Transcript Tax audit-Issues related to taxation

Tax audit-Issues related to
taxation
Programme on 6th September, 2014
Narendra Hindocha
Clause 17-Reference: Section 43CA or 50C
• New requirement
• Transfer of land or building or both
• Consideration less than value assessed or assessable by authority of
State Government
• Details of property, amount of consideration and value assessed or
assessable
Section 50C
• Applies to transfer of Capital Asset as opposed to Stock-in-trade
• Issue:
Assessee is individual. Asset, being not connected with business, not
recorded in books of account. Whether need to report.
Section 50C: How ascertain
assessed/assessable value
• Certificate of value as per Jantri or ready reckoner.
• Certificate of stamp duty paid.
• Work back from stamp actually used
• Work from the ready reckoner available in public domain.
Section 50C
• Issue:
• Value of immovable assessed separately for land and building.
• Value of land and building written separately in the sale deed.
• Capital gains computed separately for land and building.
Whether comparison to be done in aggregate.
Section 43CA
• Applies to stock in trade as opposed to capital asset
• Date of agreement fixing consideration different from date of
registration for transfer, allowed to take value on date of agreementCondition: some consideration other than cash received before date of
agreement for transfer.
43CA
• Issue:
• Builder-enters into development agreement-constructs over 3 yearstransfers land or partly constructed building and enters into
agreement to construct at different points of time. Accounts for
revenue progressively.
• Amount to be reported-year in which to be reported –property to be
reported
Clause 19-Amounts admissible under various
sections
• Corresponds to old clause 15.
• Additional sections 32AC, 35(2AA), 35(2AB), 35AD, 35CCC, 35CCD
• Requirement is tabulated to show sectionwise debit in accounts and
allowable.
• To confirm fulfilment of conditions in Act, Rules, Guideline, Circular
Section 32AC
• Conditions:
Manufacturing company-New machinery exceeding 100 cr.-acquired and installed
Between 1-4-13 and 31-3-15.
Deduction at 15% of cost. Need to hold the asset for 5 years from date of
installation.
Exclude ships, aircraft, office appliances, computers, vehicles, assets installed in
office/residential premises and assets getting 100% deduction in one year.
• From A.Y. 15-16, 25 Cr. in relevant year replaces 100 cr. Over 2 years
35 (2AA) and 35 (2AB)
• 35(2AA) : 200% for donations to Laboratory/IIT/University/ specified
person for research under programme approved.
Whether we need to go beyond the approval. What if the data given in
application is incorrect.
• 35(2AB): Biotechnology/Manufacturing company (Not for Eleventh
Schedule product)-cost of inhouse research excluding land and
building-200%-need agreement with prescribed authority for
cooperation and audit.
35AD
• Allowable in case of new businesses of 13 categories including
warehousing facility, hotels, hospitals, project under affordable
housing scheme, fertilizer production etc.
• Deduction equal to 100% /150% ,depending on business, of capital
expenditure
• Expenditure to be before commencement of business.
35CCC and 35CCD
• 35CCC : Expenditure on Agricultural Extension Project- 150% of
expenditure on project notified based on guidelines. Rule 6AAD.
• 35CCD: Expenditure incurred by company on skill development
project notified based on guidelines.
Clause 21 (a)
• Corresponds to old 17 (a) to (e)
• Details of debits in nature of capital, personal, advertisement expenditure
etc.
• Effect of `etc.’
• Effect of omission of `in any souvenir, brochure……. Published by a political
party’ after `advertisement’
• Substitution of the word `Amount’ in place of `details’
Payments to Club, penalty, etc.
• Earlier entrance fees to clubs to be reported. Now only cost of club
services and facilities to report.
• Whether only disallowable amount to be reported.
• Penalty for violation of law.
• Other penalties
• Expenditure for purpose prohibited by law
Clause 21 (b):Disallowance -Section 40(a) (i)
• Earlier only amount required. Now to give:
-Date of payment
-Amount
-Nature of payment
-Name and address of payee.
• Separately for cases in which tax not deducted as for cases in which
tax deducted but not paid to Government before due date.
Disallowance section 40(a)(ia)
• Disallowance for payment to residents without complying with
requirements of TDS
• Requirement similar to 40(a)(i) in case of nonresidents.
