Important 3cd clause

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Querist : Anonymous

Querist : Anonymous (Querist)

17 September 2013 Gross turnover of the assessee is below 1 cr & net profit is below 8 % of the turnover. The assessee opts for tax audit u/s 44AB to safeguard him from scrutiny.Please let me know the manner of reporting in clause 10 of form 3CD &/or elsewhere

Nikhil Kaushik

Nikhil Kaushik (Expert)
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17 September 2013 Answer is no. Since the assessee is claiming profits @ less than 8%, he shall not be covered under 44AD

Querist : Anonymous

Querist : Anonymous (Querist)

17 September 2013 pls clarify..

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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29 July 2024 In the context of tax audits under Section 44AB of the Income Tax Act, the reporting requirements are detailed in Form 3CD. This form is crucial for auditors to report various aspects of the taxpayer's financials and compliance. Let’s break down how to address the situation where:

- The gross turnover of the assessee is below ₹1 crore.
- The net profit is below 8% of the turnover.
- The assessee opts for tax audit to safeguard against scrutiny.

### **Clause 10 of Form 3CD**

**Clause 10** of Form 3CD requires details regarding the computation of income and other specifics. Here's how you should approach it in your situation:

#### **1. Clause 10(a) - Nature of Business:**
- Report the nature of the business or profession carried on by the assessee.

#### **2. Clause 10(b) - Books of Account:**
- Indicate whether the books of account maintained by the assessee are in compliance with the provisions of the Income Tax Act and whether they reflect the true and fair view of the financial position of the assessee.

#### **3. Clause 10(c) - Turnover:**
- Report the gross turnover of the assessee. Since your turnover is below ₹1 crore, this clause should reflect the exact turnover amount.

#### **4. Clause 10(d) - Net Profit:**
- Report the net profit as a percentage of the gross turnover. Since the net profit is below 8% of the turnover, mention the exact percentage of net profit to turnover.

### **Additional Clauses Relevant to Your Situation**

1. **Clause 21 - Income Computation:**
- This clause requires the auditor to report whether the computation of income is in accordance with the provisions of the Income Tax Act and whether it is correctly done. If the net profit is below 8%, ensure that this is properly reported along with the justification.

2. **Clause 44 - Assessee’s Declaration:**
- If the assessee has opted for tax audit under Section 44AB even though not mandatorily required, mention this option and the reason for opting for it here.

### **General Reporting for Tax Audit**

1. **Justification for Lower Net Profit:**
- Provide a detailed explanation in the audit report or annexure if the net profit is significantly lower than 8% of the turnover. This may involve detailed workings or schedules explaining the lower profitability.

2. **Supporting Documents:**
- Ensure that all supporting documents and workings are maintained to justify the lower net profit and are available for any scrutiny or future reference.

3. **Auditor’s Opinion:**
- The auditor’s opinion should reflect the accuracy of the financial statements, adherence to tax laws, and proper reporting as per the requirements of the Income Tax Act.

### **Conclusion**

In summary, when filling out Form 3CD for an assessee with a gross turnover below ₹1 crore and net profit below 8%, make sure to:

- Accurately report the turnover and net profit in Clauses 10 and 21.
- Provide explanations and justifications for the lower net profit if necessary.
- Maintain proper documentation to support the figures reported.

Opting for a tax audit in such cases is often a precautionary measure, and proper reporting and documentation are essential to ensure compliance and avoid any issues during scrutiny.

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