TIRUPUR BRANCH OF SIRC OF ICAI NEWSLETTER AUGUST 2016 1 P a g e
Agenda Page Overview of Tax Audit Provisions CA J B Sivakumaran 3 in CPE Seminar Photo Gallery 12 Published and Printed Tirupur Branch of SIRC of ICAI Views expressed herein are the opinion of the respective authors and not that of the branch or the Managing /Newsletter committee. Your views / suggestions / comments are welcome. Kindly send your queries to tirunewsletter@gmail.com Newsletter Committee Chairman CA. S.Venkataramani Ph: 9842224642 Newsletter Committee Advisor CA. S.Subramanian Ph: 9442866000 Ex - Officio Member CA. Sonia Kumari Gupta Ph: 9994648597 Newsletter Committee Member CA. B.Senthil Kumar Ph: 9443389904 CA. M.Vishnu Kumar Ph: 9994479807 2 P a g e
OVERVIEW OF TAX AUDIT PROVISIONS By CA J.B. SIVAKUMARAN SCHEMA - OBJECTIVES OF TAX AUDIT - SEC.44 AB PROVISIONS - APPLICABILITY IN PRESUMPTIVE CASES - CALCULATION OF LIMITS REPORTING - DOCUMENTATION OBJECTIVES OF TAX AUDIT Audit for Tax Purposes : To ascertain/derive/report the compliance or noncompliance of the various provisions of the IT Act To ensure the books of accounts are properly maintained To ensure that the books of accounts reflect the incomes To ensure the claims for deductions are correctly made by the assessee To facilitate the tax administration by presenting the accounts properly in a uniform basis To save considerably the time of AOs in carrying out the routine verifications To utilise the time to attend more important and investigation aspects of a case SEC 44AB Must be a person under the Income Tax Act Must carry on Business or profession Must maintain Books of Accounts Object is to earn profit or gain Profit or gain computable under chapter VI Income is taxable or allowable under Act 3 P a g e
44 AB - APPLICABILITY If Business - Total sales or turnover or gross receipts (as the case may be) in business for the P.Y. exceeds Rs.1 Crore. If Profession Total Gross receipts for the P.Y. exceeds Rs.25 lakhs (From the Asst.Year 2017-18, exceeds Rs.50 lakhs) 44AB provisions shall also apply in the following presumptive cases for certain persons on certain conditions. 44AD 44ADA (from AY 2017-18) 44AE 44AF (upto AY 2011-12) 44BB 44BBB Books of accounts have to be compulsorily maintained and get audited by a CA. Audit Report in prescribed format should be submitted in 3CA/3CB and 3CD. The Report should be e-filed by the Auditor along with annexure of P&L a/c and Balance Sheet on or before the specified date i.e.30th Sep. The filed report should be endorsed or approved or accepted by the Assessee. Failure to comply the provisions attracts penalty 271B equal to one-half percent of the total sales/turnover/gross receipts subject to a maximum of Rs.1.50 lakh. No penalty if the assessee is able to prove reasonable cause for the delay. 4 P a g e
In the cases covered under section 92 in respect of International transaction or specified domestic transaction, a report in Form 3CEB to be furnished.due date is 30th Nov. Provisions shall not apply for cases u/s.44b and 44BBA The Turnover/Gross receipts exceed the prescribed limit or not is to be determined on yearly basis. Therefore it is advisable to keep basic records to arrive at the turnover/sales/gross receipts. Emphasis is on amount of Turnover/Gross receipts. Method of accounting regularly employed by the assessee is also relevant. Items includible or not includible in Turnover or Gross receipts is also a matter for concern Includible/not includable in Turnover Turnover includes Excise duty and VAT if included in Sale price Trade discount allowed in sales invoice not to be included Cash discount not to be deducted from sales Turnover discount being dependent on Turnover and as per trade practice not to be included Special rebate in the nature of trade discount is not to be included Commission on sales is not to be deducted Sales return to be deducted Sale proceeds of fixed assets, property held as investment and shares, securities and debentures held as investments shall not form part of sales Sales on consignment basis commission agents then go by the ownership basis In the case of share broker only brokerage is to be considered for turnover. If the Sales and purchases are made on his personal account, then entire sales value is to be added 5 P a g e
Turnover /gross receipts in respect of shares, securities, and Derivatives: 1. Speculative Transactions: The Difference amount arrived at on each settlement is turnover. Both positive and negative amounts are to be added. 2. Derivatives, Futures & Options: Total of favorable and unfavorable differences shall be added to fix the turnover 3. Delivery based items: Total value of Sales is to be taken as turnover Gross receipts include Cash assistance for exports from GOI Duty drawback repaid or repayable under customs and central excise Interest received by money lender Commission, brokerage, other incidental charges received in chit funds business Re imbursements of expenses incurred (Net amount) Net exchange rate difference on export sales Hire charges of cold storage Liquidated damages Insurance claims other than for fixed assets Sale proceeds of Scrap wastage etc. Lease rent in Operating lease Advance received and subsequently forfeited Rental income if it is not covered under income from H/P More than one Business Sum of turnover/gross receipts of all the businesses except business under 44B &44BBA 6 P a g e
