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Commentary
Updated up to The Finance Act, 2016
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46 Records 
Introduction
0.1 "Audit" - Definition
0.2 Aims and objects of compulsory audit under section 44AB
0.3 Features of audit under section 44AB popularly known as 'tax audit'
0.4 ICAI's Revised Guidance Note on Tax Audit ["the 2014 Guidance Note"]
0.5 Constitutionality of section 44AB
  ANALYSIS OF SECTION 44AB REGARDING COMPULSORY AUDIT OF ACCOUNTS
1.1 Basic Scheme of section 44AB (Prior to amendment by Finance Act, 2016)
1.2 Scheme of section 44AB as regards persons carrying on business (Prior to amendment by Finance Act, 2016)
1.3 Basic Scheme of section 44AB as amended by the Finance Act, 2016 with effect from AY 2017-18
1.4 Scheme of amended section 44AB as regards persons carrying on business (applicable w.e.f. AY 2017-18)
WHEN PERSON CARRYING ON PROFESSION IS REQUIRED TO GET HIS ACCOUNTS AUDITED U/S 44AB(b) & U/S 44AB(d)
2.1 Every person carrying on a profession whose gross receipts exceed Rs. 25 lakhs
2.2 'Every person' shall not include companies or other artificial persons
2.3 Business and profession
2.4 Profession as Judicially Defined
2.5 When would the activity of a professional doctor/lawyer/ architect etc. be a 'business' or commercial activity as distinct from professional activity
2.6 Horse-Trainer - Not a Profession
2.7 Stock-Broker - Not a Profession
2.8 Leadership of dance band - Not a profession
2.9 Tenant-right valuations and estates management
2.10 Manager or Managing Director - Not a profession
2.11 Gross Receipts - ICAI's views
2.12 Where assessee carried on business as well as profession - Obligations for tax audit under section 44AB
WHEN PERSON CARRYING ON BUSINESS IS REQUIRED TO GET HIS ACCOUNTS AUDITED U/S 44AB
3.0 Changes made by the Finance Act, 2016 as regards applicability of audit under section 44AB to persons carrying on business
3.1 Businesses covered by section 44B/section 44BBA exempt from tax audit
3.2 Applicability of tax audit to businesses not covered by section 44B/section 44BBA
3.3 Persons carrying on business to whom section 44AB(c) applies
3.4 Applicability of tax audit under section 44AB to businesses whose profits are liable to presumptive taxation under section 44AD (Position upto assessment year 2016-17)
3.4A Applicability of section 44AB to businesses whose profits are liable to presumptive taxation under section 44AD (w.e.f. AY 2017-18)
3.5 Every person who carries on business whose turnover from business exceeds Rs. 1 crore (as applicable upto assessment year 2016-17)
3.5A Every person who carries on business whose turnover from business exceeds Rs.1 crore (Position applicable w.e.f. AY 2017-18)
3.6 Is tax audit applicable when income is exempt under section 10
3.7 Agriculturist having no income under the head "Profits and gains of business or profession"
3.8 Where assessee carrying on business as well as profession
3.9 Whether limit of Rs. 1 crore is to be applied business-wise or whether it should be applied after aggregating sales/turnover/gross receipts of all businesses
3.10 'Total sales, turnover or gross receipts'
3.11 Distinction between 'turnover' and 'total sales'
3.12 ICAI's views on 'turnover'
3.13 Items to be excluded/deducted from 'turnover'
