[Opinion] CARO 2020 & Schedule III impact on Income Tax Assessment

You must be aware about the applicability of Companies (Auditor’s Report) Order, 2016 (CARO) and Schedule III on the financial statements of a Company. Recently, Ministry of Corporate Affairs has notified amendments in CARO, 2016 and Schedule III by the virtue of which CARO 2016 has been amended to CARO 2020.Amendments in CARO, 2016 and Schedule III were notified by MCA on 25th February, 2020 and 24th March, 2021 respectively. In this article we will be seeing the impact of these amendments on Income Tax assessment.

Applicability of CARO 2020 & Amended Schedule III

CARO 2020 was initially applicable w.e.f. 1stApril, 2019 however, its applicability was postponed and was made applicable from 1st April, 2021. Independent Auditor’s Report issued for the F.Y. 21-22 was prepared in accordance with CARO 2020. MCA has provided 21 clauses in CARO 2020 (divided into 51 sub-clauses) out of which 17 clauses have been substantially amended.

MCA amended Schedule III with an objective to increase transparency and provide additional disclosures to the users of the financial statements. These amendments were made effective from 1stApril, 2021, therefore, applicable to the Financial Statements prepared for the F.Y. 2021-22 and onwards.

Some of the amendments in Schedule III are in line with the amendments prescribed in CARO 2020. Schedule III amendments propelled the makers of the financial statements to provide additional disclosures which were earlier never made and compiled. These amendments in my understanding will not only affect the proceeding before ROC but also Income Tax.

A number of amendments have been prescribed by MCA, however, in this article we will keep our discussion confined to the amendments which would readily call for an I-T assessment.

Overview of Major Amendments

• Reconciliation statement of quarterly current assets such as closing stock submitted to the banks with financial statements to be provided
• Ageing schedule of Trade Payables to be provided in the financials
• Relationship with Struck off Companies to be disclosed in financial statements
• Disclosure of Loans or Advances in the nature of loans granted to promoters, directors, KMPs and the related parties

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