The tax auditor should obtain copy of cost audit from assessee.
· Even though tax auditor is not reqd to make detailed study of such report, he has to take
note of details of disqualification or disagreement on any matter/item/value/qty as may
be reported/identified by the cost auditor.
· The tax auditor need not express any opinion in a case where such audit has been
ordered but same has not been carried out.

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Accounting Ratios (Clause 40)

Details regarding turnover, gross profit, etc., for PY and preceding PY provided as follows:
S No. Particulars PY Preceding PY
1 Total turnover of assessee
2 Gross profit or turnover of assessee
3 Net profit/turnover of assessee
4 Stock in trade/turnover
5 Material consumed/FG produced
· Details required to be furnished for principal items of goods traded or manufactured or
services rendered.
· Ratios to be calculated only for assessees engaged in manufacturing or trading activities.
· This clause is not applicable to assessees carrying on profession.
· Moreover, ratios have to be given for business as a whole and not product wise.

Demand raised under Tax laws other than Income tax Act (Clause 41)
Please furnish details of demand raised or refund issued during PY under any tax laws
other than Income Tax Act, 1961 and Wealth tax Act, 1957 along with details of relevant
proceedings.
· Tax auditor should obtain copy of all demand/ refund orders issued by govt authorities
during PY under other tax laws. Even though demand order issued in current PY it may
relate to other PY then also reporting reqd.
· Adjustments of refund against demand also to be reported.
S Name Demand Date of FY to Amt of Adjustment Remarks
No. of or demand which demand of refund
Act Refund raised/ demand or raised/refund against
order no. refund refund issued demand, if
issued relates any

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SFT Reporting (Clause 42)

Clause 42 (a) Whether the assessee is required to furnish statement in Form No.61 or Form
No. 61A or Form No. 61B? (Yes/No) (b) If yes, please furnish:
● With respect to Form 61, tax auditor should verify whether taxpayer has entered into any
transaction where other party was required to quote PAN. He should verify whether
taxpayer has obtained declaration in Form No. 60 where other party has not furnished his
PAN. Wherever taxpayer has received declarations in Form No. 60, auditor should verify if
taxpayer has filed Form No. 61 including therein all the necessary particulars.
● For Form 61A, tax auditor should ascertain whether taxpayer is required to report any
transactions u/s 285BA read with Rule 114E. It may be noted that specified transactions
u/s 285BA include issue of bonds, issue of shares, buyback of shares by a listed Co., etc.
These transactions may not happen every year and hence spl. attention should be given in
the year when a Co. taxpayer issues any security or a listed company undertakes buyback of
shares.
● While verifying the same, tax auditor should ensure that provisions of Rule 114E(3) have
been properly considered and applied. Failure may result in a certain transaction not being
reported. It may be noted that payment may be received for various transactions and on
different dates, and hence these may not be covered under Sec 269ST but have to be
reported u/s 285BA.
● With respect to Form 61B, tax auditor should review due diligence procedures carried out
by taxpayer in accordance with provisions of Rule 114H and results of such procedures. Tax
auditor should review list of Reportable Accounts identified by due diligence process and
information to be maintained and reported by the taxpayer.
● In case any reportable account has been omitted, or there is any error or omission in Form
61B, the same may be reported under the Form No. 3CD. Auditor should verify if taxpayer
has filed Form No. 61B for correcting errors or omissions in the form filed originally. In
such case auditor should give details of both forms filed. Errors in original Form 61B which
are corrected in revised Form 61B need not be reported under Form No. 3CD.
● The tax auditor should verify that Form 61B is duly signed by designated director and filed.

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Country by Country Reporting CbCR (Clause 43)

(a) Whether the assessee or its parent entity or alternate reporting entity is liable to furnish
the report as referred to in section 286(2) (Yes/No)
(b) if yes, please furnish following details:
(i) Whether report has been furnished by assessee or its parent entity or an alternate
reporting entity
(ii) Name of parent entity
(iii) Name of alternate reporting entity (if applicable)
(iv) Date of furnishing of report
· Under Sec 286, international group has to furnish CbCR containing info about whole
group comprising of various constituent entities.
· Such report is to be filed in India if parent entity is Indian Resident or
international group has appointed constituent entity resident in India to file CbCR
on behalf of whole group.
· Report under Sec 286(2) is filed by parent entity which is resident in India or
alternate reporting entity resident in India.
· The tax auditor should verify if taxpayer is required to file Form 3CEAC based on
satisfaction of the conditions prescribed.
· Tax auditor should also verify if taxpayer whose parent is non-resident has filed
Form No. 3CEAC.
· The tax auditor may obtain a necessary certificate from taxpayer in respect of
constitution of the international.

Clause 44* Break-up of total expenditure of entities regd or not regd under GST:
S. Total amount of Expenditure in respect of entities regd Expenditure in
No. Expenditure incurred under GST respect of entities
during the year not regd under GST
For G/S Entities Relating to Total
exempt falling in other payment to
from GST composition entities regd
scheme entities

(1) (2) (3) (4) (5) (6) (7)

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Professional Ethics

Appointment as a Statutory Auditor of a PSUs'/Govt Company(ies)/Listed Company(ies) and

Other Public Company(ies): As per the Council General Guidelines 2008, under Chapter IX on
appointment as statutory auditor a member of the Institute in practice shall not accepts the
appointment as a statutory auditor of a PSUs'/Govt company(ies)/Listed company(ies) and
other public company(ies) having a turnover of ₹ 50 crores or more in a year and where he
accepts any other work(s) or assignment(s) or service(s) in regard to same undertaking(s) on a
remuneration which in total exceeds the fee payable for carrying out the statutory audit of
same undertaking.
For this purpose, other work/services include Management Consultancy and all other
professional services permitted by Council excluding audit under any other statute,
Certification work required to be done by statutory auditor and any representation before an
authority.
Conclusion: In view of above position it would be a misconduct on A's part if he accepts
management consultancy assignment for a fee of ₹ 1 crore.

Chapter X Appointment of an auditor when he is indebted to a concern

Member in practice or partner of firm in practice or firm or relative of such member or
partner shall not accept appointment as auditor of concern while indebted to concern or
given any guarantee or provided any security in connection with indebtedness of any 3rd
person to concern, for limits fixed in statute and in other cases for amount exceeding
100,000/-.
Notes:
· Recovery of fees on progressive basis doesn't mean indebtness.
· Limit as per Cos. Act for indebtness is 5L & for guarantee or security is 1L

Chapter XI : Directions in case of unjustified removal of auditors

Member in practice shall not accept appointment as auditor(s), in case of unjustified
removal of earlier auditor(s).

Chapter XV: Networking

Where larger structure is aimed at co-operation and entities within structure share
significant part of professional resources, it is deemed to be a network.

401