3.14 Items to be included/not to be deducted from 'turnover'
3.15 VAT/other indirect taxes collected/collectible - Whether part of turnover
3.16 "Gross Receipts" of business - ICAI's Views
3.17 Items to be included in 'gross receipts'
3.18 Items not to be included in 'gross receipts'
3.19 Tribunal's interpretation of the term 'Gross Receipts'
3.20 Additional sales found as a result of search
3.21 Share brokers/sub-brokers - How to compute Rs. 1 crore limit
3.22 Turnover/gross receipts - Transactions in shares, securities and derivatives
3.23 Turnover in case of chit fund companies
3.24 'Gross receipts' - Transportation business
3.25 Computation of Rs. 1 crore limit - Commission agents
3.26 Tax audit in case of non-residents carrying on business
OBLIGATIONS CAST BY SECTION 44AB
4.1 Obligation cast by section 44AB
4.2 Audit of accounts, not audit of books of account
4.3 Audit confined to accounts of business or profession
4.4 Specified date
4.5 Accountant
4.6 Forms applicable for tax audit report under section 44AB
PENALTY - SECTION 271B
5.1 Section 271B - Failure to get accounts audited
5.2 Appeal against order of penalty under section 271B
PREPARATION OF FINANCIAL STATEMENTS
6.1 Presentation of Financial Statements
6.2 Disclosure requirements of section 22 of MSMED Act, 2006
FORM NO. 3CA
7.1 When applicable
7.2 Para 1 of Form No. 3CA
7.3 Para 2 of Form No. 3CA
7.4 Para 3 of Form No. 3CA
7.5 Where assessee has branches
7.6 Where assessee has branches abroad
7.7 Signature on Form No. 3CA
FORM NO. 3CB
8.1 When applicable
8.2 Para 1 of Form No. 3CB
8.3 Para 2 of Form No. 3CB
8.4 Para 3(a) of Form No. 3CB
8.5 Para 3(b)(A) of Form No. 3CB
8.6 Para 3(b)(B) of Form No. 3CB
8.7 Para 3(b)(C) of Form No. 3CB
8.8 Para 4 of Form No. 3CB
8.9 Para 5 of Form No. 3CB
8.10 Where assessee has branches
8.11 Tax auditor called upon to report on one or more businesses of assessee
8.12 Signature by CA on Form No. 3CB
8.13 Reporting on revised accounts
8.14 Applicability of SA 700 (Revised) to tax audit reports
FORM NO. 3CD
9.1 Statement of particulars
9.2 Manner of Reporting in Form No. 3CD by Tax Auditor
9.3 Signature of Form No. 3CD by tax auditor
CLAUSES 1 TO 3 AND 5 TO 7
10.1 Routine particulars
10.2 Name of the assessee [Clause 1]
10.3 Address of the assessee [Clause 2]
10.4 PAN [Clause 3]
10.5 Status [Clause 5]
10.6 Previous year ended [Clause 6]
10.7 Assessment year [Clause 7]
CLAUSE 4 OF FORM NO. 3CD REGISTRATION UNDER INDIRECT TAX LAWS
11.1 Requirements of Clause 4
11.2 Whether tax auditor is required by clause 4 to determine whether assessee liable for indirect taxes
11.3 Audit Procedures
11.4 Documentation (Working Papers)
CLAUSE 8 OF FORM NO. 3CD RELEVANT CLAUSE OF SECTION 44AB UNDER WHICH TAX AUDIT IS APPLICABLE
12.1 Requirements of New Clause 8
CLAUSE 9 OF FORM NO. 3CD : DETAILS REGARDING FIRMS/AOPs/LLPs
13.0 Comparative study vis-a-vis existing Form No. 3CD
8.1 Routine particulars
8.2 Name of the assessee [Clause 1]
8.3 Address of the assessee [Clause 2]
8.4 PAN [Clause 3]
8.5 Status [Clause 4]
8.6 Previous year ended [Clause 5]
8.7 Assessment year [Clause 6]
13.0 Comparative study vis-a-vis existing Form No. 3CD
13.1 Applicability of the clause
13.2 "Firm" includes Indian Limited Liability Partnership (LLP) and not foreign LLP
13.3 'Partner' [Section 2(23)(ii)]
13.4 Audit Checklist (for firms and AOPs)
