7 59 Taxauditchecklist-Amended

8/8/2019 7 59 Taxauditchecklist-Amended

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Tax Audit Checklist C.Venkatram and Company

Clause Clauses under Form 3CD Step recommended WP Ref By

FORM 3CD

P A R T - A1 Name of the Assessee :

2 Address : Check the address as perIncome Tax record andobtain any evidenceavailable in this regard.

If there is any change in theaddress till the date ofsigning of the report,check that new address ismentioned in Form 3CD.

3 Permanent Account Number : Verify from the PA Card or any

other document.

4 Status : Company/Firm/AOP etc.

5 Previous Year Ended : 31st March 2008

6 Assessment Year : 2008-09

P A R T B

7 (a) If firm or Association of Persons, indicate names ofpartners/ members and theirprofit sharing ratios.

: Verify from the PartnershipDeed/AOP agreement.

(b) If there is any change in thepartners or members or intheir profit sharing ratio sincethe last date of the preceding year, the particulars of suchchange.

: - do -

Note: In case of any changeattach copy of partnership deed with the Income-tax return ifrequired.

8 (a) Nature of business orprofession (if more than one business or profession iscarried on during the previousyear, nature of every businessof profession).

: In respect of each class of business, it is necessary tomention whether assessee ismanufacturer, dealer, serviceprovider, etc.

(b) If there is any change in thenature of business orprofession, the particulars ofsuch change.

: Review audited Balance Sheetand other relevant records toascertain whether there is anyapparent change in the business carried out by the

assessee, which may need to be highlighted under this

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clause. In particular, examine whether any business oractivity has beendiscontinued, any new activityhas been commenced or whether there has been anyexpansion of the existingbusiness.

Additional activity started with in the same businesscarried on by the assesseedoes not mean change innature of business orprofession e.g. if the assesseeis in the business of manufacturing shirts alsostarts manufacture of trousers.

Obtain managementrepresentation.

For change in business besides LOR go through thefollowing :

Any notes given in Notesto Accounts.

Any notes given by Boardof Directors in their report.

Compare the SegmentReporting of this year withlast year.

Compare quantitativedetails of this year with lastyear.

9 (a) Whether books of account areprescribed under section44AA, if yes, list of books soprescribed.

: Applicable for assessee carryingprofession for the time being.

(b) Books of account maintained.(In case books of account aremaintained in a computersystem, mention the books of

account generated by suchcomputer system)

: Check complete list of allprimary books of accountsmaintained by the assessee.

Check whether books ofaccounts have been generatedfrom computer system or not.


(c) List of books of accountexamined.

: Disclose the list of books of account examined.

10 Whether the profit and lossaccount includes any profitsand gains assessable onpresumptive basis, if yes,

indicate the amount and therelevant section (44AD, 44AE,44AF, 44B, 44BB, 44BBA,

: Generally Not applicable.However go through theconsolidated Profit & Lossaccount to see whether it

includes any such profit.

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44BBB or any other relevantsection).

11 (a) Method of accounting

employed in the previous year.

: Review Accounting policies

from audited accounts.Check whether assessee isfollowing Mercantile or Cashmethod of accounting.

While following Mercantile basis of accounting, checkwhether any item of incomeor expense is accounted foron cash basis. Since Hybridmethod of accounting is notallowed, state the nature andamounts of such items.

(b) Whether there has been anychange in the method ofaccounting employed vis-a-visthe method employed in theimmediately precedingprevious year.

: Scrutinize the last week of lastmonths journal vouchersthoroughly to see provisionsfor expenses made & whetherthey are on same basis as inearlier year. Paymentvouchers for first two monthsof subsequent year should bescrutinized to verify thecorrectness thereof.

Ensure that following headsof accounts are scrutinizedthoroughly and compared

with earlier year to check whether accounting is onsame basis as in earlier years.;

Refund for income-tax,sales tax, etc.

Export incentives

Claims for loss ordamage

Grants/Subsidies

Interest on delayedpayments

Determine whether there has been any change in themethod of accountingemployed vis--vis themethod employed in theimmediately preceding year.

(c) If answer to (b) above is in theaffirmative, give details of suchchange, and the effect thereofon the profit or loss.

: Ensure that any change in themethod of accountingemployed is appropriatelydisclosed and the effectthereof on the profit/loss isalso disclosed.

Obtain management

representation.

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(d) Details of deviation, if any, inthe method of accountingemployed in the previous yearfrom accounting standardsprescribed under section 145and the effect thereof on theprofit or loss.

: Check whether there is anydeviation from theAccounting Standard (IT) I& Accounting Standard (IT)

II notified under section145(2) of IT Act regarding;a. Fundamental accounting

assumption of Accrual,Consistency & GoingConcern.

b. Prudence, Substanceover form & Materialityin accounting policies.

c. Disclosure of significantaccounting policies andchanges in such policies with the resultantimpact, if material onaccounts of year of change or subsequentyear.

d. Disclosure of priorperiod and extraordinaryitems or change inaccounting estimate inProfit & Loss Accountand report the effectthereof on profit & loss.

Ensure that deviation fromsuch standards is

appropriately disclosed andthe effect thereof on theprofit/loss is also indicated.

12 (a) Method of valuation of closingstock employed in the previousyear.

: Closing stock would includeraw material, finished goods, work in progress, stores,spare and loose tools andshares/units in case of investment companies..

Change in the method of valuation of opening andclosing stock, including effect

of change, is now coveredunder clause 11.

