How this new CBDT rule will create problems for your tax audit
The number of clauses in Form 3CD has increased to 41 this year from 32 last year, along with onerous and confusing new requirements
The Central Board of Direct Taxes (CBDT) issued a notification (33/2014) on 25 July 2014 for amending forms 3CA, 3CB and 3CD. For chartered accountants (CAs), who have already finalised their audits and filed report online and had the same confirmed online by the auditee before 25 July 2014, there is no problem. In case the CA has filed the report before 25 July 2014 and the auditee has confirmed it online on or after 25 July 2014, there is no clarity on whether the report will be accepted or not. We will just have to wait for the clarification to come from the CBDT.
I will not write too much on the technical aspects of the changes, which have taken place, as I am sure there will be a lot of seminars and conferences where these changes will be taken up. This article proposes to deal only with the challenges, the auditor is likely to face, specially as this notification has come at a time when CA firms are at the end of most audit finalisation and there are less than two months left for the deadline for such filing (30 September 2014). The number of clauses in Form 3CD has increased to 41 this year from 32 last year.
Clause 11(b) has now put forth a requirement to give addresses of locations along with the books of accounts maintained at each location. Take for example, State Bank of India (SBI) has more than 3,000 branches. How is the auditor going to enter that kind of data into his tax audit report? Can a PDF file be obtained from the Bank and the same uploaded into the online Form 3CD? One does not know whether this has even been thought of at the time of drafting these requirements. What happens to books maintained in electronic format and data in cloud computers located say in the US? Almost all modern offices used computers and have data on servers located in remote places – there is no clarity on how one will report on this!
Clause 11(c) requires the auditor to report on “List of books of account and nature of relevant documents examined”. Now this clause is so vague. What documents are we talking about? Are we talking about payment/ receipt vouchers, purchase / sales process documents, journals, agreements, contracts – what are we talking about? In big industrial organisations, there are hundreds of agreements and contracts (if we restrict ourselves to only these), which will have to be listed and uploaded in the return. As the tax audit online return forms have not been notified as yet, we have no clue as to the amount of data that will be accepted. Will we be allowed to upload a PDF file giving the requested details? Also it is the time this will take to compile is suspect as of now, as there is no clarity on what the department means by “relevant documents”.
Clause 21 in lieu of old clause 11(a,b,c) has done away with providing details for advertisements in brochures, pamphlets produced by political parties and it asks for the details to be given in the attached table format. The table format still contains above words, so there is still a lot of work to be done on the above – otherwise this is going to lead to a lot of confusion. 
The requirements for reporting of payments other than by account payee cheque under section 40A(3) read with Rule 6DD, has done away with the requirement of obtaining a certificate to that effect from the client. Modern business includes payments by real time gross settlement systems (RTGS), national electronic funds transfer (NEFT) and interbank mobile payment system or immediate payment service (IMPS). What are the reporting requirements for such kind of payments? There is no clarity on this.
Clause 34 requires the tax deducted at source (TDS) details to be certified by the auditor. The table requirements, as notified appear to be a straight copy of the Form 26Q, which one files every quarter while filing the TDS return. The requirements are for the auditor to certify short payments, payments at rates less than the rate specified, non-payment, and no deduction of TDS. This data for even small to medium sized companies is huge and having the same uploaded into the tax audit report is going to be a challenge. Companies supplying tax filing software will have their hands full trying to deliver software, which will take care of these additional requirements.
Clause 41 wants the auditor to report in connection with various demands raised by various government departments. If the client does not share this information, it is going to be very difficult to report unless there is a financial impact, which one can find out during the course of audit. One is not sure whether only demand paid in pursuant to an order passed by the relevant tax authority is required to be reported under clause 41.
The Institute of Chartered Accountants of India (ICAI) should take up with the Finance Ministry, the question of bringing in such wide ranging requirements at the eleventh hour. We as a professional body should advise the Ministry that all such requirements should be notified in March of the relevant financial year and not in July or August as that leaves very little time for clients, professionals and software companies to gear up and make suitable changes to their plans to accommodate such last minute requirements. 
As far as the department itself is concerned, new Forms still do not appear on the Income Tax (I-T)  Department web-site. Professionals using tax software also have to wait for updates to come to complete their task of finalising audits and uploading the tax audit reports and returns. 
All changes are welcome – it is clear that the tax department is putting complete responsibility of assessment of returns on the auditor. The task is too onerous and time-consuming to do it in the short time frame expected – the audit is risk vis-à-vis the audit fees is too high, especially when the auditor is expected to certify the report as true and correct! The best thing to do would be to extend the date for filing the tax audit report to 31 December 2014 or in the alternative make the new forms applicable from AY2015-16.




2 years ago

Is it now necessary for the Auditors to Report under the famous CLAUSE 34 TAX AUDIT REPORT how many times Employees go to the loo and how many times for "official reasons" and how many times for "personal reasons" and whether any GOI TDS is deductible AND If not Auditors should explain in their Report "why no TDS was deducted" giving the appropriate TDS Section....


