Revised Tax Audit Report - PowerPoint Presentation

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Revised Tax Audit Report

Presented by

CA Kusai Goawala

18

th

August 2018

For

Aurangabad Branch of WIRC

Organised

by Direct Tax Committee of ICAI

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BACKGROUNDAmended vide 8th Amendment Rules 2018Effective from 20th

August 2018To incorporate recent amendments to ActTo remove certain anomalies in the FormStringent Reporting RequirementsAlmost entire Computation of Income to be certified

True and Correct

Auditors Dilemma - Subjective areas also to be reportedResponsibility of Tax Auditor – Risk and Rewards

CA Kusai Goawala

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Clause 4 : Indirect TaxesIn addition to other indirect taxes like Sales tax, VAT, Excise Duty, Service tax During AY2018-19, earlier indirect taxes were also applicableGST to be included in the list of Indirect Taxes applicable to the assessee

GST registration number to be providedCA Kusai Goawala

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Clause 19 : Amounts admissible – Section 32AD Law – Section 32ADInvestment in New plant and machinery in notified backward areas in certain states

Following states covered :Andhra PradeshBihar

Telangana

West Bengal

CA Kusai Goawala

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Investment after 1.4.2015 but before 1.4.202015% of cost of new asset allowed as deductionCondition – cannot sell within 5 years from date of acquisition except under mergers and acquisitions.

CA Kusai Goawala

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Clause 19 – Amount admissible – Section 32ADTo report under Tax Audit

Amount Debited to Profit and Loss (all costs incurred on acquisition of new asset are not debited to Profit & Loss A/c except depreciation)Amount admissibleWhether all conditions fulfilled

CA Kusai Goawala

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Clause 24-Deemed profits u/s 32ADIf the new asset in respect of which deduction u/s 32AD claimedSold within 5 years, deduction allowed will be deemed income

Cross check of later non compliances leading to incomeCA Kusai Goawala

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Clause 26 – Section 43B Clause (g) addedAny sum payable to Indian Railways for the use of Railway AssetsScope of Section 43B expanded.

Payments to railways for use of Railway assets like lease rentals, etc allowable on payment basisThe scope of 43B initially started with Statutory payments expanded to contractual payments

CA Kusai Goawala

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Clause 29A – Forfeiture of advance receivedWhether any amount is to be included as income chargeable under the head “Income from Other Sources” as referred to in clause (ix) of Section 56(2)

The clause refers to income on forfeiture of advance in course of negotiations for transfer of asset.Amount forfeited andNegotiations do not result in transfer

The above conditions to be complied for the forfeiture to be added as income.

CA Kusai Goawala

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This clause was inserted in AY 2015-16 – however, has been brought in tax audit report now.Earlier the forfeited amount was deducted from cost of asset. Tax was deferred now preponedIf applicable, report:

Nature of IncomeAmount CA Kusai Goawala

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Clause 29B – Section 56(2)(x) – Tax on Deemed GiftSections 56(2)(vii) and (viia) substituted.Scope of earlier section expanded considerably

All entities covered – earlier AOP, BOI were not coveredEarlier some entities were covered for some of the assetsWidely held companies and shares of widely held companies were not covered

If applicable, report:

Nature of Income

Amount

CA Kusai Goawala

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Understanding Law – Section 56(2)(x)Any amount by any person from any person – All entities covered as recipient or giversAmount of money in excess of Rs.50000 in aggregate – without adequate consideration- Gift taxable

Immoveable propertyWithout consideration

With inadequate consideration

Difference greater than 50000

5% difference between Stamp Duty Value and Market Value permitted.

If above 5% entire difference taxable

CA Kusai Goawala

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Moveable Property Property Defined

Shares and Securities Jewellery Archaeological Collection

Drawings

Paintings

Sculptures

Work of Art

Bullion

Without Consideration

With Inadequate Consideration

Difference greater than 50000

CA Kusai Goawala

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ExemptionsAny sum of money/property received –From any relatives

On the occasion of marriage of an individualUnder a will or by way of inheritanceContemplation of death of the payer or donor

From any Local Authority

From any fund or foundation or university or educational institution or a hospital or medical institution or any trust or institution referred to in clause (23C) of section10.