Agree the method of valuation with audited working papersand audited financialstatements.

(b) Details of deviation, if any,from the method of valuationprescribed under section 145A,and the effect thereof on theprofit or loss.

: Deviation normally occurs incase of stock of Raw Material,Stores, WIP etc. only and in caseof finished goods to the extent ofcost of raw material etc.comprised therein which are

valued net of VAT. Althoughthere may not be any impact due

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of Cenvat and VAT. Giveappropriate note/working(existing note if any needsamendment).

12 A Give the following particularsof the capital asset convertedinto stock-in-trade:-

Verify any fixed asset convertedinto stock in trade. Give thenecessary details.

(a) Description of capital asset;

(b) Date of acquisition;

(c) Cost of acquisition;

(d) Amount at which the assetis converted into stock-in-trade

13 Amounts not credited to theprofit and loss account, being -

:

a. The items falling withinthe scope of section 28;

: Enquire whether any item ofincome chargeable under`Profit and Gains of Businessof Profession has not beencredited to the profit and lossaccount. Section 28 covers :

Profits and gains ofbusiness or profession

Compensation receivedon termination of employment, agency,etc.

Income of trade orprofessional or similarassociation from specificservices to members

Export incentives Perquisites received

during the course ofbusiness

Interest, salary, bonus,remuneration, etc.received by a partnerfrom firm, which isallowable under section40B.

Amount received underkey mans insurancepolicy

Thus, if any such item is takento any account directly in theBalance Sheet, it will becovered under this clause.

Review the audited schedulesand financial statements todetermine whether suchincome has been crediteddirectly to reserves orretained as a credit under thehead `current liabilities andprovisions or any other head.

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b. The proforma credits,drawbacks, refunds of

duty of customs orexcise, or service tax, orrefund of sales tax or value added tax wheresuch credits, drawbacksor refunds are admittedas due by the authoritiesconcerned;

: Obtain a schedule indicatingthe details of the following

claims admitted as due bythe concerned authorities but not credited to theprofit and loss account.The schedule should alsoindicate the year in which itwas admitted as due.

Proforma credits Duty drawbacks Excise/Custom duty

refunds Sales tax refunds Service tax refunds

VAT refunds Obtain an understanding of

the relevant accountingpolicies [refer clause 11(a)].

Agree the schedule with theclaim papers and relevantcorrespondence files. Furtherensure that the claims havebeen admitted as due by theconcerned authorities.

Review the relevantassessment orders todetermine whether any such

claims are due. Obtain management

representation.

c. Escalation claimsaccepted during theprevious year;

: Obtain a schedule indicatingdetails of escalation claimsaccepted during the year butnot credited to the profit andloss account. The scheduleshould also indicate the yearin which it was accepted asdue. Certain instances ofescalation claims may be in

relation of contract withgovernment customers andother sales to customershaving escalation clause incontracts.

Obtain an understanding ofthe relevant accountingpolicies [refer clause 11(a)].

Agree the claims accepted with contracts and otherrelevant documents andensure that claims have beenaccepted by the concerned

authorities. Obtain management

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representation.

(d) Any other item of income; : Enquire whether any item ofincome chargeable to tax

under heads of income otherthan `Profits and Gains ofBusiness or Profession hasnot been credited to profitand loss account.

Report all items of incomewhich are credited to expenseheads with a note that this hasno impact on the net profit.

Review the audited schedulesand financial statements todetermine whether suchincome has been credited

directly to reserves orretained as a credit under thehead `current liabilities andprovisions or any other head.


(e) capital receipt, if any. : Enquire whether any capitalreceipt ha s not been creditedto profit and loss account.For instance, capital receiptsmay be in the nature of grants/subsidies,

Note: In case of non-competefees directly taken toreserves or capital accountreport the same in clause13(a) also.

Furnish details of giftsreceived during the year.

Share premium account.

Share forfeiture.

Capital reserve arising onmerger and demerger.

Furnish details of the amountof capital nature received or

receivable on transfer oftechnology, knowhow, andpatent during the financialyear and treatment thereof inaccounts.

Obtain an understanding ofthe relevant accountingpolicies [refer clause 11(a)].

Review the audited schedulesand financial statements todetermine whether suchcapital receipt has beencredited directly to reserves or

retained as a credit under thehead `current liabilities and

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provisions or any other hand.


14

(a)

(b)(c)

(d)

(e)(f)

Particulars of depreciationallowable as per the Income-tax Act,1961 in respect of eachasset or block of assets, as thecase may be, in the followingform :-Description of asset/block ofassetsRate of depreciation. Actual cost or written downvalue, as the case may be. Additions/deductions duringthe year with dates; in the case

of any addition of an asset,date put to use; includingadjustments on account of-i. Modified Value Added

Tax credit claimed andallowed under theCentral Excise Rules,1944, in respect ofassets acquired on orafter 1st March, 1994,

ii. Change in rate of exchange of currency,and

iii. Subsidy or grant orreimbursement, bywhatever name called.

Depreciation allowable.Written down value at the endof the year.

: Obtain a schedule providingthe relevant details indicatedin the aforesaid clause inrespect of each asset or blockof assets. In particular,ensure that the following havebeen included :

Written down value atthe beginning of theyear.

Assets acquired duringthe year have beensegregated between the

assets put to use for lessthan 180 days and thoseused for more than 180days

Deductions during the year represent the saleproceeds of assets sold

Rates of depreciation.i. Refer Appendix 1

and Appendix 1A asthe case may be.

ii. Appendix 1A isapplicable in respect

of Power Generationcompanies. Even in a case where the

auditee has decided notto claim depreciation inpart or full, give fulldetails of depreciationallowable.

