Tax Audit Report – Illustrative (Draft) Observations/Comments in Form 3CA/3CB

Observation/ Comments on

Form 3CA

Form 3CB

Financial Statements

No specific para/requirements to give comments/ observations on financial statements, as the same would have already covered in audit report conducted under other laws/regulations

Para 3(a)

Form 3CD

Para 3

Para 5

S. N.

Type of Information

Draft matters to be included

Where to be placed?

1.

Assessee’s responsibility for Financial Statements

Assessee’s Responsibility for the Financial Statements:

The assessee is responsible for the preparation of the aforesaid financial statements that give a true and fair view of the balance sheet and profit and loss account in accordance with the applicable Accounting Standards issued by the Institute of Chartered Accountants of India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Para 3(a) of Form 3CB

2.

Assessee’s responsibility for Form 3CD

Assessee’s Responsibility for the Statement of Particulars in Form 3CD:

The assessee is also responsible for the preparation of the statement of particulars required to be furnished under section 44AB of the Income-tax Act, 1961 annexed herewith in Form No. 3CD read with Rule 6G(1)(b) of Income Tax Rules, 1962 that give true and correct particulars as per the provisions of the Income-tax Act, 1961 read with Rules, Notifications , circulars etc that are to be included in the Statement.

Para 3(a) or 5 of Form 3CB

3.

Tax Auditor Responsibility for financial statements

Tax Auditor’s Responsibility

• My/ Our responsibility is to express an opinion on these financial statements based on my/our audit. I/We have conducted this audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

• An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purposes of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

• I/We believe that the audit evidence I/we have obtained is sufficient and appropriate to provide a basis for my/our audit opinion.

Para 3(a) of Form 3CB

4.

Tax Auditor Responsibility for Form 3CD

Tax Auditor’s Responsibility for Form 3CD

I/We are also responsible for verifying the statement of particulars required to be furnished under section 44AB of the Income-tax Act, 1961 annexed herewith in Form No. 3CD read with Rule 6G (1) (b) of Income-tax Rules, 1962. I/ We have conducted my/our verification of the statement in accordance with Guidance Note on Tax Audit under section 44AB of the Income-tax Act, 1961, issued by the Institute of Chartered Accountants of India.

Para 3 of Form 3CA or Para 5 of Form 3CB

5.

Previous Year not under Audit

In case, financial statements of previous year were not under audit –

The opening balances have been taken and relied upon by us from the unaudited financial statements of previous year provided to us by the assesse.

Para 3 of Form 3CA or Para 5 of Form 3CB

6.

Accounting Standards Non-compliance

• In case financial statements do not comply with Accounting Standards –

The financial statements do not comply with Accounting Standards (specify the standard) issued by the Institute of Chartered Accountants of India, which would have resulted in reducing / increasing the profits by Rs. ___ OR the impact of which is not ascertainable.

Para 3(a) of Form 3CB

Deferred Tax – Non-Creation in Books:

The books of accounts have been primarily prepared for compliance with the Income Tax Act, and therefore, deferred tax has not been recognized. The absence of deferred tax recognition means that the financial statements may not fully reflect these timing differences and their impact on future tax obligations. This non-compliance with AS-22 could affect the accuracy and completeness of the financial reporting, and adjustments may be necessary to ensure compliance with the accounting standards and to present a true and fair view of the company’s financial position.

Depreciation provided as per Income Tax Act and not useful life:

The depreciation expense recorded in the books of accounts has been calculated in accordance with the provisions of the Income Tax Act, which may not align with the useful life of assets as specified by AS-10 “Property, Plant and Equipment.” AS-10 requires depreciation to be based on the estimated useful life of the assets to reflect their true economic value, while the Income Tax Act prescribes different rates for tax purposes. Consequently, the depreciation reported in the financial statements may differ from that required under AS-10. This discrepancy could affect the accuracy of asset valuation and the financial statements’ presentation. Adjustments may be necessary to ensure compliance with AS-10 and to provide a true and fair view of the company’s financial position.

AS-7 Construction Contracts or Guidance Note on Real estate developers, (as applicable) with regard to presentation and disclosure requirements.