13.5 Audit Checklist for LLPs - Clause 9
CLAUSE 10 OF FORM NO. 3CD : NATURE OF BUSINESS/PROFESSION
14.1 Applicability of Clause 10
14.2 Audit Checklist
CLAUSE 11 OF FORM NO. 3CD : BOOKS OF ACCOUNT
15.1 Applicability of clause 11
15.2 'Books of account'
15.3 Audit Checklist
CLAUSE 12 OF FORM NO. 3CD : PRESUMPTIVE INCOME
16.1 Requirements of Clause 12
16.2 Relevant Legal provisions
16.3 "Assessable on Presumptive Basis"
16.4 "Any other relevant section" - Interpretation of
16.5 Audit Checklist
CLAUSE 13 OF FORM NO. 3CD : METHOD OF ACCOUNTING
17.1 Applicability of clause 13
17.2 Method of accounting
17.3 Mercantile System/accrual basis of Accounting accrual basis
17.4 Cash basis of accounting
17.5 Audit Checklist - Clause 13
17.6 Income computation and disclosure standards - Section 145
CLAUSE 14 OF FORM NO. 3CD : METHOD OF STOCK VALUATION
18.1 Clause 14(a) - Method of Valuation of Closing Stock
18.2 Clause 14(b) - Details of deviation of Method of Valuation from section 145A
18.3 State Level Value Added Tax
18.4 Audit Checklist - Clause 14(b)
CLAUSE 15 OF FORM NO. 3CD : CAPITAL ASSET CONVERTED INTO STOCK-IN-TRADE
19.1 Capital Asset
19.2 Conversion of capital asset into stock-in-trade
19.3 Whether minutes of board meetings are evidence of conversion
19.4 Audit Checklist - Clause 15
CLAUSE 16 OF FORM NO. 3CD : AMOUNTS NOT CREDITED TO PROFIT AND LOSS ACCOUNT
20.1 Applicability of clause 16
20.2 Requirements of clause 16
20.3 'Not credited to profit and loss account'
20.4 Clause 16(a) - Items covered by section 28 not credited to P&L Account
20.5 Audit Checklist - Clause 16(a)
20.6 Clause 16(b) - Refunds/Drawback of taxes/duties admitted by the authorities but not credited to P& L account
20.7 Audit Checklist - Clause 16(b)
20.8 Clause 16(c) - Escalation claims not credited to P&L A/c
20.9 Audit Checklist - Clause 16(c)
20.10 Clause 16(d) - Any other income not credited to P&L A/c
20.11 Audit Checklist - Clause 16(d)
20.12 Clause 16(e) - Capital receipts not credited to P&L A/c
20.13 Audit Checklist - Clause 16(e)
PROPERTY (LAND OR BUILDING OR BOTH) TRANSFERRED AT LESS THAN STAMP DUTY VALUE - CLAUSE 17 OF FORM NO. 3CD
21.1 Computation of capital gains in real estate transactions - Section 50C
21.2 Special provision for full value of consideration for transfer of assets other than capital assets in certain cases [New section 43CA]
21.3 Applicability of clause 17
21.4 Requirements of clause 17
21.5 Transfer
21.6 Audit Checklist - Clause 17
CLAUSE 18 OF FORM NO. 3CD : DEPRECIATION
22.1 Applicability of clause 18
22.1A Depreciation u/s 32 is a statutory allowance and not an expenditure
22.2 "Depreciation allowable"
22.3 Legal provisions related to depreciation
22.4 Additional depreciation - Section 32(1)(iia)
22.5 'Each asset or block of assets, as the case may be'
22.6 Audit Checklist - Clause 18(a) - Description of each asset/block of asset
22.7 Audit Checklist - Clause 18(b) - Rate of Depreciation
22.8 Audit Checklist - Clause 18(c) - Actual Cost/WDV
22.9 Audit Checklist - Clause 18(d) - Specified adjustments in respect of additions/deductions during the year
22.10 Audit Checklist - Clause 18(e) - Depreciation Allowable
22.11 Audit Checklist - Clause 18(f) - WDV at the end of the year
CLAUSE 19 OF FORM NO. 3CD : AMOUNTS DEDUCTIBLE UNDER SECTIONS 33AB, 33ABA, ETC.