Review assessmentscompleted/ prior year taxreturns to examine the basisadopted in earlier years fordetermination of depreciation

allowable. Also ascertain whether any aggressivepositions have been adopted by the clinet and examineimplications thereof.

For additions during the yearensure that the classificationof assets or block of assetsand the rates of depreciationis in accordance with therequirements of the IncomeTax Act, 1961.

Agree the written down value

at the beginning of the year tothe return of income of the

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immediately proceding year.

Agree the additions with theaudited schedules and ensurethat adequate tests have been

carried out for `actual costcapitalized and the dates theassets were `put to use.Obtain a reconciliation to theadditions as per the auditedschedules, where necessary.Certain instances of suchreconciling items may becapital expenditure onscientific research, leaseholdimprovements, etc.

Ensure that the policiesfollowed are consistent with

the requirements of theIncome Tax Act, 1961.

For assets acquired during theyear, obtain an understandingof the accounting policy forthe following :

Modvat credit Exchange fluctuation

including in respect ofrealized gains/ losses,unrealized gain/lossesand treatment of forward exchange

contracts. Subsidy or grant orreimbursement.

Depreciation capitalized.

Any expenditure which doesnot relate to acquisition ofP&M but capitalized as part ofpreoperative expense.

Ensure capitalisation ofinterest in respect of borrowed capital as perSection 36(1)(iii).

Agree the amounts included

as adjustments on account ofmodvat, change in exchangerates and subsidy/grant withthe audited schedules andother relevant supportingdocuments.

Check the implications ofsection 43A of Income TaxAct.

Agree the deductions duringthe year with auditedschedules and ensure thatsuch amount reconciles with

the amount considered fordetermining the profit/loss on

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assets sold, discarded etc.

Review the depreciationcomputation and ensure thearithmetical accuracy of the

depreciation allowable andthe written down value at theend of the year.

Ensure that additionaldepreciation u/s 32(ii)(a) iscompiled and reduced fromWDV.

15 Amounts admissible undersections-a. 33AB

b. 33ABAc. 33AC (wherever

applicable)d. 35e. 35ABBf. 35ACg. 35CCAh. 35CCBi. 35D

j. 35DDk. 35DDAl. 35E

a. Debited to the profit andloss account (showing the

amount debited anddeduction allowableunder each sectionseparately);

b. not debited to the profitand loss account.

:

:

:

Obtain a schedule givingdetails of deductionadmissible under the relevantsections, indicatingseparately, the amounts

debited to profit and lossaccount and not debited toprofit and loss account. Therelevant sections are asfollows:

35 Expenditure on scientificresearch

35CCA Expenditure by wayof payment to associationsand institutions for carryingout rural developmentprogrammes.

35CCB Expenditure by way

of payment to associationsand institutionscarrying outprogrammes of conversa-tion of nature resources.

35D Amotisation of certainpreliminary expenses.

35DD 35DDA

Review the computation ofthe amounts admissible underthe aforesaid sections andagree the same with the

audited schedules, financialstatements and other relevantsupporting documents.


16 (a) Any sum paid to an employeeas bonus or commission forservices rendered, where suchsum was otherwise payable tohim as profits or dividend[Section 36(1)(ii)].

: Furnish details of bonus orcommission, if any, to anemployee for servicesrendered which otherwise waspayable as profits or dividend.

Normal bonus or commissionto employees including

directors even as percentageof profits is not covered under

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this sub-clause unless thesame was otherwise payableas profits or dividend.

(b) Any sum received fromemployees towardscontributions to any providentfund or superannuation fundor any other fund mentionedin section 2(24)(x) and duedate for payment and theactual date of payment to theconcerned authorities undersection 36(1)(va).

:

Furnish details of any sumreceived from the employeestowards the contribution to:a. Provident Fund

b. ESI Fundc. Superannuation Fundd. Any other fund for the

welfare of employees.

Furnish details of due date ofpayment and actual dates ofpayment for the amountreceived from employeestowards various funds stated

in above para. The due date of PF

Contribution is 15 days and incase of ESI Contribution is 21days from the end of themonth to which salary relates.

Refer to Circular No. E128(I)60- III dated 19.03.1964 asmodified by circularE11/128/73 dated 24.10.73issued by the concernedauthorities granting 5 days ofgrace period for payment for

payment of PF Contribution .The due date will bedetermined accordingly.

17 Amounts debited to the profitand loss account, being :-

:

(a) expenditure of capitalnature;

: Furnish detail of followingexpenditure debited to Profit& Loss Account:a. Capital Expenditure;

b. Capital Items which arefully or partly written offin P&L Account;

c. Scientific ResearchExpenses & TechnicalKnow How Fees;

d. Write of advance paid forcapital expenditure/capital project.

e. Fees or Expenditureconnected with increasein authorised capital,issue of bonus shares,travelling & otherexpenses connected withpurchase of capital assets

etc.f. Amount debited on

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account of preliminaryexpenses (35D), VRSexpenses (35DDA),Merger/Demergerexpenses (35DD).

Check the following head ofaccounts minutely:a. Store & spare parts

consumedb. Repair & Maintenancec. Misc. Expensesd. Legal & Professional

If in your opinion, any item ofexpenditure debited to theP&L Account is not of capitalnature but there is possibilityof holding such a view,

furnish details with yourviews on the same.