AS-15 Employee Benefits: Not providing for Gratuity:

The assessee has not provided for gratuity using the projected unit credit method in accordance with AS-15 “Employee Benefits”. Due to this non-compliance, the financial statements do not reflect the accurate liability for gratuity. As required by SA 705, this non-compliance represents a material misstatement. However, due to the lack of available data from the assessee, we are unable to quantify the precise impact of this omission on the financial statements. The absence of this provision could materially affect the accuracy of the financial statements, and adjustments are necessary to present a true and fair view.

7.

Clause 21(a)

Amounts debited to the profit and loss account, being in the nature of capital, personal, advertisement expenditure etc

1. As observed by us and as explained to us, there was no personal expenditure incurred by the assesse apart from any contractual obligation. OR

2. Expenses incurred for employees as per the terms of employment or the company’s business policies have not been regarded as ‘personal expenses’. OR

3. It is not possible to us to support the conclusion that the expenditure like vehicle running, telephone, conveyance expenses was wholly and exclusively laid out for the business purpose.

Para 3 of Form 3CA or Para 5 of Form 3CB

8.

Clause 21(d)

Disallowance/deemed income under section 40A(3)

As per Clause 21(d) of Form 3CD, although we have not observed any payments exceeding ₹10,000 (or ₹35,000 in the case of plying, hiring, or leasing goods carriages) made in contravention of Section 40A(3) or Section 40A(3A) read with Rule 6DD, the assessee does not possess the necessary supporting evidence to verify these transactions fully. Consequently, we are unable to independently confirm compliance with these provisions.

Para 3 of Form 3CA or Para 5 of Form 3CB

9.

Clause 22: MSME

Refer https://www.cachintan.com/post/draft-comments-for-sec-43b-h-tax-audit-reporting for draft comments:

Para 3 of Form 3CA or Para 5 of Form 3CB

10.

Clause 23

Payment to specified persons

For ascertaining the persons covered under section 40A (2)(b), we have relied on the list provided and certified by the assesse

Para 3 of Form 3CA or Para 5 of Form 3CB

11.

Clause 29B

Any amount is to be included as income chargeable under the head ‘income from other sources’

Where Stamp duty value is different than the consideration paid for acquisition of immovable property: o Stamp duty Value of immovable property was Rs. _____ o Consideration (transaction value) for acquisition of property was Rs. ____ o The assesse is of the view that FMV does not exceed the consideration and he intends to contest the same before the assessing officer, hence as per assesse there would be no income chargeable to tax u/s 56(2)(x) on this account.

Para 3 of Form 3CA or Para 5 of Form 3CB

12.

Clause 31(a)(v)

Sec. 269SS

It is not possible for me/us to verify whether loans or deposits have been taken or accepted otherwise than by an account payee cheque or account payee bank draft, as the necessary evidence is not in the possession of the assesse

Para 3 of Form 3CA or Para 5 of Form 3CB

13.

Clause 31(b)(iv)

Sec. 269SS

It is not possible for me/us to verify whether specified sum have been taken or accepted otherwise than by an account payee cheque or account payee bank draft, as the necessary evidence is not in the possession of the assesse

Para 3 of Form 3CA or Para 5 of Form 3CB

14.

Clause 31(bb)

Sec. 269ST

It is not possible for me/us to verify whether the assesse received an amount exceeding the limit specified in section 269ST in aggregate from a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasions from a person, by an account payee cheque or an account payee bank draft, during the previous year as the necessary evidence is not in the possession of the assesse.

Para 3 of Form 3CA or Para 5 of Form 3CB

15.

Clause 31(bd)

Sec. 269ST

It is not possible for me/us to verify whether the assesse paid an amount exceeding the limit specified in section 269ST in aggregate to a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasions to a person, by an account payee cheque or an account payee bank draft, during the previous year as the necessary evidence is not in the possession of the assesse.

Para 3 of Form 3CA or Para 5 of Form 3CB

16.