2 years ago

The CLAUSE 34 Requirements of our SME PVT.LTD.Company are so baffling to understand that Accountants and Auditors do not see eye to eye. What the hell is this CBDT trying to prove? That the Tax-Paying Public are Furnishing Falsehoods while the HOLY COW GOI is performing HOLY RITES?


3 years ago

They are asking for more information most certainly trying to push the responsibility on the shoulders of the Auditor's. This is a similar strategy adopted during the introduction of TDS, wherein they could not catch each and everybody so they pushed the responsibility of collecting Tax on big businesses.

Twitter launches video ads

The new video ad feature would bring advertising revenue for Twitter, which has struggled to convince investors it is on a path to profitability


Twitter has unveiled a new advertising programme that delivers “promoted videos” to the tweet stream of users of the popular messaging platform.


The new programme adds to the source of advertising revenue for Twitter, which has struggled to convince investors it is on a path to profitability.


“By using Promoted Video, it’s easy for brands to upload and distribute video on Twitter, and to measure the reach and effectiveness of this content,” product manager David Regan said in a blog post.


Regan said the test launch came “after months of experiments and feedback from users and brands.”


Regan said that to make it easier for advertisers, Twitter will offer a “cost per view” model: “This means advertisers only get charged when a user starts playing the video,” he said.


“Additionally, advertisers using Promoted Video have access to robust video analytics,” such as how many people view the entire video, he said.


Twitter accounted for 0.5% of global digital ad revenues in 2013, according to research firm eMarketer, and expects to increase that to 0.8% this year, as digital ad spending grows to $140.15 billion.


Twitter said last month that the number of monthly active users of the platform has hit 271 million, up 24% when compared with the same period a year earlier.


Tata-SIA's 'Vistara' puts other carriers on their toes

The very announcement of Tata-SIA's full service domestic carrier Vistara's entry into the Indian market has put all other operators on their toes


Tata-SIA's full service domestic airline is aptly called, Vistara, to cover the vast territory in India. It expects to travel to neighbouring countries, when the 5/20 rules are expected to be revised. It plans to launch services during the festive season starting in October this year. Its first aircraft is scheduled for delivery in September.


As it stands now, Vistara hopes to obtain Air Operators Permit (AOP) from the Director General of Civil Aviation (DGCA) soon, after which some more formalities will have to be completed before actual passenger flights can start.


Vistara has Delhi as the designated hub from where initial services will cover Mumbai, Goa, Patna, Chandigarh, Srinagar, Hyderabad and Bangalore in its first year of operation. Other destinations that will be included, over the next four years, are Chennai, Pune, Kolkata and Kochi. This will naturally depend upon the volumes and traffic flows.


Vistara, being a full service airline, is expected to meet exacting demand of its passengers and they hope to commence operations with A 320-200. Eventually, they expect to have a fleet of 20 planes, including seven A320 neos by Vistara's fifth year of operation. By the end of 2014, however, they will be serving with five aircrafts to meet their needs.


During a meet with the press, the CEO of Vistara, Phee Teik Yeoh, stated that they shall treat every passenger as a "guest" and make the full service facility in all sectors to their comfort.


The official announcement of the arrival of Vistara in the airline scene witnessed other serious developments in the domestic market. The chief operating officer of SpiceJet, Sanjiv Kapoor, issued a reassurance to its employees that the airline was not headed the Kingfisher way. The public and its employees are aware that the airline's accumulated losses rose to Rs2,189 crore and debt was Rs1,736 crore. The next quarterly results are expected to be announced on 14th August.


GoAir joined IndiGo as the next airline in the country to reach "profitable" status, even if small. IndiGo, India's largest domestic airline has been operating at a profit and may soon go in for an initial public offering (IPO), though details are not yet made public. GoAir is reported to be looking for a foreign airline for foreign direct investment (FDI). "We are looking for a long term strategic partner," said its CEO Giorgio De Roni.


GoAir was established in 2005 and will be getting its 20th aircraft in October. It will by then be able to fulfil the need of 5/20 rule, currently in operation, and may seek permission to fly abroad with the appropriate authorities.


Another major move came from Jet Airways, soon after the Vistara announcement. Jet announced that they would be bring Jet Konnect under its own brand by the end of this year and they would be happy to be able to "serve a meal, post an additional crew member" to make the master brand acceptable to the travelling public. Jet Airways and Etihad Airways announced a strategic alliance in Mumbai with the latter having a 24% stake in the former. President and CEO of Etihad Airways, James Hogan is reported to have said, during the Mumbai meet, that "Jet's India operations will be a stronger threat to other domestic low cost carriers". Since 2009, however, Jet Airways has not reported a profit. They expect to go on cost-cutting measures and launch more international routes in order to return to profitability by 2017.


Thus, the very announcement of Vistara's entry into the Indian market has put all other operators on their toes. In the next few months, one may expect some sort of mutually beneficial route arrangements or even mergers among the low cost carriers in order to secure a good share of the market and reduce capex on buying or leasing new aircraft by utilising the existing seat capacity.


It is only hoped that Vistara does not have hiccups to actually launch its flights which, as it stands now, are scheduled for October, the festive season.


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)


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