Obtain an understanding ofthe capitalization policyfollowed by the client.

If any amount reported ascapital expenditure is in thenature of fixed asset iteminclude the same in clauseNo.14.

Obtain managementrepresentation letter.

(b) expenditure of personalnature;

: Under section 227(1A)(c) ofthe Companies Act, 1956, theauditor is required to enquire whether personal expenseshave been charged to therevenue account. If there isany such comment in theauditors statutory report thenobtain a schedule of personalexpenses debited to the profitand loss account.

In case of expenditureincurred at club the same are

to be reported under clause17(d). However to the extentof personal element in thesaid expenditure, the sameshould be reported here also.

Expenses of personal naturepaid under a contractualobligation need not bedisclosed.

Agree with the auditedschedules supporting thecomments in the auditorsstatutory report.

Review the relevant accountsto ensure that no other

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expenditure of personalnature has been charged tothe profit and loss account.

Obtain management

representation.

c. expenditure onadvertisement in anysouvenir, brochure, tract,pamphlet or the like,published by a politicalparty;

: Furnish details of theexpenses incurred onadvertisement if any published for a political party

Furnish details of expenditureincurred on advertisement insouvenir, brochure, tract,pamphlet or journalpublished by trade union,labour union or any other body formed by political

party. Agree the schedule with the

relevant supportingdocuments.

Note : Political parties wouldinclude both national andregional parties, which areapproved by the ElectionCommission.

Review the advertisement,sales promotion and otherrelevant accounts to ensurethat all such expenditure has

been appropriately disclosed. Obtain management

representation.

(d) expenditure incurred atclubs -

:

i. as entrance feesandsubscriptions;

ii. as cost for clubservices and

facilities used;

Furnish the detail of expensesmade to clubs under followingheads:

Entrance fees Subscriptions Catering Bills Residential

AccommodationCharges

Expenditure towards useof club services andfacilities i.e. health club.Bar. Conference &entertainment expensesetc.

Reimbursement of clubpayments todirectors/employees should be included in the abovestatement.

Subscriptions and otherpayments made to service

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organizations like Lions Club,Rotary Club, Giants, Jayceesetc. would not be includedunder this clause.

Payments made to creditagencies like Diners Clubwould not be included underthis clause.

Payments to clubs wouldinclude payments toGymkhanas.

Review the relevant accountsand ensure that allexpenditure incurred at clubshas been appropriatelydisclosed.

Obtain management

representation.

(e) (i) expenditure by wayof penalty or fine forviolation of any law forthe time being in force;

i. any other penalty orfine;

ii. expenditure incurredfor any purpose whichis an offence or whichis prohibited by law;

: Furnish the detail of expenditure by way of penaltyor fine debited during thefinancial year.

Furnish detail of compensation debited forbreach of contract during thefinancial year.

Furnish copies of penaltyorders passed during thefinancial year under relevant

laws, which are applicable toassessee.

Furnish detail of gifts given togovernment officials.

Furnish details of expenditureincurred such as protectionmoney, extortion money,regular hafta,bribe etc.

Furnish detail of penaltydebited which are in thenature of interest under anystatue.

Review the legal and

professional fees, rates andtaxes, sales tax paid or anyother taxes paid, generalcharges account and otherrelevant accounts and ensurethat all such expenditure hasbeen appropriately disclosed.


Unsupported expendituremay need to be reviewed todetermine whether it needs to be included under

`expenditure, which is anoffence or prohibited by law.

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a. amounts inadmissibleunder section 40(a);

: Furnish detail of Interest,royalty, fees for technicalknow how, services and other

sums, which are payableoutside India, on which taxhas not been paid or deductedor deducted and paid at rateless than the prescribed rate.

Furnish detail of expensespayable as reimbursement ofexpenses outside India on which tax has not beendeducted or paid at source.

Furnish details of payment,which is chargeable under thehead salaries payable outside

India and on which Tax hasnot been deducted.

Furnish any interest,commission, brokerage, feesfor professional services or fortechnical services, amountpaid/payable to contractorand rent, royalty on which taxhas not deducted or deductedat rate less than theprescribed rate or afterdeduction of TDS is notdeposited within the due date

(Ignore late deposit of TDScases if the same is depositedby the end of financial year).[Section 194C, 194A, 194H,194I, 194J and section 9(1)(vii) & 9(1)(vi)].

Furnish any payment madetowards a provident fund orother fund established for the benefit of employees for which tax has not beendeducted at source.

Furnish any tax actually paid

u/s 10(CC). Furnish Fringe benefit tax

(below the line or above theline).

Furnish Securities transactiontax if debited to Profit & Lossaccount or if not debited toProfit & Loss Account.

In case STT component isadjusted in the cost of investment/sale price thenappropriate amount shall also be disclosed as amount not

debited to Profit & LossAccount.

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Furnish any amount paid onaccount of rate or tax leviedon profits (including any taxpaid on profit outside India).

Review all expenses payableand provision for expenses for43B & TDS default.

Furnish details of Income Tax& Wealth Tax debited to P&LAccount during the year.

Agree the details with auditedschedules and other relevantsupporting documents.


(g) interest, salary, bonus,

commission orremuneration inadmissibleunder section 40(b)/40(ba) and computationthereof;

: Applicable only for partnership

firms.

