Tax Audit Checklist on Clause 25 of Form 3CD under the Income Tax Act, 1961

Clause 25 of Form 3CD requires tax auditors to report any amounts deemed to be profits and gains under various provisions of Section 41 of the Income Tax Act, 1961. If such amounts are not reflected in the profit and loss account or income and expenditure account, the auditor must disclose this in Clause (3) of Form No. 3CA or Clause (5) of Form No. 3CB. Additionally, for company assessees, any amount mentioned in the Annual Report that is chargeable to tax under Section 41 and should be reported under Clause 25 must be disclosed, regardless of whether it has been included in the profit and loss account.

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 whatsoever, 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. In respect of loss, expenditure or trading liability incurred by the assessee, if no allowance or deduction has been made, then provisions of section 41 are inapplicable.

This story provides the tax audit checklist on clause 25 of Form 3CD.

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