[Opinion] Analysis of Changes Notified by CBDT to Tax Audit Report in Form No. 3CD

Srinivasan Anand G. – [2024] 160 taxmann.com 195 (Article)

The CBDT has notified changes to the Form 3CD vide Notification No. 27/2024/F. No. 370142/3/2024-TPL, dated 05-03-2024. The changes have been made to the following Clauses of Form 3CD:

(a) Clause 8a (Whether company has opted for the special tax regime with lower tax rates)

(b) Clause 12 (Reporting of profits assessable under presumptive tax schemes credited to P&L)

(c) Clause 18 (Depreciation admissible)

(d) Clause 19 (Amount admissible as deduction under Sections 35, 35D, etc.)

(e) Clause 21(a) [Amounts debited to P&L covered by Explanation 3 to section 37(1)]

(f) Clause 21(b) [Amounts inadmissible under Section 40(a)(ia)]

(g) Clause 26 (Amounts covered Section 43B)

(h) Clause 32 (Brought forward loss or depreciation)

These changes came into force on 05-03-2024 and shall apply to all tax audit reports signed or after 05-03-2024, irrespective of the assessment year to which the tax audit report relates. The analysis of changes in these clauses has been discussed below.

1. Clause 8a: Whether the assessee has opted for special taxation regimes of low tax rates without certain exemptions and deductions

Pre-amended Clause 8a requires the tax auditor to state

“Whether the assessee has opted for taxation under section 115BA/115BAA/115BAB/115BAC/115BAD“.

The Finance Act 2023 introduced an alternative tax scheme for manufacturing co-operative societies under Section 115BAE. Clause 8a adds the reference to Section 115BAE and requires the tax auditor to report

“Whether the assessee has opted for taxation under section 115BA/115BAA/115BAB/115BAC/115BAD/115BAE“.

Impact of changes on tax auditor’s reporting obligation

Where the resident cooperative society opts for Section 115BAE, the reporting under Clause 8a shall be made by the tax auditor as per the following:

• Obligation of tax auditor is limited to reporting whether assessee opted for tax regime – Clause 8a does not require the tax auditor to state whether the resident manufacturing co-operative society is eligible for the taxation regime under Section 115BAE, which the assessee co-operative society has opted for. The tax auditor is required to verify and report whether the assessee has exercised the option by e-filing Form 10-IFA in accordance with Rule 21AHA.
• Whether assessee opted for the new regime under Section 115BAE by e-filing Form 10-IFA – It may be noted that the option for Section 115BAE is to be exercised by e-filing Form 10-IFA on or before the due date specified under Section 139(1) for furnishing the first return of income for any previous year relevant to the assessment year commencing on or after the 1st day of April 2024 (AY 2024-25). If the assessee wishes to exercise the option for the first time for AY 2024-25, then Form 10-IFA is to be filed on or before 31-10-2024. It should be noted that the tax audit report for AY 2024-25 must be signed and e-filed on or before 30-09-2024. If the assessee-cooperative society has already exercised the option for the assessment year 2024-25 by e-filing Form 10-IFA, then the tax auditor may report “Yes” against Clause 8a after obtaining a copy of Form 10-IFA. The auditor must also obtain an MRL from the assessee that mentions this fact with e-filing details and that the assessee does not intend to claim deductions mentioned in Section 115BAE(2) for AY 2024-25.
• Assessee intends to opt for the new regime, but Form 10-IFA is yet to be filed as of the date of signing the tax audit report – As the audit report may be furnished before the due date to furnish the Form 10-IFA, it may happen that assessee has not e-filed Form 10-IFA as of the date of signing tax audit report though he intends to avail section 115BAE. If the assessee has not opted for Section 115BAE for AY 2024-25 as of the date of signing the tax audit report but intends to do so, the tax auditor should obtain a Management Representation Letter to that effect. The tax auditor should indicate in Clause (3) of Form 3CA that he has relied on the Management Representation Letter of the assessee’s intent to avail Section 115BAE in reporting on Clause 8a, though the assessee has not e-filed Form 10-IFA as of the date of signing this report.
• Where the assessee is not opting for the new regime – If the assessee-cooperative society does not want to exercise the option for the assessment year 2024-25, then the tax auditor may report “No” against Clause 8a. The auditor must also obtain an MRL from the assessee that mentions this fact. The auditor should mention in clause (3) of Form No. 3CA that the status reported is as of the date of signing the tax audit report and also the fact of reliance on MRL.
• Impact on other Clauses – If the assessee has opted for Section 115BAE by e-filing Form 10-IFA, then the tax auditor should ensure the following:

(a) While reporting admissible depreciation under clause 18(e) of Form No. 3CD, additional depreciation under Section 32(1)(iia) is not to be considered, and a note is given to that effect;

(b) Report amount admissible under Sections 32AD, 33AB, 33ABA, 35(1)(ii), 35(1)(iia), 35(1)(iii), 35(2AA), 35(2AB), 35AD, 35CCC as “Nil” against Clause 19 of Form No. 3CD; and

(c) Report amount admissible under Section 10AA or under Chapter-VIA (except under Section 80JJAA) as “Nil” against Clause 33 of Form No. 3CD.

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