(h) (A) whether a certificatehas been obtainedfrom the assesseeregarding paymentsrelating to any expenditure coveredunder section 40A(3)

that the paymentswere made by accountpayee cheques drawnon a bank or accountpayee bank draft, asthe case may be,(Yes/No)

(B) amount inadmissibleunder section 40A(3),read with rule 6DD[with break-up ofinadmissible

amounts]

: Obtain a schedule of allpayments made in excess ofRs.20,000 made in cash. Ifsuch payments are exemptunder any of the clauses (a) to(l) of Rule 6DD, indicate inthe schedule. Ensure that the

conditions for specificexemption under any of theclauses (a) to (l) of Rule 6DDare satisfied. Ensure that theschedule indicates thecomputation of disallowanceas per section 40A(3).

Payments exceedingRs.20,000 otherwise than byAccount payee cheque or draft will attract 100%disallowance.

Furnish details of

Outstanding Expenses of thefinancial year for whichpayments are made insubsequent year at the time inexcess of Rs. 20,000/-otherwise than by a Accountpayee cheque/draft.

This should include paymentsto staff by way of salary, travelallowance etc.

Only revenue payments would be covered. Purchase of fixedassets for which cash

payments are made in excessof Rs.20,000 would not be

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covered.

Payment for purchase of rawmaterials and stocks would becovered.

As per the ICAI, in case noproper evidence for verification of the paymentsby Account payee cheque ordraft is available the reportshould comment that it is notpossible for us to verify whether the payments inexcesss of Rs.20,000 havebeen made otherwise than byAccount payee cheque or bankdraft as the necessaryevidence is not in the

possession of the assessee. Review the payments in the

cash book and adjustments toadvances/deposits to ensurethat all cash paymentsexceeding Rs.20,000 havebeen included in the schedule.

Obtain certificate fromauditee that all paymentsexceeding 20,000/- forexpenses if made by cheque/draft are made by Accountpayee cheque or Account

payee draft.

a. provision for payment ofgratuity not allowableunder section 40A(7);

: Furnish a copy of the order ofthe Commissioner of IncomeTax granting recognition tothe gratuity fund.

Furnish certificate that thecontribution made does notexceed permissible limit asper rules 103 & 104 of IncomeTax Rules.

Obtain a schedule indicatingthe provision for payment of

gratuity not allowable undersection 40A(7)..

Agree the amounts provided with the audited schedules,financial statements andother relevant supportingdocuments and ensure that allsuch expenditure hs beenappropriately disclosed.

Whether contributions have been made to approvedgratuity fund, review the copyof the trust deed and rules.


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Enquire whether CIT or RPFChas withdrawn the exemptionduring the year.

Verify that the PF Trust

recognized by CIT is alsorecognized by PF authorities.

b. any sum paid by theassessee as an employernot allowable undersection 40A(9);

: Obtain a schedule indicatingthe sum paid by the assesseeas an employer, not allowableunder section 40A(9) i.e.towards setting up orformation or contribution toany fund, trust, company, etc.other than ;

Recognised providentfund

Any PF for exemption iswithdrawn by CIT. Recognised gratuity

fund Recognised

superannuation fund As required by or under

any other law.

Agree the details with auditedschedules and other relevantsupporting documents.

Review the staff welfare andother relevant accounts to

ensure that all such sums notallowable under section40A(9) have beenappropriately disclosed.


c. particulars of any liabilityof a contingent nature.

: Furnish the detail of contingent liabilities debitedto the profit and loss accountindicating the nature of thedemand and the reasons formaking provisions in the

accounts. Review the audited accounts,

in particular the notes to theaccounts to ensure that allliabilities of a disputed naturehave been identified forfurther discussion.

Note : As per the ICAI these arenormally expenses connectedwith disputed claims which willbe revealed only on the basis ofthe scrutiny of correspondencerelating to cases pending in a

court of law.

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d. amount of deductioninadmissible in terms ofsection 14A in respect ofthe expenditure incurredin relation to income which does not form partof the total income.

i. Go through the return filedand assessment order forlast 2 to 3 year to verifydetails and categories ofexempt income.

ii. Obtain managementrepresentation as to incomewhich it is going to claim asexempt in this year.

iii. Go through the expensesdisallowed in the earlieryear.

iv. Obtain details of expensespertaining to exemptincome such as interest onfunds borrowed, personalcost, rent, traveling andother administrative cost.

v. In case there are nodirect expenses thendisallowance has to beworked out as per Rule8D.

vi. If adhoc expenses are statedthen give note/disclaimer.

vii. In case of company havingundertaking of the nature of10A/10B/10C then theappropriate note be givendisclosing both income andexpenditure as per the Audit Report issued u/s10A/10B.

e. amount inadmissibleunder the proviso tosection 36(1)(iii).

a. Obtain details of fixed asset which are acquired byborrowing loans.

b. In case of funds of C/Caccount used and whichcannot be correlateddetermine interest cost asper AS-16.

18 Particulars of payments madeto persons specified undersection 40A(2)(b).

: Obtain a schedule from theclient indicating thefollowing:

List of persons specifiedunder section 40A(2)(b)

Details of paymentsmade to personsspecified in above list.

Agree the schedule with ; Relevant contracts/

agreements withspecified persons.

Relevant supports forpayments made to such

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specified persons.

Review the relevant accountsto identify any paymentsmade to persons specified

under section 40A(2)(b). Compare the detail shown

under Tax Audit with theRelated Party Schedule ofIGAAP.


