Tax Audit Series FY 21-22 - Contents and Particulars of Tax Audit Report (Part-2)

Hello Guys, Welcome to the 3rd part of the Tax Audit Series. In this post, we will have a detailed explanation of the remaining clauses of Form 3CD i.e., Clause 17 to Clause 26.

If you haven't read our previous parts in this Tax Audit Series, We are dropping the links here. Please go through these two parts before continuing with the current one.

Click here to read our post about "Tax Audit Series FY 21-22 - Due Dates, Forms and Applicability"

Click here to read our post about "Tax Audit Series FY 21-22 - Contents and Particulars of Tax Audit Report (Part-1)"

Clause 17 - Where any land or building or both is transferred during the previous year for a consideration less than value adopted or assessed or assessable by any authority of a State Government referred to in section 43CA or 50C, please furnish:

• Details of property
• Address of Property
• Consideration received or accrued
• Value adopted or assessed or assessable
• Whether provisions of second proviso to section 43CA(1) or fourth proviso to section 56(2)(x) applicable? [Yes/ No]

Clause 18 - 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 of 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-

• 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,
• change in rate of exchange of currency, and
• subsidy or grant or reimbursement, by whatever name called.

(e) Depreciation allowable.

(f) Written down value at the end of the year.

Clause 19 - Amounts admissible under sections: 32AC, 32AD, 33AB, 33ABA, 35(1)(i), 35(1)(ii), 35(1)(iia), 35(1)(iii), 35(1)(iv), 35(2AA), 35(2AB), 35ABB, 35AC, 35AD, 35CCA, 35CCB, 35CCC, 35CCD, 35D, 35DD, 35DDA, 35E and actual amount debited to profit and loss account.

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 dividends. [Section 36(1)(ii)]

(b) Details of contributions received from employees for various funds as referred to in section 36(1)(va).

The requirement is only in respect of the disclosure of the amount and the tax auditor is not expected to express an opinion about its allowability or otherwise.

Clause 21 -

(a) Please furnish the details of amounts debited to the profit and loss account, being in the nature of capital, personal, advertisement expenditure etc.

(b) Amounts inadmissible under section 40(a):-

• as payment to non-resident referred to in sub-clause (i)
• as payment referred to in sub-clause (ia)
• under sub-clause (ic) [Wherever applicable]
• under sub-clause (iia)
• under sub-clause (iib)
• under sub-clause (iii)
• under sub-clause (iv)
• under sub-clause (v)

(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;

(d) Disallowance/deemed income under section 40A(3);

(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).

Clause 22 - Amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006.

Section 23 of the MSME Act lays down that interest payable or paid by the buyer, under or in accordance with the provisions of this Act, shall not be allowed as a deduction under the Income–tax Act, 1961.

Clause 23 - Particulars of payments made to persons specified under section 40A(2)(b).

Section 40A(2)(a) provides that where the assessee incurs any expenditure in respect of which payment has been to any specified person listed in the section and, in the opinion of the Assessing Officer, such expenditure is excessive or unreasonable having regard to:

• the fair market value of the goods, services or facilities for which the payment is made; or
• for the legitimate needs of business or profession of the assessee; or the benefit derived by or accruing to the assessee from such expenditure.

so much of the expenditure as is so considered by him to be excessive or unreasonable shall NOT be allowed as a deduction.

Clause 24 - Amounts deemed to be profits and gains under-

• Section 32AC - Investment in new plant and machinery.
• Section 33AB - Tea Development Account, Coffee Development Account and Rubber Development Account.
• Section 33ABA - Site restoration fund.
• Section 33AC - Reserves for shipping business.

Clause 25 - Any amount of profit chargeable to tax under section 41 and computation thereof.

Section 41(1) provides that where any allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year the assessee

• obtains any amount, whether in cash or in any other manner, in respect of such loss or expenditure or;
• some benefits in respect of trading liability by way of remission or cessation thereof,

the amount obtained by him or the value of benefit accruing to him is chargeable to tax as business income.

Clause 26 - In respect of any sum referred to in clauses (a),(b),(c),(d),(da),(e),(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

• paid during the previous year;
• not paid during the previous year;

(B) was incurred in the previous year and was

• paid on or before the due date for furnishing the return of income of the previous year under section 139(1);
• 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.)

Section 43B provides that notwithstanding anything contained in any other provisions of the Act, the following amounts shall be allowed as deduction in computing the business income of an assessee in the previous year in which such amounts are actually paid:

(a) Any tax, duty (sales tax, excise duty, municipal tax, etc.), cess or fee payable by the assessee under any law for the time being in force.

(b) Employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees.

(c) Any bonus or commission payable by the assessee to its employees.

(d) Interest on any loan or borrowing from any Public Financial Institution, a State Financial Corporation or a State Industrial Investment Corporation payable in accordance with the terms and conditions of the agreement governing such loan or borrowing.

(da) Interest on any loan or borrowing from a deposit taking NBFC or systemically important non-deposit taking NBFC, in accordance with the terms and conditions of the agreement governing such loan or borrowing.

(e) any sum payable by the assessee as interest on any loan or advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances.

(f) Any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee.

Clause 27 -

(a) 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.

(b) Particulars of income or expenditure of prior period credited or debited to the profit and loss account.

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.

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.

Clause 29A -

(a) Whether any amount is to be included as income chargeable under the head 'income from other sources' as referred to in clause (ix) of sub-section (2) of section 56? (Yes/No)

(b) If yes, please furnish the following details:

• Nature of income;
• Amount thereof.

Clause 29B -

(a) Whether any amount is to be included as income chargeable under the head 'income from other sources' as referred to in clause (x) of sub-section (2) of section 56? (Yes/No)

(b) If yes, please furnish the following details:

• Nature of income;
• Amount thereof.

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]