CA Kusai Goawala

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From or by any trust or institution u/s 12A or 12AABy any fund or foundation or university or educational institution or a hospital or medical institution referred to in sub clause(iv)/(v)/(vi)/(via) of clause (23C) of section 10By way of transaction not regarded as transfer under clause(

i)/(iv)/(v)/(vi)/(via)/(viaa)/(vib)/(vic)/(

vica

)/(

vicb)/(vid)/(vii) of section 47.From an Individual by a trust created solely for benefit of relative

CA Kusai Goawala

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Transfers not consideredTotal or partial partition of a HUFGift or will or an irrevocable trustA company to its subsidiaryA subsidiary to its holding

AmalgamationDemergerBusiness reorganizationAgricultural land in India, etc.CA Kusai Goawala

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RELATIVESIn relation to an individual, means the-HusbandWifeBrother or Sister of an individual/spouse

Brother or Sister of either parentsAny lineal ascendant or descendant of individual/spouseSpouse of relatives mentioned abovePoser- Alimony received on a monthly basis from ex-husband by a person as per Divorce Decree- taxable?

CA Kusai Goawala

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Clause 30A – International Transaction – Associated EnterprisesWhether any primary adjustment made under 92CE(1) ?If Yes

Whether excess amount repatriated to India within time limit (90days)If no – whether imputed interest – Amount as per rule10CBDenominated in Indian currency- lending rate of SBI as on 1

st

day of

april of PY + 325 basis points.Denominated in foreign currency – 6 months LIBOR as on 30

th

september

of PY

+ 300 basis points.

CA Kusai Goawala

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Law relating to Section 92CE(1): - Transfer PricingThe assessee who undertakes International Transaction with Associated Enterprises.If it makes primary adjustment in the transfer price – following options.

Suomoto by the AssesseeBy AO and accepted by the assessee

Determined by an Advanced Pricing Agreement – Section 92CC

Board makes Advance Price Agreement – Arms length Price

CA Kusai Goawala

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As per Scheme – 92CC The above is binding on Department as well as Assessee – for five years Unless law changes or facts changes

Safe Harbour Rules – 92CB (determination of arm’s length price u/s 92C or 92CA Apply Rule 10TD – Various percentages of income and conditions in respect of various types of income)

Result of resolution of an assessment by mutual agreement procedure under DTAA.

CA Kusai Goawala

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Clause 30B – Expenditure by way of Interest or any similar nature Associated Enterprises to Non Resident Enterprise

By way of Interest or any similar nature paid by Assessee (Not applicable to Banking Company)Exceeding 30% of EBIDTAExcess to be disallowed and carried for 8 Assessment Years.

CA Kusai Goawala

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If applicable, report:Expenditure of InterestEBIDTA

Interest > 30% of EBIDTAInterest expense brought forward from earlier yearsInterest expense carried forward to subsequent years.

CA Kusai Goawala

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Clause 30C – GAAR – Impermissible Transactions – Section 96If applicable, report:

Nature Amount of the tax benefit aggregate to all the parties in the transaction

CA Kusai Goawala

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Law on GAAR – Section 95 to 98Section 95 – An arrangement may be declared as impermissible (section 96) and consequences (section 98) in relation to tax arising may be determined.Section 96 – Impermissible Transactions

Create rights obligations – not ordinarily created – arms lengthDirectly/Indirectly misuse or abuse of any provisions of the Act

Lacks Commercial Substance (section 97)

Which are not ordinarily employed for the

bonafide purposes.

CA Kusai Goawala

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Section 97 – Lacks commercial substanceInconsistent with/differs substantially with stepsInvolves round tripping/disguises value/location/source or ownership

Location of an asset/place of residence/transaction – with substantial commercial substance.No significant business risk or impact on cash flow except tax benefits.

CA Kusai Goawala

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Section 98 – ConsequencesDisregarding ,combining or recharacterising any stepTreating arrangement as non existing

Disregarding any accommodating partyDeeming persons as one personReallocating receipt or expenditure

Treating place of residence

Looking through

Equity may be treated as debt

Capital items may be considered as revenue

CA Kusai Goawala

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ExemptionsThe transactions having tax benefit up to 3 crore not covered.

Transactions with FII not covered.CA Kusai Goawala

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Clause 31 – Section 269ST Receipts/Payments of Rs.2 lakh or more.From a person :

In a dayIn a single transactionTransactions relating to one event

Any amounts received by an assessee or paid by an assessee to any person.

CA Kusai Goawala

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Exemptions:Government payment/receiptsBank payments/receiptsCovered under 269SS.

CA Kusai Goawala

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Reporting under Tax AuditName, address, PAN, Nature of transaction, Amount, date(ba

) – Receipts in cash(bb) – Receipts in bearer or order cheque/draft.(bc) – Payments in cash(

bd

) – Payments in bearer or order cheque/draft.

CA Kusai Goawala

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Clause 31(c),(d) & (e)- Typographical errors Following are the amendments:Clause 31(c)(v): in case the repayment was made by cheque or bank draft, whether the same was

taken or accepted “repaid” by an account payee cheque or an account payee bank draft. Clause 31(d)(ii):

amount of

“

repayment of” loan or deposit or any specified advance received otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account during the previous year.

