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Friday 25 March 2011

TAX AUDIT

Under I.T. Act, audit is to be conducted by an Accountant. It defines accountant as a C.A. within meaning of C.A. Act & any other person entitled to be appointed as an auditor of a company u/s 226 of Company Act. But as per C.A. Act, it will nevertheless a necessary requirement that the member concerned must hold a certificate of practice.
But for Co. op. societies, the auditor appointed under the relevant statute provision need not be a C.A. but he can conduct the tax audit.
Audit of Public trusts (Sec. 12A)
Exemption from I.T. u/s 11 & 12 provided :
1. The person in receipt of the income has made an application for registration of the trust/ Institute to C.I.T. Before expiry of one year from date of creation of trust.
2. Where total income > 50,000 in any previous year, the accounts of trust/ Institute have been audited.
 As per guide published by ICAI, the audit programme in this case will be as follows :
(A) Preliminary
(i) Obtain resolution from trust (Scope of audit)
(ii) Letter of appointment from trust & communicate with previous auditor.
(iii) Certificate as to op. balance of Assets & Liabilities & fund
(iv) List of Books of A/c
(v) Certificate from trust as to system of A/c & I.C.
(vi) List of institutions/ activities run by trust
(vii) Certified true copy of deed of trust.
(B) Routine checking
(i) Check Book of A/c.
(ii) Vouch transactions. Whether within power and authorised, Properly A/c for, recorded on the basis of system of Accounting etc & funds applicable towards objects of the trust.
(iii) Obtain trial Balance on closing date certified by trust.
(iv) Obtain B/s & P & L A/c authenticated by trustee.
(C) A/c Principles: Usually accepted A/c Principles. In Particular.
(i) All assets verified properly valued & depreciated.
(ii) All liabilities properly A/c for.
(iii) Investment properly classified & market values shown.
(iv) O/s due to trust properly A/c for. Its recoverability examined. Provided made for irrecoverable.
(D) Annexure to Audit Report:-
(i) Certified list of persons u/s 13(3).
(ii) Statement for items specified in annexure to form 10B.
(iii) Verify information supplied by trustees in light of available mater.
Audit u/s 44AB
Any person get his A/c audited by an Accountant who:
(i) Carrying on Business, total turnover or gross receipt > 40 lakh Rs.
(ii) Carrying on Profession, if gross receipt > 10 lakh Rs.
(iii) Carrying on Business if profits & gains from Business are deemed to be profits & gains of such person if he has claimed has income to be lower than deemed one.
 Audit by specified date i.e. 31st October.
Applicability of A/c Standards
In case of charitable / religious organisations, AS will not apply if all activities are not of commercial, industrial or business nature. Even if a small portion of activates of an entry is commercial, industrial or Business in nature, AS would apply to all its activates including those which are not commercial, industrial or Business in nature.
Section 145:-
(i) Income under head “Business or profession’ or from other sources’ be computed in accordance with either cash or mercantile regularly employed by the assessee.
(ii) C.G. may notify AS to be followed
(iii) If A.O. not satisfied about correctness or completeness of A/c of Assessee or where method, of a/c followed have not been regularly followed by the assessee, he may make assessment AS per method Provided u/s 144.
As (I.T.) Mandatory for those following mercantile system.
(i) AS I relating to disclosure of A/c policies
(ii) AS II relating to disclosure of prior period & extraordinary items & changes in A/c Policies.
The tax auditor is not computing the income but
(i) reporting on A/c &
(ii) reporting on relevant information furnished in form no. 3CD. Thus in case of non-compliance with AS, the C.A should make appropriate qualification/ disclosure in the audit report.
Audit Report:-
(i) Form 3CA + 3CD for person carrying on Business or profession who is required under any other law to get his A/c audited &
(ii) For 3CB + 3CD for others.

sharing ratios.
(b) If there is any change in the partners/members of their profit sharing rations, the particulars of such change.
8. (a) Nature of business or profession.
(b) If there is any change in the nature of business or profession, the particulars of such change.
9. (a) Whether books of account are prescribed under section 44AA, if yes, list of books so prescribed.
(b) Books of account maintained. (In case books of account are maintained in a computer system, mention the books of account generated by such computer system.)
(c) List of books of account examined.

10. Whether the profit and loss account includes any profits and gains assessable on presumptive basis, if yes, indicate the amount and the relevant sections (44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB or any other relevant section).

