Contradiction between Dates in Form 3CD & dates for submission of Audit Reports

Clauses of Form 3CD which can’t be answered while submitting it by 30^th November 2020

The Income Tax Act has been amended by the Finance Act 2020 and further amended by The Taxation And Other Laws (Relaxation And Amendment Of Certain Provisions) Act, 2020 to provide certain restrictions and/or relaxations in the existing provisions and also to bring in some additional provisions. One of such additional restriction that has been inserted pertains to the requirement of furnishing of Audit Report/ CA Certificates at least  one month prior to the due date for furnishing the return of income under sub-section (1) of section 139. The reports are as under:

Furnishing of Audit  Reports:

S.L.	Section	Report
1	44AB	Tax Audit Report
2	92E	Transfer Pricing Report
3	12A(b)	Charitable Trust claiming exemption u/s 11 & 112
4	10(23C)	Various Govt. Relief Funds ,Universities  Education Institutions, Hospitals etc claiming exemption
5	80IA	Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.
6	80JJAA	Deduction in respect of employment of new employees.
7	115JB	Companies paying MAT
8	115JC	Special provisions for payment of tax by certain persons other than a company.

The submission of the above reports at least  one month prior to the said due date u/s 139(1) is very important in so far as the claim for exemptions or deductions under above sections are concerned. The due date for filing of the Return of Income in all of the above cases is 31^st January 2021 and therefore the date one month prior to this date is 31^st December 2020 by which date the above reports must be submitted.

The logic behind the above provision is best known to the Finance Ministry only. Many amendments have been made either in whole or in piecemeal including the provision for Concessional Rate of Taxation regime for all assessees. Many provisions are widely scattered across the Act and it really takes a very good look at these provisions before deciding any particular alternative options.

These extravagant pretensions only served to excite ridicule. Moreover the exposure of these amendments turned the whole thing into a big ridicule and gave the assessees an excuse for postponing their implementations.

The biggest ridicule is the fact that the Act now requires placing the cart before the horse and not vice versa. The ideal law about submission of audit reports would  be that these audit reports are submitted within one month after  the date of submission of  the Return of Income u/s 139(1). In such cases the Revenue would rest assured that whatever information that has been submitted in the Return of Income is  True & correct by ensuring that this information is audited by qualified Chartered Accountants and their report is submitted within one month after the date of submission of  the Return of Income u/s 139(1).

After all Audit is a tool of Post Mortem and not a tool of Prediction

The  present provision is like an auditor is predicting a financial position for a date one month in future and giving an advantage to some smart assessee to arrange the accounts in concordance with the audit report already submitted by the auditor one month prior to the actual happening of any financial event. The Finance Ministry has not offered any guidelines about the treatment of financial events occurring after the date of submission of audit report.

Let us consider some examples of  this ridicule.

In a case where an assessee is required to be audited u/s 44AB of the Act, the auditor now has to submit form 3CD to the department by 31st December 2020 for return of income of the assessee to be filed one month later.

1) No auditor would submit form 3CD unless he has authentic accounting information certified by the assessee. When such authentic accounting information is available with the assessee then why would he not submit the ROI also by 31st December 2020. The situation would become more complex when the Tax Auditor and the Statutory Auditor are different persons. In case of variation how would the reconciliation be done and what would be the legal value of such reconciliation under the Act?

2) Further in Form 3CA/3CB the Tax Auditor will have to give his report as under:

“In our opinion and to the best of our information and according to examination of books of account including other relevant documents and explanations given to us, the particulars given in the said Form No.3 CD are true and correct subject to the following observations/qualifications, if any:”

Is it possible to do so if the accounts were still open and not closed as on 31st December 2020

3) Clause (8a) seeks answer on the question if the assessee has opted for taxation under section 115BA/ 115BAA/ 115BAB?

Under Section 115BA/115BAA/115BAB the option can be exercised by the assessee in the prescribed manner on or before the due date specified under section 139(1). That means an assessee willing to exercise the option can do so upto 31^st January 2021, then how can an auditor answer the question in clause 8a latest by 31^st December 2020, when the said option becomes time barred only on 31^st January 2021.

4) Clause 18 answer is required to be given to the questions

(ca)	Adjustment made to the written down value u/s115BAA	Rs………
(cb)	Adjusted written down value	Rs………
(c)	Depreciation allowable	Rs………
(d)	Written down value at the end of the year	Rs………

The figures would vary depending upon whether the option u/s 115BAA has been exercised or not and for which the last date is again 31^st January 2021.

Section 115BAA(3) Proviso  requires that where there is an additional  depreciation allowance in respect of a block of asset which has not been given full effect to prior to the assessment year beginning on the 1st day of April, 2020 then corresponding adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2019 in the prescribed manner, if the option under sub-section (5) is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2020.

The value of Adjustment to be made to the written down value u/s 115BAA as stated in clause (ca) is equal to the amount of unabsorbed additional depreciation as at 1^st April 2019 which is required to be carried forward to the AY 2020-21. The other figures in the remaining clauses would depend the amount of adjustment in clause (ca).

5) Clause 20 (b) : Details of contributions received from employees for various funds as referred to in section 36(1)(va):

S.N.	Nature of Fund	Sum receivable from employees	Due date  for payment	The actual  amount paid	The actual date of payment to the concerned authorities –
1	2	3	4	5	6

Under this clause compliance with respect to the Due date of Payment is required to be ensured. Whether this due date is the date as per the Provident Fund Act or as per the date u/s 43B i.e. the contribution of the employees will be allowed as expenses if paid upto the due date as per section 43B. There are contradictory judgements of various State High Courts as under. Allowed means allowed u/s 43B even if paid by the due date u/s 139(1) and Disallowed means not allowed if not paid by 15^th day of the month next to the month of receipt.