CA Kusai Goawala

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Clause 31(e)(ii): amount of “repayment of” loan or deposit or any specified advance received by a cheque or a bank draft which is not an account payee cheque or account payee bank draft during the previous year.

CA Kusai Goawala

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Clause 34(b) – Anomaly rectifiedEarlier – If all returns filed within time limit – whether all data covered in TDS return covered not required.This is rectified.

Even if return filed within time details of all reportable entries in TDS returns to be verified and discrepancies to be reported.In depth TDS audit.Responsibility of the Auditor

CA Kusai Goawala

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36A – Deemed Dividend – Section 2(22)(e)Amount received.DateLaw.

Loan or advance given to a shareholder (holding 10% or more shares) by a Closely held Company.To the extent the Company has reserves.

CA Kusai Goawala

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Indirect method :Loan or advance given by the Company to another company – where shareholder holds 10% or more in the Company and 20% or more in another company.Once loan or advance given – Section applies even repaid immediately.

How to ascertain amount received by another company from a company – in Indirect Method – no bank receipt in the hands of assessee.Example

Company A gives loan to Company B – Company C holds 10% in Company A and 20% in Company B.

Deemed dividend in the hands of Company C – How to ascertain by Auditors of C

CA Kusai Goawala

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Clause 42 – Statement of Specified Financial Transactions – Compliance reportingID No.Type of Transaction

Due datesActual datesWhether all information reported as required to be reported.Forms 61, 61A and 61B.Law

Specified Financial Transactions.

All persons required to report if they have undertaken SFT.

CA Kusai Goawala

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SPECIFIED FINANCIAL TRANSACTIONSFor Banking CompanyPayment in cash of an amount aggregating 10 lakh rupees or more per annum

for purchase of bank drafts/banker’s cheque/pay ordersFor purchase of pre-paid instruments issued by RBI

Cash deposits/withdrawal aggregating to 50 lakh rupees or more per annum

CA Kusai Goawala

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Deposit in cash of an amount aggregating 10 lakh rupees or more per annumOne or more time deposits of a person aggregating 10 lakh rupees or more per annumPayments of an amount aggregating to:

1 lakh rupees or more per annum in cash,10 lakh rupees or more per annum by any other mode, against bill raised in respect of credit cards issued

CA Kusai Goawala

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Cash deposits from 9/11/2016 to 30/12/2016 aggregating to12.5 lakh in one or more current A/c2.5 lakh in one or more A/cCash deposits from 1/4/2016 to 9/11/2016

CA Kusai Goawala

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For Post Master General referred u/s 2(j) of the IPO Act,1898One or more time deposits of a person aggregating 10 lakh rupees or more

Deposit in cash of an amount aggregating 10 lakh rupees or moreCash deposits from 9/11/2016 to 30/12/2016 aggregating to12.5 lakh

in one or more current A/c

2.5

lakh in one or more A/cCash deposits from 1/4/2016 to 9/11/2016

CA Kusai Goawala

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For NBFCOne or more time deposits of a person aggregating 10 lakh rupees or moreOthers Sales in cash of an amount aggregating more than 2 lakh rupees – (also refer Section 269ST for penalty)

Receipt from any person aggregating to 10 lakh for acquiring bonds & debenturesReceipt from any person aggregating to 10 lakh for acquiring shares.

CA Kusai Goawala

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Clause 43 – Assessee or parent entity or Alternate Reporting Entity – Reporting CompliancesRequired to furnish the Report

Constituent entity ( Resident in India) Conditions for applicability-Constituent international groupParent is Non-Resident

If applicable, report in prescribed form & time.

What to report?

Whether it is an alternate reporting entity or international group, or

Details of parent entity or alternate entity & country in which entity is registered

CA Kusai Goawala

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Parent or Alternate Entity to report When to report?Within 12 months from end of said report accounting year.Which form- 3CEAC/ 3CEAD/ 3CEAE

CA Kusai Goawala

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What to disclose?Amount of revenuePBITIncome Tax paid

Income Tax amountShare CapitalAccumulated earnings

Number of employees

Tangible assets( except cash & cash equivalent)(in each of the country)

Nature of business activity

Where each of constituent is incorporated/ organized/ established/ resident

CA Kusai Goawala

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Clause 44 – GST informationGST Deem AuditDetailed break up of all expenditure incurred in following heads

To Registered DealersExempted CategoriesComposition dealers

Others

To Unregistered Dealers

Total amount

Annual Return under GST due in January whereas Tax Audit due in September

Details to be compiled from the returns filed

CA Kusai Goawala

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Any Questions ?

CA KUSAI GOAWALA

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Thank You

CA Kusai Goawala

kusai@gkdj.in

9823140520

CA KUSAI GOAWALA