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Reporting in 3CD Form (Tax Audit)

CA SURENDRA KUMAR RAKHECHA 
on 25 August 2014

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HIGH ALERT FOR ASSESSEES: CARE TO BE TAKEN

The new form has been designed as if SCRUTINY ASSESSMENT is made by the AUDITOR himself. 

Major Changes in 3CD Reporting:

Clause 5: 

(Text with key words highlighted for quick grasping)

"In opinion and to the best of information and according to the explanations given to, the particulars given in the said Form No. 3CD are true and correct. 

Subject to following observations/qualifications, if any:

S.No. --- Qualification Type ---& --Observations/Qualifications

Major points are to be selected as below if applicable to the case: 

1. Proper Books of Account, to enable reporting in form 3CD, have "NOT BEEN MAINTAINED" by the assessee. 

2. All the information and explanations which to the best of my/our knowledge and belief were necessary for the purpose of my/our audit has "not been provided" by the assessee. 

3. PROPER STOCK RECORDS ARE NOT MAINTAINED BY THE ASSESSEE. 

4. VALUATION OF CLOSING STOCK is "not possible." 

5. Yield/percentage of WASTAGE is NOT ASCERTAINABLE. 

6. Records necessary to verify PERSONAL NATURE of expenses NOT MAINTAINED by the assessee. 

7. TDS RETURNS could NOT BE VERIFIED with the books of account.

8. Records produced for verification of payments through ACCOUNT PAYEE CHEQUE were NOT "SUFFICIENT." 

9. Amount of expense related to EXEMPT INCOME u/s 14A of Income-Tax Act,1961 COULD NOT BE ASCERTAINED.

10. CREDITORS under Micro, Small and Medium Enterprises Development Act, 2006 are NOT ASCERTAINABLE. 

11. PRIOR PERIOD EXPENSES are NOT ASCERTAINABLE from books of account. 

12. FAIR MARKET VALUE of shares u/s 56(2)(viia)/(viib) is NOT ASCERTAINABLE. 

13. Reports of Audit carried by EXCISE/SERVICE TAX department were NOT MADE AVAILABLE. 

14. GP RATIO is NOT ASCERTAINABLE from the financial statements prepared by the assessee. 

15. Information regarding DEMAND raised or REFUND issued during the previous year under ANY TAX LAWS other than Income Tax Act and WeaLth Tax Tax was NOT MADE AVAILABLE. 

16. OTHERS" 

After selecting the above "types," the auditor is required to report his observations and AMOUNT INVOLVED in the qualifications very specifically. 

From the above it is clear that if: 

AUDIT REPORT CONTAINS

SERIOUS REMARKS,

the case might be 

COMPULSORILY SELECTED 

FOR SCRUTINY BY THE INCOME-TAX DEPARTMENT. 

It is to be noted that as per para 3(a) of Form 3CA, the auditor has to report observations/comments/discrepancies/inconsistencies; if any. These must be matched with the Clause 5 of Form 3CD.

It's not merely an Audit Report. It is alike a CERTIFICATE which will require extraordinary care before signing the report.


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