Tax Audit | Detailed Analysis of Clause 32 to Clause 34 | As per the Guidance Note issued by the ICAI
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- Last Updated on 22 September, 2023
Income-tax law requires the assessee to get his books of accounts audited in pursuance of the requirement under Section 44AB of The Income Tax Act, 1961. The Chartered Accountant conducting the tax audit is required to give his findings, observations, etc., in the form of an audit report at the e-filing portal of Income-tax in Form No. 3CA/3CB and 3CD. In this story, we would discuss the reporting requirement of clauses 32 to 34, which are contained in Part B of Form 3CD.
1. Clause 32(a)
Details of brought forward loss or depreciation allowance, in the following manner, to the extent available.
Following particulars are required to be disclosed in relation to details of brought forward loss or depreciation allowance, to the extent available under this clause:
|Nature of loss/Depreciation allowance
|Amount as returned
|All losses/allowances not allowed under section 115BAA/115BAC/115BAD
|Amount as adjusted by withdrawal of additional depreciation on account of opting for taxation under section 115BAC/115BAD
|Amount as assessed (give reference to relevant order)
|Order U/S and date
|Provide details regarding the delay in filing loss returns or pending assessment or appellate proceeding
For reporting under this clause an auditor shall:
- keep in mind provisions regarding section 70 to Section 80 as the losses in the Income Tax Act, 1961 are dealt with in accordance with these sections.
- examine the previous year’s income tax returns, assessment orders, and form 3CD to reconcile the amount of loss brought forward or unabsorbed depreciation.
- obtain records from the management related to assessment which shall include income tax return filed, assessment order received, appellate orders and rectification/revision orders received, and verify details given in the above columns is correct.
Also, verify the status of the case/demand from the income tax portal.
- obtain management representation regarding the carry forward losses and depreciation details.
- verify that in case of belated returns filed for losses then, the company/firm cannot carry forward and set off the business loss (normal business loss/speculative business loss/specified business loss), capital loss, and loss from the activity of owning and maintaining racehorses.
In case of firm/LLP (where a change has occurred in the constitution of a firm) and company not being a company in which the public are substantially interested, carry forward of losses are restricted subject to certain conditions as given in sections 78 and 79
Provision relating to set off of unabsorbed depreciation relating to these cases is not covered under section 78/79, as the same is dealt under section 32(2) the Income Tax Act, 1961.
The Guidance Note 2023 states that:
- In case any undisclosed income is determined in case of an assessee during any proceedings of search, requisition or survey, then no adjustment or set-off shall be allowed against such undisclosed income.
- The set-off shall not be available in case of both brought forward losses as well as unabsorbed depreciation.
- The Tax Auditor has to confirm and verify whether any search or survey has taken place or is undergoing based on the records of assessment proceedings of the assessee and accordingly check if any undisclosed income has been determined in the case of the assessee.
- The eligibility of brought forward losses and unabsorbed depreciation against such undisclosed income as computed by the assessee should be checked and, based on that, the necessary adjustments should be made to losses to be carried forward by the assessee.
- The tax auditor should make appropriate disclosure in the “Remarks” column of the annexure provided for clause 32(a) of Form 3CD. In case if the website utility of Form 3CD does not have a specific column for such reporting, the tax auditor, if deemed fit, can provide a note/qualification in Para 3 of Form 3CA/Para 5 of Form 3CB in this regard.
- Any assessment, rectification, revision or appeal proceedings pending at the time of tax audit have to be disclosed in the remarks column by way of information.
- If consequential orders for any revision/appellate order is yet to be passed, the same can be disclosed along with the impact thereof if material. In case, order of appeal/revision is passed, the same shall be considered for reporting.
2. Clause 32(b)
Whether a change in shareholding of the company has taken place in the previous year due to which the losses incurred prior to the previous year cannot be allowed to be carried forward in terms of section 79.
For reporting under this clause, an auditor should obtain the list of shareholders and Annual report of the last year and verify, if there is a change in shareholding of the company during the year under audit due to which the losses incurred prior to the previous year cannot be allowed to be carried forward in terms of section 79.
If such change is observed, then reduce the brought forward losses not eligible for claim and should be appropriately reported under clause 32(b). However, the provisions of section 79 would not impact carry forward of unabsorbed depreciation as the same is dealt under under section 32(2) the Income Tax Act, 1961.
2.1 Section 79
As per the provisions of section 79 of the income tax act, in case of a Company, not being a company in which the public are substantially interested, the loss shall not be carried forward and set-off against the income of the previous year, unless, on the last day of the previous year, the shares of the company carrying not less than fifty-one percent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one percent of the voting power on the last day of the year or years in which the loss was incurred.
Exception (i.e., section 79 does not apply to a change in the voting power consequent upon any of the following):
- death of a shareholder
- transfer of shares by way of gift to any relative of the shareholder making such gift
- any change in the shareholding of an Indian company which is a subsidiary of a foreign company as a result of amalgamation or demerger of a foreign company subject to the condition that fifty-one percent of shareholders of the amalgamating or demerged foreign company continue to be the shareholders of the amalgamated or the resulting foreign company
- a company where a change in the shareholding takes place in a previous year pursuant to a resolution plan approved under the Insolvency and Bankruptcy Code, 2016 (31 of 2016), after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner
3. Clause 32(c)
Whether the assessee has incurred any speculation loss referred to in section 73 during the previous year, If yes, please furnish the details of the same.