23.1 Comparative study vis-a-vis the existing Form No. 3CD
23.2 No deduction under section 35CCB in respect of any expenditure incurred on or after 31-3-2002
23.3 Investment allowance - Section 32AC
23.4 Section 33AB - Tea development account, coffee development account and rubber development account
23.5 Section 33ABA - Site restoration fund
23.6 Section 35 - Scientific research expenditure
23.7 Section 35ABB - Expenditure for obtaining licence to operate telecommunication services
23.8 Section 35AC - Expenditure on eligible projects
23.9 Investment-linked tax incentives - Section 35AD
23.10 Section 35CCA - Payment to associations and institutions for carrying out rural development programmes
23.11 Expenditure on agricultural extension project [Section 35CCC]
23.12 Expenditure on skill development project [Section 35CCD]
23.13 Section 35D - Amortisation of preliminary expenses
23.14 Section 35DD - Expenditure in case of amalgamation or demerger
23.15 Section 35DDA - Amortisation of VRS expenditure
23.16 Section 35E - Deduction of expenditure incurred on prospecting etc. for certain minerals
23.17 Phasing out of deductions and exemptions
23.18 Audit Checklist - Clause 19
CLAUSE 20 OF FORM NO. 3CD : BONUS/EMPLOYEES CONTRIBUTION TO PF
24.1 Applicability of clause 20
24.2 Clause 20(a) - Bonus/Commission to Employees
24.3 Audit Checklist - Clause 20(a)
24.4 Clause 20(b) - Sum received from employees towards contributions to provident fund/superannuation fund/other funds - Relevant provisions
24.5 Audit Checklist - Clause 20(b)
CLAUSE 21(a) OF FORM NO. 3CD : AMOUNTS DEBITED TO PROFIT AND LOSS ACCOUNT
25.0 Applicability of first item of clause 21(a) - Capital expenditure
25.1 Clause 21 - General
25.2 Relevant legal provisions - First item of Clause 21(a)
25.3 Capital Expenditure
25.4 Audit Checklist - First item of Clause 21(a) - Capital expenditure
25.5 Personal expenses - Second item of Clause 21(a)
25.6 Audit Checklist - Personal expenses - Second item of Clause 21(a)
25.7 Legal Provisions - Advertisement expenditure - Third item of Clause 21(a)
25.8 Audit Checklist - Advertisement expenses - Fourth and Fifth items of clause 21(a)
25.9 Legal provisions - Expenditure on clubs - Fourth and Fifth items of clause 21(a)
25.10 Audit Checklist - Club expenditure - Fourth and Fifth items of clause 21(a)
25.11 Legal Provisions - Expenditure prohibited by law - Sixth, Seventh and Eighth items of clause 21(a)
25.12 Audit Checklist - Expenditure prohibited by law - Sixth, Seventh and Eighth items of clause 21(a)
25.13 Requirement of sub-clause (b) of clause 21
25.14 Legal Provisions - Clause 21(b)
25.15 Audit Checklist - Clause 21(b)
25.16 Requirements of sub-clause (c) of clause 21
25.17 Legal provisions - Clause 21(c)
25.18 Judicial views on section 40(b)
25.19 ICAI's views on clause 21(c)
25.20 Audit Checklist - Clause 21(c) in case of firm/LLP
25.21 Requirements of sub-clause (d)(A) of clause 21
25.22 Legal Provisions - Clause 21(d)(A)
25.23 Audit Checklist - Clause 21(d)(A)
25.24 Clause 21(d)(B) - Deemed income u/s 40A(3A)
25.25 Clause 21(d)(B) - Legal provisions - Section 40A(3A)
25.26 Clause 21(d)(B) - Audit Procedures
25.27 Requirements of sub-clause (e) of clause 21
25.28 Legal Provisions - Clause 21(e)
25.29 Audit Checklist - Clause 21(e)
25.30 Applicability of sub-clause (f) of clause 21
25.31 Legal Provisions - Clause 21(f)
25.32 Applicability of sub-clause (g) of clause 21
25.33 "Contingent liability"
