and issues concerning direct taxes and endeavours to be a bridge between the tax payers and the tax administration.

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2 and issues concerning direct taxes and endeavours to be a bridge between the tax payers and the tax administration. In the matters of audits including tax audits, the ICAI has responsibility to maintain and enhance quality of reports: The Government is well aware that the Institute has the onerous responsibility of ensuring and enhancing the quality of services provided by its members to clients and other stakeholders. Conducting the tax audit in an effective manner is, also necessary to ensure that there is no loss to the Revenue. In fact the prime objective of tax audit is to assist the assessing officer to determine income from business or profession. It is also necessary to emphasize for your kind appreciation that in the context of audit requirements, the chartered accountants are also the stakeholders. Revisions in Form No. 3CD mid- way is effectively a retrospective amendment: Against the declared resolve of the present Government Applicability of revised Form No. 3CD from is effectively a retrospective amendment to reporting requirements as assessees filing thereafter will have to revisit the whole audit process again for the financial year in order to report under the amended clauses. This would be against the present Government s much appreciated resolve of not making a retrospective amendment. In this regard, the Hon ble Finance Minister in his budget speech on said the following: The sovereign right of the Government to undertake retrospective legislation is unquestionable. However, this power has to be exercised with extreme caution and judiciousness keeping in mind the impact of each such measure on the economy and the overall investment climate. This Government will not ordinarily bring about any change retrospectively which creates a fresh liability. Therefore, we had submitted detailed representation no. ICAI/DTC/ /Rep 24 dated 2 nd August, 2018 to your good office mentioning inter alia the hardships faced by the tax payers and tax auditors in connection with new audit requirements introduced in the mid-way, vide notification no. 33/2018 dated , the expanded requirements to be compiled by or on behalf of the assessees and verified by the tax auditors etc. By the said representation, we requested your good office to kindly defer all the new requirements for implementation from assessment year and after revising the new requirements in consultation with the stakeholders. However, your good office has deferred two important requirements under clauses 30C and 44 and impliedly the other additional reporting requirements have been continued to be effective from 20 th August, Page 2 of 9

3 Introduction of many new clauses in Revised Form No. 3CD applicable w.e.f : A lot of new clauses have been introduced in the revised Form No. 3CD applicable w.e.f The list of newly introduced clauses are as follows: S. No. Particulars Clause 1. Reporting of income as referred in 29A section 56(2)(ix) 2. Reporting of income as referred in 29B section 56(2)(x) 3. Reporting of primary adjustment to 30A transfer price as referred in section 92CE(1) and whether excess money has been repatriated within the time limit 4. Reporting of expenditure incurred by way of interest or of similar nature exceeding Rs 1 crore as referred in section 94B(1) 30B 5. Reporting on compliance of 31(ba),(bb),(bc),(bd) provisions of section 269ST 6. Reporting of deemed dividend 36A received as per the provisions of section 2(22)(e) 7. Reporting of information pertaining 42 to furnishing of Form No. 61/61A/61B 8. Reporting on furnishing of report as referred in section 286(2) 43 Sufficient time required to disseminate understanding and to digest the changes before application: Issues regarding reporting requirements w.r.t. new clauses introduced have already been communicated to your good office vide our Representation no. ICAI/DTC/ /Rep-24, dated 2nd August, Both assessees and members require time for understanding the reporting requirements under the new clauses. Your goodself may also appreciate the fact that our members are based all over India. Members in mofussil and far flung areas also need to be guided regarding the Page 3 of 9