Details related to speculation loss referred to in section 73 during the previous year to be disclosed under this clause
3.1 Section 73
As per section 73 of the income tax act, the loss of a speculation business of any assessment year is allowed to be set off only against the profits and gains of another speculation business up to the next 4 assessment year from the assessment year in which the loss was incurred.
4. Clause 32(d)
Whether the assessee has incurred any loss referred to in section 73A in respect of any specified business during the previous year, if yes, please furnish details of the same.
Details related to loss referred to in section 73A in respect of any specified business during the previous year to be disclosed under this clause.
4.1 Section 73A
The loss of a specified business referred to in section 35AD of any assessment year is allowed to be set off only against profit and gains, if any, of any other specified business, but if such loss of specified business is not wholly set off, the remaining loss which is not so set off or the whole loss where the assessee has no income from any other specified business, shall, subject to the other provisions of this Chapter, be carried forward indefinitely till it is set off.
5. Clause 32(e)
In case of a company, please state that whether the company is deemed to be carrying on a speculation business as referred in explanation to section 73, if yes, please furnish the details of speculation loss if any incurred during the previous year.
In case of company, details of whether the company is deemed to be carrying on a speculation business as referred in explanation to section 73 is to be provided under this clause.
5.1 Explanation to Section 73
As per the provisions, a company which is engaged in purchase and sale of shares of other companies shall for the purpose of this section, deemed to be carrying on a speculation business to the extent of such sale and purchase.
- a company whose gross total income only consists of income under the head “Interest on securities”, “house property head”, “capital gain”, “income from other sources”,
- a company whose principal business is trading in shares or banking or granting of loans or advances.
The auditor should verify the same from the books of account, an income tax return filed, and verify details given in the above columns are correct.
6. Clause 33
Section-wise details of deductions, if any, are admissible under Chapter VIA or Chapter III (Section 10A, Section 10AA).
|Section under which deduction is claimed
|Amounts admissible as per the provision of the Income-tax Act, 1961 and fulfils the conditions, if any, specified under the relevant provisions of Income-tax Act, 1961 or Income-tax Rules, 1962 or any other guidelines, circular, etc, issued in this behalf.
Under this clause, the tax auditor has to obtain and check all the details of the deduction claimed under chapter III (Section 10A to 10AA) and chapter VI-A. He may obtain the details of deduction in the following manner:
|Qualifying amount, if required
|Consecutive years from which deduction is claimed, if required
Further, the allowability of the above-mentioned deductions or exceptions is dependent upon various conditions. So, the auditor is advised that while processing the amount of allowable deduction he has to confirm whether these conditions are fulfilled or not. And for confirming the same he has to obtain all necessary evidence that would enable him to express his opinion on allowable deductions.
If the assessee is a sole proprietor or HUF then the tax auditor would be auditing the accounts of the business/profession and he may have other activities and other sources of income in respect of which tax audit is not mandatory. In that type of case, the particulars of deductions admissible under Chapter VIA has to be given with reference to the items appearing in the books of accounts of the business/profession which is subject to audit u/s 44AB.
7. Clause 34(a)
Whether the assessee is required to deduct or collect tax as per the provisions of Chapter XVII-B or Chapter XVII-BB, if yes please furnish:
Provide details of tax to deduct or collect tax as per the provisions of Chapter XVII-B or Chapter XVII-BB
|Tax deduction and Collection Account Number (TAN)
|Mention TAN number of the assessee
|Mention TDS/TCS section
(e.g., 194I. 194C, 194J, 194A, 206C, etc.)
|Nature of payment
|Payment on which TDS/TCS deducted or collected
(e.g., rent, freight, interest, Audit fees, scrap sale, etc.)
|Total amount of payment or receipt of the nature specified in column
|Here, mention the total amount of the nature mentioned in the previous column as calculated from books of accounts
(e.g., for 194I rent total amount of rent to a various person whether liable for TDS or not shall be taken i.e mention the total amount of rent expense booked)
|Total amount on which tax was required to be deducted or collected out of (4)
|Mention the total taxable amount out of the amount in column 4 which is taxable
(e.g., out of total types of rent to various parties, rent to 4 parties cross threshold limit so their total rent shall be mentioned there)
|Total amount on which tax was deducted or collected at specified rate out of (5)
|Here, mention the actual amount out of column 5 on which TDS/TCS is deducted or collected, it may be taken from TDS returns, and in case of concession if any then that concessional rate shall be taken as the specified rate
(e.g., for rent refer 26Q of each quarter and collect the monthly taxable amount of rent from there)
|Amount of tax deducted or collected out of (6)
|The total amount of tax deducted/collected out of the amount furnished in column 6, this amount can be taken from TDS returns
(e.g., for rent refer 26Q of each quarter and collect the monthly TDS amount of rent from there)
|Total amount on which tax was deducted or collected at less than specified rate out of (7)
|Out of the amount mentioned in column 5, mention the amount on which TDS/TCS deducted/collected less than the specified rate
(e.g., if some TDS on rent is calculated based on 9% without any certificate instead of 10% then mention such taxable amount).