• Here payment of TDS upto due date for filing return not to report.
• Last line requires stating `amount (out of tax deducted) deposited, if
any.
Section40(a)-Other clauses
• New requirement to report disallowables on account of :
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Fringe benefit tax
Tax In/outside India, on/computed with reference to profits of business
Wealth tax in/outside India
Taxes/fees etc levied exclusively in State Government undertaking
Payment to PF/Other fund unless arrangement made for TDS where
applicable.
• Tax paid on behalf of employee under section 10(10CC)
Disallowance under section 40A(3)
• Corresponds to old clause 17(h).
• Omission of requirement to state if certificate obtained
• New Reporting requirement in case payment made in year following
the year of incurring expenditure.
• New requirement to report details including date, nature of payment,
name and PA No. of payee where available. Address not required.
Clause 23- section 40A(2)
• Rule requires particulars of payments to persons specified in Section
40A(2). Utility on website gives form of particulars.
• Apart from names, relation, nature of transaction and amount, new
utility calls for PA NO.
• Disallowance not to be computed.
• No disallowance for transaction at arm’s length as per 92BA
Clause 28 Receipt of shares in closely held
company
• New requirement -Reference: Section 56 (2)(viia)
• Receipt of Shares of a company other than one in which public are
substantially interested
• Report if consideration inadequate. Reference Rule 11U/UA
• Details: Name and PA No., Name and CIN of company, No. of shares,
Consideration and fair market value.
Clause 29-Shares issued
• Applies only to closely held company. Report name, PA No., consideration
and market value.
• Reporting if shares issued to a resident at more than face value and also
more than market rate.
• Reference Rule 11U/UA. Different from earlier clause-here valuation based
on discounted free cash flow allowed.
• Not applicable to receipt by venture capital undertaking or other notified
companies.
Clause 32:Losses and allowances
• Same details as earlier regarding brought forward losses and
depreciation plus change in shareholding-section 79
• Additional relating to losses for the year:
-Speculation loss-section 73-Company deemed to be in speculation
business and other cases.
-Losses of business referred to in section 35AD
Clause 33 Deductions
• Earlier reporting restricted to Chapter VIA, now extended to Chapter
III
• Reporting covers assertion that conditions in Act, Rules, Guidelines,
Circular etc are satisfied.
Clause 34-TDS and TCS
• Earlier reporting of only defaults. Now total reporting of all tax
deductible.
• Reporting extended to Tax collectible at source also.
• Reporting although data available with Department.
Details to be reported
• TAN
• Section
• Nature of payment
• Total payment/receipt of that nature.
Payments to contractors
• Possible heads in which debited-
-Freight
-Advertisement
-Staff welfare
-Jobwork charges
-Labour charges
-Fixed assets
-Security charges
-Recruitment
-Effluent disposal
-Repairs and maintenance
Other columns
• Amount on which tax was required to be deducted
• Breakup of above-deductible at prescribed rate and deductible at
lower rate
• Tax on two components
• Tax not deposited
Other reporting for TDS
• If statement not furnished within prescribed time, report TAN, type of
form, due date, date of report.
• Also report whether statement contains information about all
transactions required to be reported.
• Details of interest payable under sections 201(1A) and 206C(7)
Dividend Distribution Tax and other audit
reports
• Dividend distributed, reduction for dividend from subsidiary and
dividend paid to New Pension System Trust, tax paid and date.
• If cost audit/audit under Central Excise Act or audit under Finance Act
1994(Service-tax) carried out:
Details of disqualification or disagreement
Ratios
• Gross profit/Net profit/Stock in trade compared to turnover.
• Material consumed/finished goods produced.
• Now preceding year data to be given
• Calculations not required to be reported.
Clause 41
• Details of demands raised or refund issued
• During the previous year
• Under tax laws
• With details of proceedings
Other changes
• 3CA-adds the words `according to examination of books including
documents’ after the words `according to explanations given to us’.
However such addition not seen in 3CB.
• In place of `year ended ….’ the words `period beginning from …….to
ending on…….
• Stamp and seal required.
• Whether liable to pay indirect taxes. If yes, give registration No.
Other changes
• 3CB allows stating of observations/qualifications. Need to select
qualifications from a drop down manu.