4 reporting requirements in the revised Form No. 3CD which is time consuming and would be difficult within the statutory due dates for AY The time period required for understanding and implementing the tax audit requirements is minimum from April to September. But in respect of the new requirements applicable from 20 th August, 2018, the time period is now quite curtailed as being only from 20 th August, 2018 to 30 th September, Thus, the time period of 6 months granted by the law has been curtailed to only 1 month and 10 days. Applicability of penal provisions of section 271D of the Income-tax Act, 1961 For delay in submission of tax audit reports: Section 271B of the Income-tax Act, 1961 provides for imposition of penalty at the rate of one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years, or Rs. 1,50,000 whichever is less for failure by a person to get his accounts audited in respect of any previous year or years relevant to an assessment year or to furnish a report of such audit as required under section 44AB. It is pertinent to mention that filing tax audit report u/s 44AB within the due date is of utmost importance from taxpayers points of view to avoid imposition of the penalty u/s. 271B of the Income-tax Act, Further, it may be noted that the said provision causes undue hardship to the genuine assessees especially the small businessmen. The assessee is penalised even for a few days of delay in furnishing his tax audit report. In order to make the ease of doing business in India a reality, such high amount of penalty need to be liberalised. Therefore, ICAI had suggested that the penalty under section 271B may be levied on the basis of delay in number of days in filing/furnishing the tax audit report which may be Rs.1000 per day subject to maximum amount of Rs. 1,50,000. Also, section 234F was inserted vide the Finance Act, 2017 to levy mandatory fees amounting to Rs 1,000/5,000/10,000 depending on the time of filing and quantum of income reported for ITRs filed after the due date prescribed u/s 139 of Income-tax Act, This is first year of applicability of the provisions of section 234F of Income-tax Act, Your goodself may appreciate that even for a delay of one day in filing ITR, the assessee has to incur an additional cost of Rs 1,000/Rs 5,000. Issues arising due to first time implementation of GST Law: As you may kindly aware that GST law has been implemented in our country from Said GST law has subsumed multiplicity of taxes which were levied in the erstwhile regime on different events (e.g. VAT on sale, Excise on manufacture, etc.). Hence, transitional provisions have been created under Chapter XX of the CGST Act, 2017 as well as respective State Acts to avoid cascading effect of taxes by permitted opening credits under various scenarios for different types of taxpayers. Despite the Page 4 of 9

5 said provisions, many taxpayers have faced situations wherein due to technical errors or lack of clarity in law, transitional credits have not been availed and said issues are pending before various Courts of the Country. Directions from the Courts will have material effect on the computation of income since availability of transitional credit shall reduce the cost. Further, as you are kindly aware that the due date for furnishing annual return along with reconciliation statement under GST law is 31st December, 2018 and Financial Year , being the first year of implementation of GST law, said filing is bound to throw up many discrepancies when a professional will verify the correctness of the claims or omissions made by a taxpayer as part of reconciliation statement. Any such rectification in the Annual Return shall obviously impact the computation of income. As an example, erroneous claims of tax credits will have to be added to the cost whereas fresh claims of tax credits need to be reduced from the cost. If the rectification relates to fixed assets, even depreciation will have to be reworked. You will appreciate that doing such exercise, being for the first time, shall require substantial time. It is pertinent to note that due to substantial occupation of time with the filing of GST returns till 20th September, 2018, members and tax payers require time for statutory compliances under Income-tax law. Also, this is to bring to your kind notice that Government is planning to come out with extensions for filing past statements (GSTR-1) to enable corrections. Modalities for the same are yet to be notified. However, it is needless to say that such corrections will have impact on the computation of income. Moreover, under GST law, any unclaimed eligible input for the previous financial year has to be claimed in the GST return for any month not later than September After which, the unclaimed input shall lapse, which would be a permanent loss to the assessee. Many business houses, particularly, SMEs have not claimed eligible inputs properly. Tax auditors have to devote more time to ascertain such lapses and suggest corrective actions. This also would have impact on the total income of the assessees. The above GST issues are concerning computation of total income under the Incometax Act, 1961 and for the purpose of proper presentation of financial statements. Hence, considering the aforesaid issues being faced by tax payers, extension of filing the due date for ITR and TAR is the need of the hour. Page 5 of 9

6 Extension of due date of filing ITR forms for AY from 31st July, 2018 to 31st August, 2018: It is much appreciated by the tax payers and our fraternity that on consideration of detailed representation made by ICAI (ICAI/DTC/ /Rep-23, dated 23 rd July,2018) about hardships and issues arising inter alia from late release of utilities and frequent changes in schema, your good office extended the date of filing returns of income vide Order under section 119 of the Income-tax Act, 1961 dated 26 th July However, the very same extension has also become a reason for extension of due date for tax audits and related returns inter alia for the reasons that in effect, for the month of August, 2018, members would be busy in filing ITR forms of such assessees. They would be left with hardly a month to file ITR forms of assessees falling under clause (a) of Explanation 2 to section 139(1) of the Income-tax Act, 1961 and tax audit report under section 44AB of the Income-tax Act, Adequate time needs to be made available for filing of tax audit reports so that members can effectively report the revenue leakage to income tax department. Issues in filling Form No. 61A: As per section 285BA of the Income-tax Act, 1961, specified persons are required to report transactions prescribed under Rule 114E of the Income-tax Rules, 1962 by furnishing statement of financial transaction in Form No. 61A. Members have raised concern that the Income Tax Department website is not allowing to submit the forms for the assesses who are not liable to report in lieu of no transactions but have got the notices for not filing Form No. 61A. Since, it has become mandatory for those assessees to file Form No. 61A, but they are unable to file it thereby causing unnecessary delay and hardship in filing their TAR. Other Statutory Obligations: Our members are also engaged in finalizing the annual accounts of the companies and conducting statutory audits during the month of September. Moreover, the due date of deposit of second instalment of advance tax is 15th September, Hence, the work pressure on the Chartered Accountants in September is incomprehensible and they need adequate time to discharge their obligations and at the same time, ensure that the quality of the work done by them is also not compromised. Page 6 of 9