Notes :i. Salaries and perquisites etc

paid to directors orpersons having substantialinterest in the company

should be included in thelist referred to above.ii. Since disallowance in this

case is at the discretion ofthe Income Tax Officer thetotal amount paid to suchpersons should beindicated in the schedule.

iii. As per the ICAI, in the caseof a large company, it maynot be possible to verifythe list of all personscovered by this section

therefore the informationsupplied by the assesseecan be relied upon. It hasfurther stated that it may be difficult to identify allpayments in each andevery case where the volume of transactions israther huge andvoluminous, and therefore,it may be necessary torestrict the scrutiny only tosuch payments in excess ofcertain monetary limitsdepending upon the size ofthe concern and volume ofthe business of theassessee.

iv. Suggested disclosure where the information isnot available with client isas follows :

The company does nothave necessaryinformation in respect ofthe following :a. directors and their

relatives of

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companies having asubstantial interest inthe company; and

b. any person, in whose business orprofession, thedirectors or theirrelatives have asubstantial interest asdefined in theexplanation toSection 40A(2)(b).

19 Amounts deemed to be profitsand gains under section 33ABor 33ABA or 33AC.

: Go through the relevant sections.

20 Any amount of profitchargeable to tax under section41 and computation thereof.

: Obtain a schedule indicatingamount of profit chargeableto tax under the aforesaidclause and the computationthereof.

Agree the details with auditedschedules and other relevantsupport documents.

Review the relevant accountsto ensure that all such sumshave been appropriatelydisclosed.

Obtain management

representation.

21*

(i) In respect of any sum referredto in clause (a),(b),(c),(d),(e)or (f) of section 43B, theliability for which;

A. pre-existed on the firstday of the previous year but was not allowed inthe assessment of anypreceding previous yearand was

a. paid during theprevious year;

b. not paid duringthe previous year;

B. was incurred in theprevious year and was

a. paid on or beforethe due date for

:

Obtain a schedule indicatingthe following information inrespect of the items referredto in clause (a), (b), (c), (d),(e) and (f) of section 43B :

Liability at thebeginning of the year

Amount paid during the year including the dateof payment

Amount not paid duringthe year

Agree the amounts and dates with audited schedules andrelevant supportingdocuments.

Obtain a schedule in respectof the items mentioned above,specifically indicating thefollowing :

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furnishing thereturn of incomeor the previousyear under section139(1);

b. not paid on or before theaforesaid date.

Liability incurred duringthe year

Amount paid on or before the due date forfurnishing the return ofincome under section139(1) along with date ofpayment.

Amount not paid on or before the aforesaiddate.

The expenses, which arecapitalized, would also becovered under this clause.

Check that all the figureshown in annexure are inagreement with IGAAP.

In case there is any mismatchof figures with books ofaccounts, preparereconciliation for the same.

Take the copies of challan to verify that amounts payableas on last day of the financial year are paid in subsequentyear.

To verify if any conversion ofinterest into loan or fundedinterest has taken placeduring the year.

Agree the amounts and dates with audited schedules andrelevant supportingdocuments.

* State whether sales tax,customs duty, excise duty orany other indirect tax, levy,cess, impost etc. is passedthrough the profit and lossaccount.

22 (a) Amount of Modified ValueAdded Tax credits availed of or

utilised during the previousyear and its treatment in theprofit and loss account andtreatment of outstandingModified Value Added Taxcredits in the accounts.

: i. State the treatment given inthe books to Modvat/

Cenvat. Give details w.r.t.opening balance/ creditavailed/credit used/ closingbalance of all Cenvat accountas per Account books andExcise record withreconciliation.

ii. Go through thereconciliation and report thedifference under therespective clause of 3CD.

(b) Particulars of income or

expenditure of prior periodcredited or debited to the

: Furnish a detail of

income/expenditure relatingto prior period credited/

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profit and loss account. debited to the profit and lossaccount during the year.

Agree the details with auditedschedules and relevant

supporting documents. Review the items under the

head prior period adjustmentand the notes to the accountsto ensure all suchexpenditure/income has beendisclosed in the aboveschedule.

In order to ascertain thecorrect meaning of termPrior Period Item refer tothe text of AccountingStandard- 5 issued by ICAI.


23 Details of any amount borrowed on hundi or anyamount due thereon (includinginterest on the amount borrowed) repaid, otherwisethan through an account payeecheque [Section 69D].

: Obtain a schedule of borrowing and repayments(including interest) of hundiloans otherwise than byaccount payee cheques.

Agree the details with theaudited schedules andrelevant supportingdocuments.

Obtain management

representation. Obtain a schedule of

borrowing and repayments(including interest) of hundiloans otherwise than byaccount payee cheques.

Agree the details with theaudited schedules andrelevant supportingdocuments.


Note : As per the ICAI in theabsence of conclusive orsatisfactory evidence a suitablecomment in the report assuggested in clause 17(h)shou0ld be made. : As per theICAI in the absence of conclusiveor satisfactory evidence asuitable comment in the reportshould be made.

24 (a)*

Particulars of each loan ordeposit in an amountexceeding the limit specified insection 269SS taken or

:

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accepted during the previousyear:-

i. name, address and

permanent accountnumber (if available with the assessee) ofthe lender ordepositor;

: Obtain a schedule of loans

and deposits of Rs.20,000 ormore taken or acceptedduring the year giving therelevant details as per theaforesaid clause.

ii. amount of loan ordeposit taken oraccepted;

: The amount of Rs.20,000/- or more is to becomputed inclusive ofopening Balance in theparty account and for thepurpose of prepaymentalso, amount credited asinterest.

