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The fifth revised edition of the Guidance Note on Tax Audit under section 44AB of the Income-tax Act, 1961 incorporates all the amendments made till date including those made by the Finance Act, 2005. It also explains the requirements of the newly introduced Statement of Particulars to be annexed to Form 3CD. The portion relating to appendices have been revised and enlarged extensively to make the Guidance Note a fully comprehensive document on tax audit.
HIGHLIGHTS OF THE FIFTH REVISED EDITION
1. Detailed guidance for determining turnover in the case of transactions in shares and securities.
2. More examples added to illustrate gross receipts.
3. Principles enshrined in a number of Auditing and Assurance Standards incorporated.
4. List of Accounting Standards updated.
5. Applicability of Accounting Standards to Small and Medium Level Enterprises explained.
6. Form NO.3CD – Significant additions.
Clause Additions
8 Reference to the Part B of the new annexure to Form No.3CD in regard to nature of business.
9 Amendments in Rule 6F incorporated
13 Thoroughly updated
14 Portion relating to adjustment of actual cost of plant and machinery for the purposes of claiming depreciation under the Income-tax Act in respect of CENVAT Credit claimed and allowed under the Central Excise Act, - revised.
New section 43A inserted by the Finance Act, 2002 – Legal position at variance with AS 11 – Tax Auditor’s duty explained.
Mandatory depreciation and additional depreciation – Tax Auditor’s duty explained.
17(f) Implications of the new section 40(a)(ia) in regard to inadmissible expenses like interest, commission or brokerage fees for professional services etc. where tax has not been deducted at source or after having been deducted has not been remitted to the Government – explained.
Tax auditor’s duty in respect of STT explained.
21 Significance of amendments made by Finance Acts, 2001 and 2003 explained.
27 Tax auditor’s duty vis-à-vis TDS and E-TDS explained.
New annexure to Form No.3CD Detailed guidance to the members.
Price of the publication 250.
Arrangements will be made to despatch copies to all the Regions/Branches immediately on receipt of the copies.
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phe9oxis.
Tax Manager
294 Points
Joined October 2008
Compulsory Audit - Whether the provision is applicable to commission agents, arahtias, etc.
1. Section 44AB, as inserted by the Finance Act, 1984, casts an obligation on every person carrying on business to get his accounts audited, if his total sales, turnover or gross receipts, as the case may be, exceed Rs. 40 lakhs in any previous year relevant to the assessment year commencing on 1-4-1985 or any subsequent assessment year.
2. The Board have received representations from various persons, trade associations, etc., to clarify whether in cases where an agent effects sales/turnover on behalf of his principal, such sales/turnover have to be treated as the sales/turnover of the agent for the purpose of section 44AB.
3. The matter was examined in consultation with the Ministry of Law. There are various trade practices prevalent in the country in regard to agency business and no uniform pattern is followed by the commission agents, consignment agents, brokers, kachha arahtias and pacca arahtias dealing in different commodities in different parts of the country. The primary necessity in each instance is to ascertain with precision what are the express terms of the particular contracts under consideration. Each transaction, therefore, requires to be examined with reference to its terms and conditions and no hard and fast rule can be laid down as to whether the agent is acting only as an agent or also as a principal.
4. The Board are advised that so far as kachha arahtias are concerned, the turnover does not include the sales effected on behalf of the principals and only the gross commission has to be considered for the purpose of section 44AB. But the position is different with regard to pacca arahtias. A pacca arahtia is not, in the proper sense of the word, an agent or even del credere agent. The relation between him and his constituent is substantially that between the two principals. On the basis of various Court pronouncements, following principals of distinction can be laid down between a kachha arahtia and a pacca arahtia:
(1) A kachha arahtia acts only as an agent of his constituent and never acts as a principal. A pacca arahtia, on the other hand, is entitled to substitute his own goods towards the contract made for the constituent and buy the constituent’s goods on his personal account and thus he acts as regards his constituent.
(2) A kachha arahtia brings a privity contract between his constituent and the third party so that each becomes liable to the other. The pacca arahtia, on the other hand, makes himself liable upon the contract not only to the third party but also to his constituent.
(3) Though the kachha arahtia does not communicate the name of his constituent to the third party, he does communicate the name of the third party to the constituent. In other words, he is an agent for an unnamed principal. The pacca arahtia, on the other hand, does not inform his constituent as to the third party with whom he has entered into a contract on his behalf.
(4) The remuneration of a kachha arahtia consists solely of commission and he is not interested in the profits and losses made by his constituent as is not the case with the pacca arahtia.
(5) The kachha arahtia, unlike the pacca arahtia, does not have any dominion over the goods.
(6) The kachha arahtia has no personal interest of his own when he enters into transaction and his interest is limited to the commission agent’s charges and certain out of pocket expenses whereas a pacca arahtia has a personal interest of his own when he enters into a transaction.
(7) In the event of any loss, the kachha arahtia is entitled to be indemnified by his principal as is not the case with pacca arahtia.
Tax Assistant (Accounting Technician CA
8311 Points
Joined April 2008
Guidance Note on Tax Audit Under
Section 44AB of the Income-tax Act, 1961
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