7 Reason why Tax Audit Report needs revision

25.09.2014

CA Rajkamal Shah
Seven reasons why extension of date of filing Tax Audit Report is not sufficient and the new
format needs revision:
1. New clause 4: Whether the assessee is liable to pay indirect tax like excise duty,
service tax, sales tax, customs duty, etc. if yes, please furnish the registration number or
any other identification number allotted for the same.
Comment: There are many Indirect taxes levied by various state Government, e.g. Excise
Duty, Service Tax, VAT, Luxury tax, Entertainment tax etc for which the assessee has to
register with the department. However, certain taxes are transaction based taxes like Octroi,
Local Body Tax, Stamp duty etc for which no permanent registration number is required.
Further, different state government have different levies. The Income tax being a Central
levy, it may be difficult for an auditor to comprehend and report about various indirect taxes
by different tax audits. The requirement of mentioning registration No. should be suitability
modified or specific as regards to the indirect taxes to be covered.
2. New clause 19: Amount admissible under section; S. 32AC, 33AB, 33ABA, 35(1)(i),
35(1)(ii), 35(1)(iii), 35(1)(iv), 35(2AA), 35(2AB), 35ABB, 35AC, 35AD, 35CCA, 35CCB,
35CCC, 35CCD, 35D, 35DD, 35DDA and 35 E. Amount debited to profit and Loss Account
Amt admissible as per the provision of IT Act,1961, & also fulfills the conditions, if any
specified under the relevant 13 provisions of the IT act 1961 or Income Tax Rules, 1962 or
any other guidelines, circular, etc issued in this behalf.
Comment: The requirement as to satisfaction of compliance with any other guidelines,
circular, etc is quite vague and nearly impossible to perform by any auditor. Such guidelines
and circulars may not have statutory force and biding on the assessee. Secondly, all the
guidelines may not be in public domain.
3. New clause 28: Whether during the previous year the assessee has received any property,
being share of a company not being a company in which the public are substantially
interested, without consideration or for inadequate consideration as referred to in section
56(2)(viia), if yes, please furnish the details of the same.
Comment: The auditor of the recipient of the shares of a closely held company would be at
loss to report about the adequacy of the consideration for the simple reason that we may not
privy of the information for details required to find out the value of shares of such company.
It may also be difficult to get the share evaluated by the auditor of such company or an
independent valuer.

4. New clause 29: Whether during the previous year the assessee received any
consideration for issue of shares which exceeds the fair market value of the shares as
referred to in section 56(2)(viib), if yes, please furnish the details of the same.
Comment: S. 56(2)(viib) require the value of intangible assets being goodwill, know how,
patents, copyrights, trademarks, licenses, franchises or any other business or commercial
rights of similar nature to be taken into account for arriving the fair market value of shares.
The auditor may have to depend on different experts or valuers and rely on them to report
about adequacy of consideration.
5. New clause 33: Section-wise details of deductions, if any, admissible under Chapter VIA
or Chapter III (Section 10A, Section 10AA). 1) Section under which deduction is claimed 2)
Amounts admissible as per the provision of the Income Tax Act, 1961 and fulfils the
conditions, if any, specified under the relevant provisions of Income Tax Act, 1961 or Income
Tax Rules,1962 or any other guidelines, circular, etc, issued in this behalf.
Comment: The requirement as to satisfaction of compliance with any other guidelines,
circular, etc is quite vague and nearly impossible to perform by any auditor. Such guidelines
and circulars may not have statutory force and biding on the assessee. Secondly, all the
guidelines may not be in public domain.
6. New clause 39: Whether any audit was conducted under section 72A of the Finance
Act,1994 in relation to valuation of taxable services, if yes, give the details, if any, of
disqualification or disagreement on any matter/item/value/quantity as may be
reported/identified by the auditor.
Comment: In case of service tax audit the details of quantity is not available. Hence it may
not be possible to meet the requirement.
7. New clause 41: Please furnish the details of demand raised or refund issued during the
previous year under any tax laws other than Income Tax Act, 1961 and Wealth tax Act, 1957
alongwith details of relevant proceedings.
Comment: The requirement cast onerous responsibility as it does not confine to any
particular tax but the auditor will have to go through the demand raised and remaining
outstanding at the end of the previous year in relation to all tax laws relevant to the assessees
business. Further, to report the relevant proceedings may also be very difficult.
In view of the onerous requirements, sufficient time to be given to the assessees and auditors
and the format should come into effect only after introduction prior to beginning of the
financial year and placing the draft format in the public domain for discussion and inviting
comments from the stakeholders.
(Author may be reached at rajkamal @ rsco.biz)