11. (a) Method of account employed in the previous year.
(b) Whether there has been any change in the method of Accounting employed vis-à-vis the method employed in the immediately preceding previous year.
(c) If answer to (b) above is in the affirmative, give details of such change, and the effect thereof on the profit or loss.
(d) Details of deviation, if any, in the method of accounting employed in the previous year from accounting standards prescribed under section 145 and the effect thereof on the profit or loss.
12. (a) Method of valuation of closing stock employed in the previous year.
(b) Details of deviation, if any, from the method of valuation prescribed under section 145A, and the effect thereof on the profit or loss.
13. Amounts not credited to the profit and loss account, being, –
(a) The items falling within the scope of section 28;
(b) The proforma credits, drawbacks, refunds of duty of customs or excise, or refunds of sales tax, where such credits, drawbacks or refunds are admitted as due by the authorities concerned;
(c) Escalation claims accepted during the previous year;
(d) Any other item of income;
(e) Capital receipt, if any.
14. Particulars of depreciation allowable as per the 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.
(d) Additions/deductions during the year with dates; in the case of any addition of an asset, date put to use; including adjustments on account of –
(i) Modified Value Added Tax credit 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.
15. Amounts admissible under sections 33AB, 33ABA, 33AC, 35, 35ABB, 35AC, 35CCA, 35CCB, 35D, 35E:–
(a) Debited to the profit and loss account (showing the amount debited and deduction allowable under each section separately);
(b) Not debited to the profit and loss account.

16. (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)].
(b) Any sum received from employees towards contributions to any provident fund or superannuation fund or any other fund mentioned in section 2(24)(x); and due date for payment and the actual date of payment to the concerned authorities under section 36(1)(va).


17. Amounts debited to the profit and loss account, being:–
(a) Expenditure of capital nature;
(b) Expenditure of personal nature;
(c) Expenditure on advertisement in any souvenir, brochure, tract, pamphlet or the like, published by a political party;
(d) Expenditure incurred at clubs:–
(i) As entrance fees and subscriptions;
(ii) As cost for club services and facilities used;
(e) (i) Expenditure by way of penalty or fine for violation of any law for the time being in force.
(ii) Any other penalty or fine.
(iii) Expenditure incurred for any purpose which is an offence or which is prohibited by law;
(f) Amounts inadmissible under section 40(a);
(g) Interest, salary, bonus, commission or remuneration inadmissible under section 40(b)/40(ba) and computation thereof;
(h) Amount inadmissible under section 40A(3) read with rule 6DD and computation thereof;
(i) Provision for payment of gratuity not allowable under section 40A(7);
(j) Any sum paid by the assessee as an employer not allowable under section 40A(9);
(k) Particulars of any liability of a contingent nature.
18. Particulars of payments made to persons specified under section 40A(2)(b).

19. Amounts deemed to be profits and gains under section 33AB or 33ABA or 33AC.

20. Any amount of profit chargeable to tax under section 41 and computation thereof.

21. * (i) In respect of any sum referred to in clause (a), (c), (d), or (e) 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.
(ii) In respect of any sum referred to in clause (b) 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 pervious year –
(a) nature of liability;
(b) due date of payment under second proviso to section 43B;
(c) actual date of payment;
(d) if paid otherwise than in cash, whether the sum has been realised within fifteen days of the aforesaid due date:
B. Was incurred in the previous year:–
(a) nature of liability;
(b) due date of payment under second proviso to section 43B;
(c) actual date of payment;
(d) if paid otherwise than in cash, whether the sum has been realised within fifteen days of the aforesaid due 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.

22. (a) Amount of Modified Value Added Tax credits availed of or utilized during the previous year and its treatment in the profit and loss account and treatment of outstanding Modified Value Added Tax credits in the accounts.
(b) Particulars of income or expenditure of prior period credited or debited to the profit and loss account.
23. Details of any amount borrowed on hundi or any amount due thereof (including interest on the amount borrowed) repaid, otherwise than through an account payee cheque [Section 69D].
24. (a) * 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 need not be given in the case of a Government company, a banking company or a corporation established by a Central, State or Provincial Act.)
(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
25. Details of brought forward loss or depreciation allowance, in the following manner, to the extent available:
In the case of trading concern, given 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.
(b) In the case of 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 pervious year;
(iv) sales during the previous year;
(v) closing stock;
(vi) * yield of finished products;
(vii) * percentage of yield;
(viii) * shortage/excess, if any.
B. Finished products/By products
(i) opening stock;
(ii) purchases during the pervious year;
(iii) quantity manufacturing during the previous year;
(iv) sales during the previous year;
(v) closing stock;
(vi) shortage/excess, if any.
* Information may be given to the extent available.

29. 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) total tax paid thereon;
(c) dates of payment with amounts.

30. Whether any cost audit was carried out, if yes, enclose a copy of the report of such audit [See section 139(9)].
31. Whether any audit was conducted under the Central Excise Act, 1944, if yes, enclose a copy of the report of such audit.
32. Accounting ratios with calculations as follows:–
(a) Gross profit/Turnover;
(b) Net profit/Turnover;
(c) Stock-in-trade/Turnover;
(d) Material consumed/Finished goods produced.

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