India: Changes to Tax Audit Requirements

The Indian tax authorities have prescribed a new form for tax audits on July 25, 2014. The new form has the following additional requirements:

FORM 3CA and Form 3CB – now requires details of the period for which profit & loss account/income and expenditure account has been prepared. This is important if accounts are prepared for more than or less than 12 months. In the opinion part (for auditors), in addition to mentioning that particulars in Form 3CD give a true and correct view, it is also required to include observations/qualifications, if any.

FORM 3CD –Form 3CD no longer requires certification by client/auditee, but instead introduces a number of additional disclosures. Listed below are the key modifications/additions made in Form 3CD.

• PART A changes:
• Now requires details of whether the assessee is liable to pay indirect taxes like excise duty, service tax, sales tax, custom duty etc. and furnish the registration number for the same.
• Elect the clause under which the audit has been conducted.

• PART B changes:
• Previously, only a list of books of account maintained was required but now the address at which the books of accounts are kept also needs to be mentioned. Furthermore, if the books of accounts are not kept at one location, the addresses of locations along with the details of books maintained at each location must be given.
• A description of the relevant documents examined must be given.
• The effect in profit and loss due to change in method of accounting or method of valuation requires express disclosure.
• A new section has been added whereby details of property along with any consideration received or accrued and value assessed is required to be disclosed where any land or building or both is transferred during the previous year for a consideration less than the value adopted or assessed or assessable by any authority.
• Disclosures to be made as to whether, during the previous year, the assessee received any consideration for issue of shares which exceeds the fair market value of the shares.
• Disclosures to be made as to whether, during the previous year, the assessee has received any property, without consideration or for inadequate consideration.
• Disclosures on whether the assessee has incurred any speculation loss or loss in respect of any specified business during the previous year.
• Report whether the company is deemed to be carrying on a speculation business.
• Apart from reporting on the tax deducted & remittance, the assessee must also state whether the TDS & TCS returns were submitted on time or not and whether the assessee is liable to pay interest.
• Particulars of the Cost Audit to be disclosed (including disqualification or disagreement on any matter/item/value/quantity as identified by the Cost Auditor). Previously, the requirement was to only state whether Cost Audit was carried out or not and to enclose a copy of the report.
• Report on whether any audit was conducted in relation to valuation of taxable services, further disclosures to be made for any disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the auditor.
• Details of demand raised or refund issued during the previous year under any tax laws along with details of relevant proceeding.

Radius will ensure that the new form will be adopted for future audits.