For the purpose of thisclause, loan/deposit would include, amongothers, the following:a. Security Deposits

from staff, agents,customers with orwithout interest

b. Loans from financialinstitutions.

c. Advance in thenature of loandeposit.

d. Fixed deposit frompublic.

Agree the details with theaudited schedules and otherrelevant supportingdocuments.

iii. whether the loan ordeposit was squaredup during the previousyear;

: Review the loan, deposit andother relevant accounts toensure all such particularshave been appropriatelydisclosed.

iv. maximum amountoutstanding in theaccount at any timeduring the previousyear;

: Obtain certificate frommanagement that loansaccepted during the year andtheir repayment has beenthrough an account payeecheques/draft.

Note :

v. whether the loan ordeposit was taken oraccepted otherwisethan by an accountpayee cheque or an

account payee bankdraft.

: i. As per the ICAI informationof each loan or deposit ofRs.20,000 or more alone would be required by thisclause and where each such

loan or deposit is less thanRs.20,000 and aggregate

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alone exceeds Rs.20,000,the particulars need not befurnished.

* (These particulars need not

be given in the case of aGovernment Company, a banking company or acorporation established by aCentral, State or ProvincialAct).

ii. Advance received against

agreement of sale of goodsis not a loan/deposit.iii. Loan taken from financial

institutions are coveredunder this clause.

iv. Security deposits againstcontracts etc. will becovered by the definition of`deposit and theinformation for the samewill have to be provided.

(b) Particulars of each repayment

of loan or deposit in anamount exceeding the limitspecified in section 269T madeduring the previous year :-

:

i. name, address andpermanent accountnumber (if available with the assessee) ofthe payee;

: Obtain a schedule of loansand deposits of Rs.20,000 ormore repaid during the yeargiving the relevant details asper the aforesaid clause.

ii. amount of therepayment;

: Agree the details with theaudited schedules and other

relevant supportingdocuments.

iii. maximum amountoutstanding in theaccount at any timeduring the previousyear.

: Review the loan, deposit andother relevant accounts toensure all such particularshave been appropriatelydisclosed.

iv. whether therepayment was madeotherwise than byaccount payee cheque

or account payee bankdraft.

: Obtain managementrepresentation.

Note :

i. Refer note (i) to (v) above.ii. Obtain a certificate from the

assessee as prescribed inabove clause.

iii. This clause is not applicablein respect of loan taken andrepaid from/to Bank, Govt.,Govt. company.

(c) Whether a certificate has beenobtained from the assesseeregarding taking or acceptingloan or deposit, ore repaymentof the same through anaccount payee cheques or an

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account payee bank draft(Yes/No)The particulars (i) to (iv) at (b)and the Certificate at (c) aboveneed not be given in the case ofa repayment of any loan ordeposit taken or accepted fromGovernment, Governmentcompany, banking company ora corporation established by aCentral, State or Provincial Act

25 (a) Details of brought forward lossor depreciation allowance, inthe following manner, to theextent available :

Obtain a schedule indicatingthe details as per theaforesaid clause. The clausewill cover the following :

Serial Number - Business loss (Section 72)

Assessment Year - Unabsorbed depreciation Nature of loss/allowance (in

rupees)

- Speculation loss (Section 73)

Amount as returned (inrupees)

- Loss under the head capitalgains.(Section 74)

Amount as assessed (givereference to relevant order)

Remarks

Furnish the information as to when returns of income for which the above broughtforward loss/depreciationarises were filed and whetherthey were filed in time asprovided under section 139(1)or late (any extension grantedby CBDT to be indicated).

Agree the basis and details with the return of income,assessment orders etc. andother relevant supportingdocuments.

If there are differences infigures as per returns filedand as assessed, also furnishseparately reconciliations andwhether matters are pendingin appeals and/or rectificationor under revisionproceedings, etc. if appeal isdecided but order givingeffect thereof is not received,indicate the same.

Take the copies of all relevantorders.

(b) Whether a change in share-holding of the company hastaken place in the previous year due to which the lossesincurred prior to the previous

year cannot be allowed to becarried forward in terms ofsection 79.

In case of all unlistedcompany to see whether there was any change inshareholding affecting the benefit of C/F loss (Section

79). Details of shareholding be

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obtained at the end of 31st

March of all the years upto31st March 2006 to verify whether 49% or moreshareholding has changedduring the period from theyear for which loss is carriedforward and upto 31st March2006.

Any change in shareholdingon account of death of ashareholder or gift by theshareholder to the relativeand as per second proviso(applicable in caseshareholder is a foreignholding company) be ignored.

26 Section-wise details of deductions, if any, admissibleunder Chapter VIA.

: This is an exhaustive clause tocover all eligible deductionsavailable under chapter VI-Aof Income Tax Act, 1961.

Obtain a schedule indicatingthe section-wise details ofdeductions claimed underChapter VIA.

Ensure that deductionsclaimed by the client areadmissible under ChapterVIA.

Agree the details with theaudited schedules and otherrelevant supportingdocuments.

If the assessee is claimingdeduction under a particularsection for the first time,furnish a note giving reasonsas to how the assessee isqualified for such a deduction with due evidence and thatthe assessee has compiled with all the conditions laid

down in the relevant section.(with the necessary documentary evidence).

Review assessmentscompleted/ prior year taxreturns to examine the basisadopted in earlier years.

Verify the basis andcomputation of deductions.