25.33A Distinction between 'condition precedent to creating a liability' & 'condition precedent to discharging a liability'
25.34 Audit Checklist - Clause 21(g)
25.35 Applicability of clause 21(h)
25.36 Legal Provisions - Clause 21(h)
25.37 Audit Checklist - Clause 21(h)
25.38 Applicability of clause 21(i)
25.39 Relevant legal provisions - Clause 21(i)
25.40 Distinction between the proviso and GAAP (AS 16)
25.41 Audit Checklist - Clause 21(i)
CLAUSE 22 OF FORM NO. 3CD : AMOUNT OF INTEREST INADMISSIBLE UNDER SECTION 23 OF MSMED ACT, 2006
26.1 Micro, Small & Medium Enterprises Development Act
26.2 Disallowance of interest payable under the MSMED Act
26.3 "Disclosures required in buyer's annual accounts"
26.4 Identification of MSE suppliers
26.5 Notes on Accounts to be added by buyer entities
26.6 Audit Checklist - Clause 22
CLAUSE 23 OF FORM NO. 3CD : PAYMENTS TO PERSONS SPECIFIED UNDER SECTION 40A(2)(b)
27.1 Applicability of clause 23
27.2 Persons specified under section 40A(2)(b)
27.3 ITAT's Interpretation of reporting requirements
27.4 Audit Checklist - Clause 23
CLAUSE 24 OF FORM NO. 3CD : AMOUNTS DEEMED TO BE PROFITS AND GAINS UNDER SECTION 32AC/33AB/33ABA/33AC
28.0 Comparative study vis-a-vis existing Form No. 3CD
28.1 Applicability of clause 24
28.2 Legal Provisions - Clause 24
28.3 Audit Checklist - Clause 24
CLAUSE 25 OF FORM NO. 3CD : AMOUNTS DEEMED TO BE PROFITS AND GAINS UNDER SECTION 41
29.1 Applicability of clause 25
29.2 Deemed profits and gains under section 41
29.3 Audit Checklist - Clause 25
CLAUSE 26 OF FORM NO. 3CD : SUMS COVERED BY SECTION 43B
30.1 Applicability of clause 26
30.2 Provisions of section 43B - Certain deductions to be only on actual payment
30.3 What is "actual" payment
30.4 Audit Checklist
30.5 Amendment by Finance Act, 2016 - Extension of scope of section 43B to include certain payments made to Railways
CLAUSE 27 OF FORM NO. 3CD : MODVAT CREDIT/PRIOR PERIOD ITEMS
31.1 Applicability of clause 27(a)
31.2 Concept of CENVAT credit
31.3 Audit Checklist - Clause 27(a)
31.4 Comparative study vis-a-vis existing Form No. 3CD
31.5 Applicability of clause 27(b)
31.6 Legal provisions - Clause 27(b) - Prior Period items
31.7 Audit Checklist - Clause 27(b)
‘GIFTS’ OF UNLISTED SHARES RECEIVED BY LLPs/FIRMS/COMPANIES - CLAUSE 28 OF FORM NO. 3CD
32.1 Rationale for enacting clause 56(2)(viia)
32.2 Conditions for taxability of unlisted shares received by closely held company/firm/LLP
32.3 Exempt transactions
32.4 Receipt of shares by the amalgamated foreign company in a transaction covered by section 47(via)
32.5 Receipt of shares by the resulting foreign company in a transaction covered by section 47(vic)
32.6 Receipt of shares in a transaction covered by section 47(vica)
32.7 Receipt of shares in a scheme of demerger - Section 47(vid)
32.8 Receipt of shares in a scheme of amalgamation - Section 47(vii)
32.9 'Receives, in any previous year, . . . . any property being shares….' - Meaning of this phrase in section 56(2)(viia)
32.10 Fair market value of unquoted equity shares
32.11 Fair market value of unquoted preference shares
32.12 Determination of FMV of unquoted preference shares
32.13 Whether receipt of unlisted bonus shares by a closely held company/firm is receipt of such shares without consideration
32.14 Whether receipt of unlisted bonus shares by a closely held company/firm is receipt of such shares without adequate consi-deration
32.15 Whether allotment of rights shares by a company will attract tax in shareholder's hands under section 56(2)(viia)
32.16 Cost of acquisition of 'property' taxed as gift