|Amount of tax deducted or collected on (8)
|The total amount of tax deducted/collected out of the amount furnished in column 8
(e.g., if some TDS on rent is calculated based on 9% without any certificate instead of 10% then mention such TDS amount)
|Amount of tax deducted or collected not deposited to the credit of the Central Government out of (6) and (8)
|TDS/TCS not deposited to the Central Government by the assessee is to be mentioned under this clause, tax deducted but deposited late is not to be reported in this clause.
The Auditor should obtain from assessee TDS/TCS returns filed, TDS/TCS concession certificate provided by the party to the client if any, and party wise TDS details sheet with necessary details and should verify the same with books of accounts.
The auditor may suffer a difference of opinion with regard to TDS/TCS applicability, in this case, he should mention it as observation in his report i.e., clause (3) of Form No. 3CA or clause (5) of Form No.3CB as the case may be.
These details should tally with disallowances reported under section 40(a) in clause 21(b) of Form 3CD, as much as applicable.
8. Clause 34(b)
Whether the assessee is required to furnish the statement of tax deducted or tax collected. If yes please furnish the details
An auditor should obtain the receipts/acknowledgment of TDS/TCS Statement filed by the assessee during the year. Also, verify the returns are filed within the due dates specified under the Act.
|Tax deduction and Collection Account Number (TAN)
|Type of Form
|Due date for furnishing
|Date of furnishing, if furnished
|Whether the statement of tax deducted or collected contains information about all transactions which are required to be reported
|If not, please furnish list of details/transactions which are not reported
|Mention TAN no. of the assessee
|TDS/TCS Forms have to be reported in this clause
(e.g., Form 24, 24G, 24Q, 26, 26A, 26B, 26Q,27,27EQ etc)
|Mention due date of return filing
(e.g., Quarterly TDS/TCS return is filed at the end of one month from the end of the quarter and for last quarter at the end of two months)
|Actual Date of furnishing the original return (even if the statement is revised/corrected later) which may be taken from the TDS/TCS return
|Mention yes if there is no such transaction and no if there is any such kind of transaction.
If not contain all information then, please furnish a list of details/transactions which are not reported.
(e.g., like transporters whose tax is not to be deducted, if he gives a declaration u/s 194(6), TDS not deducted due to furnishing form 15G/15H, NIL TDS liability due to certificate u/s 197, etc. these are the likely cases, which were required to be reported, but not reported by the assessee.)
In case the assessee has deducted or collected TDS/TCS and also deposited the same, but not reported in TDS/TCS statement, then, the auditor after proper audit procedures and verifications shall obtain suitable management representation in this regard.
Whereas, if the assessee revises his TDS/TCS statement, the auditor should verify details from the corrected statement, the materiality concept shall be applied while verifying details.
9. Clause 34(c)
Whether the assessee is liable to pay interest under section 201(1A) or section 206C(7). If yes, please furnish:
Details of interest paid under section 201(1A) or section 206C(7) shall be provided in the manner below:
|Tax deduction and Collection Account Number (TAN)
|Amount of interest under section 201(1A)/206C(7) is payable
|Amount paid out of column (2)
|Date of payment
|Remarks if any:
9.1 Section 201(1A)
Under Section 201(1A), in case of tax has not been deducted wholly or partly or late deposit of TDS after deduction, you have to pay interest, interest is calculated at the rate of 1.5% per month or part of the month from the date on which TDS was deducted to the actual date of deposit.
9.2 Section 206C(7)
Under Section 206C(7), in case of tax has not been collected wholly or partly or late deposit of TCS after collection, you have to pay interest, interest is calculated at the rate of 1.5% per month or part of the month from the date on which TDS was deducted to the actual date of deposit.
For reporting under this clause, the auditor should verify the amount the assessee is liable to pay from the books of account and also from 26AS.
The reporting as to whether the assessee is liable to pay such interest should also be in consonance with the reporting under clause 34(a), to the extent applicable where the details of non-deduction are required to be reported.
This document is prepared as per the guidance note provided by ICAI
Detailed Analysis of Clause 9 to 12
Detailed Analysis of Clause 13 and Clause 14
Detailed Analysis of Clause 15 and Clause 16
Detailed Analysis of Clause 17 to Clause 19
Detailed Analysis of Clause 20 and Clause 21
Detailed Analysis of Clause 22 to Clause 25
Detailed Analysis of Clause 26 to Clause 29
Detailed Analysis of Clause 30 to Clause 30C
Detailed Analysis of Clause 31
Detailed analysis of Clause 35 to Clause 38
Detailed Analysis of Clause 39 to Clause 41
Detailed Analysis of Clause 42 and Clause 43
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