Clause 31(c)(v)

Sec. 269T

 It is not possible for me/us to verify whether loans or deposits or specified advance have been paid otherwise than by an account payee cheque or account payee bank draft, as the necessary evidence is not in the possession of the assesse.

 Rs. _________ being unsecured loans have been converted into equity vide members resolution in EGM dated ____ and have not been reported as repayment otherwise than by an account payee bank cheque or account payee bank draft or use of electronic clearing system.

Para 3 of Form 3CA or Para 5 of Form 3CB

17.

Clause 31(d)(ii)

Sec. 269T

The repayment of the loan instalment by employees received during the year includes Rs. ______ adjusted with their salary dues by way of regular adjustment entries and has not been reported as repayment received otherwise than by an account payee bank cheque or account payee bank draft or use of electronic clearing system.

Para 3 of Form 3CA or Para 5 of Form 3CB

18.

Clause 31(e)(ii)

Sec. 269T

It is not possible for me/us to verify whether the assesse received the repayment of loan or deposit or specified advance of an amount exceeding the limit specified in section 269T by an account payee cheque or an account payee bank draft, during the previous year as the necessary evidence is not in the possession of the assesse

Para 3 of Form 3CA or Para 5 of Form 3CB

19.

Clause 31

Sec. 269SS / T

(combined)

In accordance with Clause 31 of Form 3CD, it is not possible for us to verify whether loans or deposits have been taken, accepted, or repaid otherwise than through an account payee cheque or account payee bank draft, as the necessary supporting evidence is not available with the assessee.

Para 3 of Form 3CA or Para 5 of Form 3CB

20.

Clause 34

TDS/ TCS Details

Verification based on test check:

In accordance with Clause 34 of Form 3CD, we have verified the compliance with the provisions of Chapter XVII-B and Chapter XVII-BB relating to the deduction of tax at source and its subsequent payment to the credit of the Central Government. This verification was conducted in line with the Auditing Standards generally accepted in India, incorporating test checks and the concept of materiality. Based on our audit procedures, no significant instances of non-compliance with the provisions of Chapter XVII-B or XVII-BB were identified.

Para 3 of Form 3CA or Para 5 of Form 3CB

21.

Clause 35(b)

Quantitative Details

Quantitative details not maintained:

The assessee has not provided or maintained adequate records for our verification of the principal items of raw materials, finished products, and by-products, as required to be reported under Clause 35(b) of Form 3CD.

OR

As explained by the assessee, due to the nature and volume of the business, along with the numerous items involved, it is not practically feasible to maintain a stock book that records the quantities of every inward and outward movement of goods on a day-to-day basis. Consequently, the information required under Clause 35(b) of Form 3CD cannot be furnished.

Para 3 of Form 3CA or Para 5 of Form 3CB

21.

Clause 36A

Deemed Dividend

In accordance with Clause 36A of the Form 3CD, the assessee has not provided adequate information or details regarding accumulated profits, which are essential for us to ascertain whether the loan or advance received by the assessee falls within the purview of deemed dividend as defined under Section 2(22)(e) of the Income-tax Act.

Para 3 of Form 3CA or Para 5 of Form 3CB

22.

Clause 44 Break up of expenditure under GST

In case the details reported in clause 22 however may not be accurate:

The information required under Clause 44 of Form 3CD has been compiled based on data extracted from the assessee’s accounting software and other available records. However, the accounting system is not configured to generate the required break-up directly, and therefore, the reported figures may not be entirely accurate or complete. This data has been prepared manually and may be subject to limitations due to the inherent challenges in extracting such detailed information. In view of this, the accuracy and completeness of the reported information may be impacted, and we are unable to verify its absolute accuracy.

In case the details are not available:

As informed by the assessee, the details required under Clause 44 of Form 3CD have not been maintained, as there is no statutory requirement for such disclosure under the Goods and Services Tax (GST) Act. Additionally, the accounting software used by the assessee is not configured to generate the required reports, given the absence of any legal mandate. Consequently, it is not possible to ascertain the break-up of total expenditure between entities registered and unregistered under GST. Therefore, we are unable to verify or report the necessary information under this clause.

Para 3 of Form 3CA or Para 5 of Form 3CB