32.17 Assessees to whom clause 28 is applicable
32.18 Reporting requirements of clause 28
32.19 Audit Procedures - Clause 28
SHARE PREMIUM RECEIVED BY CLOSELY HELD COMPANIES IN EXCESS OF FMV TAXABLE - SECTION 56(2)(viib) - CLAUSE 29 OF FORM NO. 3CD
33.1 Requirements of section 56(2)(viib)
33.2 Method of determining Fair Market Value for the purposes of section 56(2)(viib)
33.3 Fair market value of unquoted preference shares
33.4 Issues arising from clause (viib) of sub-section (2) of section 56
33.5 Assessees to whom clause 29 is applicable
33.6 Reporting requirements of clause 29
33.7 Audit Procedures - Clause 29
HUNDI TRANSACTIONS - CLAUSE 30 OF FORM NO. 3CD
34.1 Applicability of clause 30
34.2 Legal provisions - Section 69D
34.3 Hundi
34.4 Audit Checklist - Clause 30
CLAUSE 31 OF FORM NO. 3CD : ACCEPTANCE/REPAYMENT OF LOAN/DEPOSIT
35.1 Applicability of clause 31(a)
35.2 Legal provisions - Section 269SS
35.3 ICAI's views on clause 31(a)
35.4 Applicability of clause 31(b)/(c)
35.5 Legal Provisions - Section 269T
35.6 ICAI's views on clause 31(b)
35.7 Clause 31(c) - Tax auditor's duty to verify compliance
35.8 ICAI's views on clause 31(c)
35.9 Audit Checklist - Clause 31(a)/(b)/(c)
CLAUSE 32 OF FORM NO. 3CD : UNABSORBED LOSS/DEPRECIATION
36.1 Applicability of clause 32(a)
36.2/3 Applicability of clause 32(b)
36.4 Legal Provisions - Section 79
36.5 Audit Checklist - Clause 32(b)
36.6 Details of speculation loss, if any, incurred by assessee - Clause 32(c)
36.7 Details of loss referred to in section 73A in respect of any specified business - Clause 32(d)
36.8 Whether company is deemed to be carrying on a speculation business in terms of Explanation to section 73
CLAUSE 33 OF FORM NO. 3CD : CHAPTER VI-A DEDUCTIONS
37.0 Requirements of clause 33
37.1 Applicability of clause 33
37.2 Legal Provisions - Clause 33
37.3 Special provisions in respect of newly established Units in Special Economic Zones - Section 10AA
37.4 Audit Checklist - Clause 33
CLAUSE 34 OF FORM NO. 3CD : AUDIT OF COMPLIANCE WITH TDS PROVISIONS
38.1 Applicability of clause 34
38.2 Law relating to TDS
38.3 Tax deduction and collection account number [Section 203A]
38.4 Collection of tax at source [Section 206C]1
38.5 Rates for TDS for Financial Year 2015-16
38.6 Rates for tax deduction at source for financial year 2016-17
38.7 Rates for tax collection at source
38.8 Audit Procedures - Clause 34(a)
38.9 Audit Procedures - Clause 34(b)
38.10 Audit Procedure - Clause 34(c)
ANNEX 38.1 REMITTANCES TO NON-RESIDENTS UNDER SECTION 195 OF THE INCOME-TAX ACT - MATTERS CONNECTED THERETO
ANNEX 38.2 FORM NO. 15CB
CLAUSE 35 OF FORM NO. 3CD : QUANTITATIVE DETAILS
39.1 Applicability of clause 35
39.2 Audit Checklist
CLAUSE 36 OF FORM NO. 3CD : DIVIDEND DISTRIBUTION TAX
40.1 Applicability of clause 36
40.2 Audit Checklist
CLAUSE 37 OF FORM NO. 3CD : COST AUDIT REPORT
41.0 Requirements of clause 37
41.1 Audit Checklist
CLAUSE 38 OF FORM NO. 3CD : CENTRAL EXCISE AUDIT REPORT
42.1 Applicability of clause 38
42.2 Audit Checklist - Clause 38
CLAUSE 39 OF FORM NO. 3CD : SERVICE TAX AUDIT FOR VALUATION FOR SERVICES
43.1 Applicability of clause 39
43.2 Requirements of clause 39
43.3 Audit Checklist - Clause 39
CLAUSE 40 OF FORM NO. 3CD : ACCOUNTING RATIOS
44.1 Principal items of goods traded or manufactured or services
44.2 Audit Checklist - Clause 40
DETAILS OF DEMANDS RAISED OR REFUNDS ISSUED UNDER TAX LAWS : CLAUSE 41 OF FORM NO. 3CD
45.1 Requirements of clause 41
45.2 Audit Procedures - Clause 41