CA Rajkamal Shah

Seven reasons why extension of date of filing Tax Audit Report is not sufficient and the new format needs revision:

1. New clause 4: “Whether the assessee is liable to pay indirect tax like excise duty, service tax, sales tax, customs duty, etc. if yes, please furnish the registration number or any other identification number allotted for the same.”

Comment:  There are many Indirect taxes levied by various state Government, e.g. Excise Duty, Service Tax, VAT, Luxury tax, Entertainment tax etc for which the assessee has to register with the department. However, certain taxes are transaction based taxes like Octroi, Local Body Tax, Stamp duty etc for which no permanent registration number is required. Further, different state government have different levies. The Income tax being a Central levy, it may be difficult for an auditor to comprehend and report about various indirect taxes by different tax audits. The requirement of mentioning registration No. should be suitability modified or specific as regards to the indirect taxes to be covered.

2. New clause 19:Amount admissible under section; S. 32AC, 33AB, 33ABA, 35(1)(i), 35(1)(ii), 35(1)(iii), 35(1)(iv), 35(2AA), 35(2AB), 35ABB, 35AC, 35AD, 35CCA, 35CCB, 35CCC, 35CCD, 35D, 35DD, 35DDA and 35 E. Amount debited to profit and Loss Account Amt admissible as per the provision of IT Act,1961, & also fulfills the conditions, if any specified under the relevant 13 provisions of the IT act 1961 or Income Tax Rules, 1962 or any other guidelines, circular, etc issued in this behalf.”

Comment: The requirement as to satisfaction of compliance with any other guidelines, circular, etc is quite vague and nearly impossible to perform by any auditor. Such guidelines and circulars may not have statutory force and biding on the assessee. Secondly, all the guidelines may not be in public domain.

3. New clause 28: “Whether during the previous year the assessee has received any property, being share of a company not being a company in which the public are substantially interested, without consideration or for inadequate consideration as referred to in section 56(2)(viia), if yes, please furnish the details of the same”.

Comment: The auditor of the recipient of the shares of a closely held company would be at loss to report about the adequacy of the consideration for the simple reason that we may not privy of the information for details required to find out the value of shares of such company. It may also be difficult to get the share evaluated by the auditor of such company or an independent valuer.

4. New clause 29: “Whether during the previous year the assessee received any consideration for issue of shares which exceeds the fair market value of the shares as referred to in section 56(2)(viib), if yes, please furnish the details of the same.”

Comment: S. 56(2)(viib) require the value of intangible assets being goodwill, know how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature to be taken into account for arriving the fair market value of shares. The auditor may have to depend on different experts or valuers and rely on them to report about adequacy of consideration.

5. New clause 33: “Section-wise details of deductions, if any, admissible under Chapter VIA or Chapter III (Section 10A, Section 10AA). 1) Section under which deduction is claimed 2) 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.”

Comment:  The requirement as to satisfaction of compliance with any other guidelines, circular, etc is quite vague and nearly impossible to perform by any auditor. Such guidelines and circulars may not have statutory force and biding on the assessee. Secondly, all the guidelines may not be in public domain.

6. New clause 39: “Whether any audit was conducted under section 72A of the Finance Act,1994 in relation to valuation of taxable services, if yes, give the details, if any, of disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the auditor”.

Comment: In case of service tax audit the details of quantity is not available. Hence it may not be possible to meet the requirement.

7. New clause 41: “ Please furnish the details of demand raised or refund issued during the previous year under any tax laws other than Income Tax Act, 1961 and Wealth tax Act, 1957 alongwith details of relevant proceedings.”

Comment:  The requirement cast onerous responsibility as it does not confine to any particular tax but the auditor will have to go through the demand raised and remaining outstanding at the end of the previous year in relation to all tax laws relevant to the assessee’s business. Further, to report ‘the relevant proceedings’ may also be very difficult.

In view of the onerous requirements, sufficient time to be given to the assessees and auditors and the format should come into effect only after introduction prior to beginning of the financial year and placing the draft format in the public domain for discussion and inviting comments from the stakeholders.

(Author may be reached at rajkamal @ rsco.biz)

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