1	Gujarat High Court	Not Allowed
2	Karnataka High Court	Allowed
3	Calcutta High Court	Allowed
4	Bombay High Court	Generally allowed but 1 dissenting decision
5	Madras High court	Allowed & Disallowed both
6	Delhi High Court	Allowed
7	Rajasthan High Court	Allowed
8	Kerala high Court	Not Allowed
9	Punjab & Har High Court	Allowed
10	Madhya Pradesh High Court	No Clarity
11	Patna High Court	Allowed
12	Allahabad High Court	Allowed
13	Gauhati High Court	Allowed

In the case of Rajasthan there was a chance to settle this controversy when the Revenue filed appeal before the Supreme Court but as the luck will have it, the Revenue had to withdraw this appeal due to revised higher monetary limit of tax effect for filing appeal before the Supreme Court.

“Case disposed off.  Dismissed as withdrawn- 9^th January 2020” Reported on 27^th April 2020.

So we are again back to square one with the controversy because the SC did not decide the case on merit.

So whether the deduction will be allowed or disallowed can be answered only after knowing the High Court in whose jurisdiction the assessee has the place of business. Moreover the following orders were passed subject to the final order of the Supreme Court on these questions.

So while submitting form 3CD by 30^th November 2020 the Tax Auditor will not be able to give correct answer because the assessee has got time upto 31^st December 2020 to make payment of the same and claimed it as deduction.

6) Clause 21(b)(i)(B) : Details of payment on which tax has been deducted but has not been paid on or before the due date specified in sub-section (1) of section 139.

The tax auditor just can’t straight way answer this question and disallow 30% of the expenditure when the time for payment of TDS is still available upto 31^st January 2021.

7) Clause 26(B): Payment under Section 43B

Section 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-

S. No	Clause	Description of Payment
1	(a)	any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force.
2	(b)	any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees.
3	(c)	any sum referred to in section 36(1)(ii) i.e.  any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission; or
4	(d)	any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State financial corporation or a State industrial investment corporation in accordance with the terms and conditions of the agreement governing such loan or borrowing , or
5	(da)	any sum payable by the assessee as interest on any loan or borrowing from a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company, in accordance with the terms and conditions of the agreement governing such loan or borrowing, or
6	(e)	any sum payable by the assessee as interest on any loan or advances from a scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank ] in accordance with the terms and conditions of the agreement governing such loan or advances, or
7	(f)	any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, or
8	(g)	any sum payable by the assessee to the Indian Railways for the use of railway assets.

shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :

Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.

Therefore a tax auditor just can’t answer this question particularly when the time for payment of the above sums is still available upto 31^st December.

8) Clause 32(a): Details of brought forward loss or depreciation allowance, in the following manner, to the extent available: (Also refer clause 4 above)

Sl.  No.	Asses sment year	Nature of Loss / Allo wance	Amount as retu rned	All losses/ allowances not allowed under section 115BAA	Amount as adjusted by withdrawal of additional deprec iation on account of opting for taxation under section 115BAA	Amo unts as assessed	Re marks
(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)

The answer to the question in column (5) & (6) will depend upon whether the assessee has exercised the option of being assessed under the concessional rate of taxation as provided in section 115BAA. However the last date for exercising this option is 31^st January 2021. If the assessee does not exercise the option then the amount to be reported in column (5) & (6) will be NIL and if exercised then the amount will have to be calculated in the manner as given in section 115BAA. Therefore it will be very difficult for the tax auditor to provide the accurate answer one month in advance of a date in future.

9) Clause 33 Section-wise details of deductions, if any, 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

The answer to these questions will again depend whether the assessee has exercised the option of being assessed under the concessional rate of taxation as provided in section 115BAA. However the last date for exercising this option is 31^st January 2021. If the assessee does not exercise the option then the amount to be reported will be the actual amount eligible for deduction  and if exercised then the amount to be reported will be NIL. Therefore it will again be very difficult for the tax auditor to provide the accurate answer one month in advance of a date in future.

For availing this concessional rate the assessee will be required to forego some deductions otherwise allowable to it under various sections :

Section	Type of deduction	Quantum  od deduction
10AA	Special provisions in respect of newly established Units in Special Economic Zones.	100% of Profit
32(1)(iia)	Additional Depreciation	20% of New Machinery installed.
32AD	Investment in new plant or machinery in notified backward areas in certain States	15% as Additional deduction on New Machinery.
33AB	Tea development account, coffee development account and rubber development account	Amount deposited in Specified Bank or 40% of eligible profit whichever is less.
33ABA	Site Restoration Fund	Amount deposited in specified Bank or 20% of the eligible profit whichever is less.
35	Expenditure on scientific research	150% of the specified amount.
35AD	Deduction in respect of expenditure on specified business.	100% of the specified capital expenditure.
35CCC	Expenditure on agricultural extension project.	150% of the specified amount.
35CCD	Expenditure on skill development project.	150% of the specified amount.
No deduction under any provisions of Chapter VI-A other than the provisions of section 80JJAA or section 80M.

Disclaimer:

The above study is meant only for academic purposes. The readers should consult professionals before using it for professional purposes. The author owes no responsibility for any error or omission in the above study.