ImportantIn case any report u/s 80IA/

80IB or any other section ofchapter VIA is issued by any

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other Chartered Accountant thengo through the same to verifywhether the amount arrived is inaccordance with the Provisionsof the relevant Section.

27 (a) Whether the assessee hascomplied with the provisionsof Chapter XVII-B regardingdeduction of tax at source andregarding the payment thereofto the credit of the CentralGovernment (Yes/No)

: Obtain a schedule indicatingthe details as per theaforesaid clause.

Agree the details with therelevant supportingdocuments and returnssubmitted for the purpose.

Go through the quarterly TDSreturns filed.

(b) If the provisions of Chapter

XVII-B have not beencomplied with, please give thefollowing details*, namely:-i. Tax deductible and not

deducted at allii. Shortfall on account of

lesser deduction thanrequired to be deducted

iii. Tax deducted lateiv. Tax deducted but not paid

to the credit of the CentralGovernment

Please give the details of cases

covered in (i) to (vi) above.

Review the relevant accounts

to ensure that tax has beendeducted as per XVII-B e.g.salaries, interest on securities,other interest, dividends,royalties, payments to non-residents, payments tocontractors and sub-contractors etc.

Above detail should alsoinclude particulars of taxdeducted in the financial year but paid to the Govt. insubsequent year.

Report cases where TDS hasnot been deducted ordeducted at lesser rates thanapplicable.

TDS is required to bededucted on the componentof service tax also.

Important note regardingTax Audit

Scrutinize balances appearing atthe end of the period of thefollowing account heads

carefully:1. Provision for expenses.2. Outstanding liabilities.3. Bill adjustables.4. Other liabilities or any other

account opened in bookswhich is similar in nature toabove.The above accounts normallycomprise of credit entriespertaining to provision forexpenses made. Suchexpenses may fall into

following categories:a. Government taxes and

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statutory dues.b. Staff payments.c. Expenses liable to TDS

deduction.

d. Other items.a. Government taxesand statutory dueshave to be reportedu/s 43B. This clause will also includebonus and incentiveto staff by variousname called.

i. The expenses whichare liable to TDS areto be reported in theTDS clause (in caseof defaults) and alsosimultaneously inclause 17(l) of taxaudit report to theextent applicable.

ii. Further sometimethe interest payableto parties is alsoincluded in theabove head which isliable to TDS.

iii. For CARO purposesone must go throughthe tax audit reportof last year and ifitems which wereliable to TDS arereported but theTDS has not beendeducted and paidtill 31st March thenthe same will have tobe reported in CAROalso.

28 (a) In the case of a trading

concern, give quantitativedetails of principal items ofgoods traded:

i. Opening stock;ii. Purchases during

the previous years;iii. Sales during the

previous year;iv. Closing stock;v. Shortage/excess, if

any

:

:

:

:::

Obtain a schedule indicating

the details as per theaforesaid clause.

Agree the details with auditedschedules and the stockrecords maintained by thecompany.

Review the relevant accountsto ensure all such particularshave been appropriatelydisclosed.

Furnish the reasons forshort/excess with properexplanation and state whether

it is normal or abnormal asper industry standards.

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(b) In the case of a manufacturing

concern, give quantitativedetails of the principal items ofraw materials, finishedproducts and by-products:

:

A. Raw Material :

i. Opening Stock;ii. Purchases during

the previous year;iii. Consumption

during theprevious year;

iv. Sales during theprevious year;

v. Closing stock;(vi)* Yield of finished

products;(vii)* Percentage of yield;(viii)* Shortage/excess, if

any.

Furnish details as required.

B. Finished products/By-products :

i. Opening Stock;ii. Purchases during

the previous year;iii. Quantity

manufacturedduring theprevious year;

iv. Sales during theprevious year;

v. Closing stock;vi. Shortage/excess, if

any.

Furnish details as required.

* Information may be given tothe extent available.

29 In the case of a domesticcompany, details of tax ondistributed profits undersection 115O in the followingform:-a. Total amount of

distributed profits;b. total tax paid thereon;c. dates of payment with

amounts.

:

Furnish the date of paymentof tax

on dividend with the copiesof receipted Challans,showing the date, amount andname of the bank.

Agree the details referred tothe audited schedules andrelevant supportingdocuments.

30 Whether any cost audit wascarried out, if yes, enclose a

copy of the report of such audit[See section 139(9)].

: Check if cost audit isapplicable; check whether the

audit has been carried outduring the year.

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If the Cost audit is not carriedby the time Tax Auditor givesthe report, state the factaccordingly.

Obtain a copy of the report ifany cost audit was carried outduring the year.


31 Whether any audit wasconducted under the CentralExcise Act, 1944, if yes, enclosea copy of the report of suchaudit.

: Enquire & obtain LOR and copyof report of audit conducted byExcise department.

32 Accounting ratios with

calculations as follows :-a. Gross Profit/Turnover;

b. Net Profit/Turnover;c. Stock-in-trade/Turnover;d. Material

consumed/Finishedgoods produced.

: Obtain a schedule indicating

the aforesaid ratios. Verify the schedule for

arithmetical accuracy andcalculations.

Give details of any change onthe basis of calculations ofratio as compared to thepreceding year.

Agree the values used forcalculating the ratios to theaudited schedules andrelevant supportingdocuments.

As different interpretationsare possible of the items likegross profit, net profit etc., itis recommended that a noteexplaining the basis adoptedby the company be provided.

7 59 Taxauditchecklist-Amended

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