7 Constant changes in Utilities relating to Tax Audit Forms: Further, we wish to inform that continuous and regular updations are being made to the utility of Form No. 3CA/3CD and 3CB/3CD. As of now, already 3 updations have been made since Such updations in schema implies that the changes need to be made in the softwares provided by the private vendors supplying such software. These tax audit report filing softwares are being used by the taxpayers/members for filing the tax audit report. It, in effect, delays the filing process further as software vendors requires atleast a week s time to update its software as per changed schema. Heavy Floods disrupting the normal life: As you are kindly aware that in late July and August 2018, severe flooding affected some of the Indian States due to unusually high rainfall during the monsoon season. Due to these floods, the normal life has completely devastated and amongst all the States, and the State of Kerala is the worst affected. Due to situations prevalent in Kerala and other affected areas, the assessees are not able to get the required information such as TDS, Statements and other financial information required for audit and for filing Income tax returns. Page 7 of 9

8 Moreover, these floods have also affected other business houses or industries outside Kerala/other flood affected areas having a branch/office or business connection with them. As a result, some assessees are expressing their inability to provide the required information to the tax auditors who are conducting audit under section 44AB of Income- tax Act, There are cases where a unit or branch of auditee is located in one or more of these regions and the branch auditor who is different from the main auditor, is unable to complete his audit. Due to this, not only the auditor is unable to finalise his tax audit report, the auditee too is not able to finalise and furnish his income tax return. In the above context, members & assessees have voiced the apprehensions and hardships being faced by them in meeting the statutory obligations in a timely manner. Efforts of ICAI to supplement the initiatives of the Department: We all are aware that the formats of tax audit reports were issued very late i.e 20 th July 2018 and despite the same, all efforts are being made by ICAI, as a partner in nation building, to bring awareness among the auditors and auditees: a) Implementation Guide w.r.t. Notification No. 33/2018 dated effective from has been released to guide the members regarding the new reporting responsibilities under Form No. 3CD. However, even though the same was done in the shortest possible time, the same was possible only to be released on 23 rd August, Members will take some time to read and understand the same before being applied to specific audit cases. b) Webcast and awareness programmes are being organized by ICAI for creating awareness among the members all over India. Specified date for tax audit is due date for filing returns: Section 44AB of the Income-tax Act, 1961 requires the assessee to get his accounts audited by an accountant before the specified date and furnish the same by that date, which for the AY is 30th September, Further, the due date for filing ITRs for assessees falling under clause (a) of Explanation 2 to section 139(1) of the Incometax Act, 1961 for AY is 30th September, The specified date for the purpose of audit of accounts and furnishing report of such audit under section 44AB of Income-tax Act, 1961 is the due date of filing return of income under section 139(1) of Income-tax Act, Page 8 of 9

9 Suggestion: In the interest of the nation as a whole, we suggest and request that the due date of filing returns of income under section 139(1) of the Income-tax Act,1961 for assessees mentioned under clause (a) of Explanation 2 to section 139(1) and also the specified date for filing tax audit reports be extended from 30 th September, 2018 to 31 st October, 2018 for AY Request to involve ICAI As you may be kindly aware, tax audit under section 44AB of the Income-tax Act, 1961 is one of the important areas, for which ICAI has always been consulted by the CBDT before making any change in the format of tax audit reports. This was so, since tax audit is exclusively conducted by Chartered Accountants, which makes them the only stakeholder. Even though ICAI s suggestions were sought for revision of the forms of tax audit, and the DTC of ICAI had submitted such suggestions long back, but the changes have been affected too late and it would have been more beneficial both for the revenue and ICAI, had we been given the opportunity to partner the Department while finalizing the new formats. The practice of sharing and consulting ICAI on the final format of tax audit report before notifying has been followed in past years and was expected this year also. Nevertheless, we hope and request you to involve ICAI, before notifying any such important document. It is pertinent to mention that even the Ministry of Corporate affairs shares and seeks comments on every such important document from ICAI. We sincerely request you to consider our suggestions and involve us in matters concerning Chartered Accountants at an early stage so that we are able to contribute and avoid such issues. We are hopeful for a positive consideration of our suggestions. Yours faithfully, Sd Encl: As above Chairman, Direct Taxes Committee The Institute of Chartered Accountants of India Page 9 of 9