If the Businesses include any 44AD &44AE and the assessee opts for presumptive scheme, then the turnover from such business not to be included If the P&L account includes any income or gain from 44AD and 44AE and it is less than deemed profit and no books of accounts, the auditor should mention the fact in his report. PRESUMPTIVE SECTIONS SEC 44AD Eligible Assessee Resident Individual, Resident HUF, Resident Partnership Firm (not being a LLP) But does not include 1. A person carrying on profession mentioned in 44AA and Rule 6F. 2. A person earning income in the nature of commission or brokerage. 3. A person carrying on any agency business 4. A person covered by Sec.44AE Eligible Business 1. Any Business wholesale or retail or civil construction. 2. Turnover/Gross receipts should not exceed the 1.00 cr limit u/s.44ab (Rs.2crs from AY 2017-18) 3. Has not claimed deductions u/s. 10A, 10AA, 10B, 10BA, 80HH to 80RRB in the relevant AY. If the above conditions are satisfied then, The profits from the eligible business is estimated at 8 % of turnover or gross receipts The tax payer can declare a higher % 7 P a g e
All deductions u/s.30 to 38 including depreciation and unabsorbed depreciation is deemed to have been allowed. No further deduction allowed. Only in the case of partnership firms salary and interest to partners shall be allowed. (withdrawn from AY 2017-18) No need to maintain books of accounts Exempted from payment of Advance tax (withdrawn from AY 2017-18 and to be paid on or before March 15th) No obligation to explain individual entry of cash deposits unless it is not related with the gross receipts. A new provision 44AD (4) is inserted wef 1.04.2017 (Ay 2017-18): Where an eligible assessee declares profit for any AY @8% and declares profit for any of the 5 consecutive AYs at lower than 8%,then he is not eligible to claim the benefit of sec 44AD for 5 subsequent AYs from the year in which the profit is not declared @8%. SEC.44 ADA This section is applicable from AY 2017-18 The assessee is a resident Engaged in profession specified in 44AA(1) The Gross receipts not exceeded Rs.50 lakhs Estimated income is 50% of the gross receipts. The Assessee can declare a higher income It is assumed all deductions are allowed It is also assumed that all disallowances are made. The assessee can declare a lower than the deemed income Has to maintain books of accounts as per Sec.44AA. 8 P a g e
Sec.44AB provisions shall apply. Specified profession includes- Legal, Medical, Engineering, Architectural, Accountancy, Technical consultancy, Interior decoration, Authorized representative, Film artist, Company Secretary and Information technology Film artist includes actor, camera man, director, music director, art director, dance director editor, singer, lyricist, story writer, screen play writer, dialogue writer and dress designer These specified professionals shall maintain prescribed books of accounts under Rule 6F if the gross receipts exceed Rs. 1.50lakhs in all the three years immediately preceding the previous year. Sec.44AE Any person Business of plying hiring or leasing goods carriages Owns NOT more than 10 goods carriages Income on estimated basis @Rs.7500 per month or part of a month Higher declaration can be done Estimated income is comprehensive i.e. all expenses incl. depreciation is allowed and all disallowance is also made No need to maintain books of accounts The Assessee can declare a lower income Then the provisions of 44AB shall apply Sec 44BB The Assessee is nonresident Indian or foreign citizen Business of providing services and facilities in connection with or supplying plant and machinery on hire used or to be used in the exploration for and exploitation of mineral oils 9 P a g e
Estimated income @10% on the amounts paid or payable to the tax payer or to any person on his behalf whether in or out of India The assessee can claim a lower income Then provisions of 44AB shall apply Books of accounts are to be maintained u/s.44aa The Assessment shall be completed u/s.143(3) Sec. 44BBB The Tax payer is a Foreign Company. Business of civil construction or erection of plant and machinery or commissioning thereof in connection with turnkey Power Project Project is to be approved by the Central Government whether or not financed by any International aid programme Estimated income @10% on the amounts paid or payable to the tax payer or to any person on his behalf whether in or out of India The assessee can claim a lower income Then provisions of 44AB shall apply Books of accounts are to be maintained u/s.44aa The Assessment shall be completed u/s. 143(3) Sec.44B Nonresident engaged in the business of operation of ships Deemed profit @ 7.5% Sec.44BBA Non resident engaged in the operation of Air craft Deemed profit @ 5% Sec.44AB is not applicable in the above two cases 10 P a g e
Calculation of limits ICAI guidelines fix the cap on no of tax audit assignments by a CA i.e. 60 In the case of firm it is per partner If he accepts more than 60, shall be deemed to be guilty of professional misconduct. Audit u/s. 44AD and 44AE shall not be counted for the purpose. Audit under VAT also not counted. What about Bank Branch audits? REPORTING The Assessee should appoint the Tax Auditor through his IT portal The Auditor should accept the appointment from his portal Tax Auditor should report his observations in the prescribed format i.e 3CA/3CB and 3CD. Report is to be e-filed on or before the specified date The Assessee should endorse/approve the audit report Date of Audit Report should be preferably after the appointment date Date of Audit report should be preferably on or before the submission of report Tax Auditor can revise the already submitted report with a valid reason DOCUMENTATION The Tax Auditor should maintain proper working papers Keep track on no. of audit assignments Keep track on submission of reports Attracts service tax. Hence billing should be done with service tax and other related compliance. 11 P a g e
PHOTO GALLERY STARTUP INDIA, MAKE IN INDIA & SKILL INDIA PROGRAMME Programme started with lighting Kuthuvilaku by Chandran, Managing Director (Eastman Exports) Dignitaries Present in the Stage 12 P a g e
Programme Chief Guest Mr.Jagat Shah Delivered His speech. CA R.M.Senthil kumar Presenting Memento to our SIRC Treasurer CA K Jalapathi 13 P a g e