FAQs On Tax Audit Report

Shree | Last updated: 12 August 2024

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This article addresses common questions regarding the Tax Audit Report (TAR), particularly for ITR-3, 5, and 6. It clarifies how to correctly disclose various financial items and disallowances within the audit report and the income tax return. Key areas covered include employee contributions, dividend income, the impact of ICDS and stock valuation, and amounts disallowed under sections 36(1)(va), 37, and 43B.

Tax Audit Report FAQs: Disclosures and Disallowances

Q. No.	Relevant ITR Types	Description	Response
1	ITR-3, 5 & 6 -PFA/Defective	How much of the sum received from employees and not credited to the employees account on or before the due date as per the section 36(1) (va) is required to be disallowed?	Taxpayers are required to deposit the contributions received from employees for various funds within the due date as per section 36(1) (va). Further the details of the due date as per the respective Acts need to be reported correctly by the Auditor in clause 20(b) of Form 3CD. Any payment made beyond the due date as per the Act and reported in the Audit report is required to be disallowed u/s 36(1) (va).
2	ITR-3, 5 & 6 -PFA/Defective	How to disclose the Dividend income received u/s. 2(22)(e)?	Details of dividend income received u/s. 2(22)(e) with in the financial year is required to be disclosed in the clause 36A of form 3CD. Further the same needs to be offered in Schedule OS of ITR at appropriate places.
3	ITR-3, 5 & 6 -PFA/Defective	How to disclose the effect on profit due to ICDS & the method of valuation of stock specified under section 145A?	In the audit report, auditor is required to report the "increase in profit", "decrease in profit", and "net effect" separately in the columns provided at Sl. No. 13(e) and 14(b). In the return of income at schedule ICDS, the "net impact" on profit due to ICDS adjustments shall be shown separately against each line item. In addition, at schedule OI, Sl. No. 3a the sum of all the positive items of 13(e) and 14(b) shall be shown and at Sl. No. 3b the sum of all the negative items of 13(e) and 14(b) shall be shown. The net difference of 3(a) minus 3(b) is not expected to be less than the difference of all the positive and negative items of 13(e) and 14(b). It is seen that some of the adjustment items of schedule BP are a repeat item in ICDS adjustments also and are separately identifiable. Example. "Adjustments due to depreciation". The impact of such adjustments having dual/multiple impact may be reported using other appropriate columns of schedule BP, so as to nullify the impact of dual/ multiple adjustment.
4	ITR-3, 5 & 6 -PFA/Defective	How to disclose "Amount debited to profit and loss account and disallowable u/s. 37" in income tax return?	In the audit report, auditor is required to report the amount disallowable u/s. 37 at the clause 21(a) and 21(g) of form 3CD. Taxpayer is required to report at least the same amount disallowable u/s. 37 in Sl. No. 7j of Part A - OI of ITR which is reported at the clause 21(a) and 21(g) of form 3CD. In case, the amount reported in ITR in Sl.No. 7j of PART A - OI of ITR is less than the amount disallowable u/s. 37 at the clause 21(a) and 21(g) of form 3CD then the difference will be added to the total income of the taxpayer.
5	ITR-3, 5 & 6 -PFA/Defective	How to disclose "Amount disallowed u/s. 43B in preceding previous year but allowable during previous year" in return of income?	In the audit report, auditor is required to report the amount disallowed u/s. 43B in preceding previous year but allowable during previous year at the clause 26(A)(a) of form 3CD. Taxpayer is required to report the same amount disallowed u/s. 43B in the preceding previous year but allowable during previous year in Sl. No. 10i of Part A - OI of ITR which is reported at the clause 26(A)(a) of form 3CD. In case the amount reported in ITR in Sl.No. 10i of PART A - OI of ITR is more than the amount disallowed u/s. 43B in preceding previous year but allowable during previous year at the clause 26(A)(a) of form 3CD then the difference will be added to the total income of the taxpayer.
6	ITR-3, 5 & 6 -PFA/Defective	How to disclose "Amount debited to profit and loss account and disallowed u/s. 43B" in return of income?	In the audit report, auditor is required to report the amount disallowed u/s. 43B at the clause 26(B)(b) of form 3CD. Taxpayer is required to report at least the same amount disallowed u/s. 43B in Sl. No. 11i of Part A - OI of ITR which is reported at the clause 26(B)(b) of form 3CD. In case, the amount reported in ITR in Sl.No. 11i of PART A - OI of ITR is less than the amount disallowed u/s. 43B at the clause 26(B)(b) of form 3CD then the difference will be added to the total income of the taxpayer.
7	ITR-3, 5 & 6 -PFA/Defective	How to disclose "Amount not credited to profit and loss account" in return of income?	In the audit report, auditor is required to report the amount not credited to profit & loss account at the clause 16(a) to 16(d)of form 3CD. Taxpayer is required to report at least the same amount not credited to profit & loss accounting Sl. No. 5(a) to 5(d) of Part A - OI of ITR which is reported at the clause 16(a) to 16(d) of form 3CD. In case, the amount reported in ITR in Sl.No. 5(a) to 5(d) of PART A - OI of ITR is less than the amount not credited to profit & loss account at the clause 16(a) to 16(d) of form 3CD then the difference will be added to the total income of the taxpayer.

FAQ :

Contributions received from employees for various funds that are not credited to their accounts by the due date as per section 36(1)(va) must be disallowed. This should be reported correctly by the auditor in clause 20(b) of Form 3CD.

Dividend income received under section 2(22)(e) within the financial year must be disclosed in clause 36A of Form 3CD and offered in the Schedule OS of the Income Tax Return (ITR).

The auditor must report the 'increase in profit', 'decrease in profit', and 'net effect' separately in the audit report. In the ITR, the 'net impact' due to ICDS adjustments is shown in Schedule ICDS, with specific reporting for positive and negative items in Schedule OI.

Amounts disallowed under section 37 are reported in clauses 21(a) and 21(g) of Form 3CD. Taxpayers must report at least this amount in Sl. No. 7j of Part A - OI of the ITR. Any shortfall will be added to the total income.

These amounts are reported in clause 26(A)(a) of Form 3CD. The same amount must be reported in Sl. No. 10i of Part A - OI of the ITR. If the ITR amount is higher, the difference will be added to the total income.

Amounts disallowed under section 43B are reported in clause 26(B)(b) of Form 3CD. Taxpayers must report at least this amount in Sl. No. 11i of Part A - OI of the ITR. A lower reporting in the ITR will result in the difference being added to the total income.

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Shree

Finance Professional

I write practical, research-driven articles on finance, insurance, taxation, business compliance, investing, labour laws, and digital platforms. My goal is to simplify complex topics into clear, actionable insights that help readers make informed financial and business decisions.

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