Precautions to be Taken by Tax Auditor in Certifying Clauses 31 and 33 of Form 3CD for Companies

In case of furnishing incorrect information in a tax audit report under section 44AB under the Income Tax Act, 1961 may result in a penalty of Rs. 10,000 under section 271J of the Act for each such report or certificate being issued by the tax auditor. The following paragraphs provide the detailed precautions to be taken by the tax auditor of a company assessee in filling up, verifying, and cross-checking details stated against clauses 31 and 33 of Form 3CD:

Clause 31(a): Particulars of each loan or deposit in an amount exceeding the limit specified in section 269SS taken or accepted during the previous year:

(i) name, address and Permanent Account Number or Aadhaar Number (if available with the assessee) of the lender or depositor;

(ii) amount of loan or deposit taken or accepted;

(iii) whether the loan or deposit was squared up during the previous year;

(iv) maximum amount outstanding in the account at any time during the previous year;

(v) whether the loan or deposit was taken or accepted by cheque or bank draft or use of electronic clearing system through a bank account;

(vi) in case the loan or deposit was taken or accepted by cheque or bank draft, whether the same was taken or accepted by an account payee cheque or an account payee bank draft.

Note the following points:

• The e-filing utility of form 3CD requires tax auditor to report on clause 31(a) in a Tabular format.
• In the last but one column of the Tabular format, the “Select” button gives the following options:

i) Yes-Cheque

ii) Yes-Bank draft

iii) Yes-Electronic clearing system

iv) Yes-Credit Card

v) Yes-Debit Card

vi) Yes-Net Banking

vii) Yes-IMPS

viii) Yes-UPI

ix) Yes-RTGS

x) Yes-NEFT

xi) Yes-BHIM

xii) No

• If “Yes-Cheque” Option is selected, then one of the two options in the last column “Account payee cheque” and “other mode” is to be selected in last column.
• If “Yes Bank Draft” option is selected, then, one of the two options “Account Payee Bank Draft” and “Other Mode” are to be selected in the last column.
• If any other option is selected in the dropdown of the second last column, no entry needs to be made in last column.
• Rows can be added or deleted in the tabular format as necessary if there are many entries.
• Thus, the e-filing utility requires tax auditor to report particulars of each and every loan or deposit in an amount exceeding the limit specified in section 269SS (limit of ₹20,000) taken or accepted during the previous year by any which mode.
• The word “each loan or deposit” in the opening line of clause 31(a) suggests that reporting of consolidated figures mentioning ‘various parties’ will not suffice. Details of loans or deposits received or accepted will have to be reported person-wise (lender-wise/depositor-wise).
• Cross-check from annual report and audited financial statements as to whether loans/deposits shown as accepted are reported if exceeding specified limit of ₹20,000.
• Cross-check figures reported with return in Form DPT-3 duly certified by statutory auditors and filed by the Company in MCA portal. Reconcile figures reported under clause 31(a) with figures as per audited accounts and Form DPT-3.
• Check the Register of deposits maintained by the Company pursuant to Rule 14 of the Companies (Acceptance of Deposits) Rules, 2014.
• In Observations/Qualifications paragraph i.e., clause (3) of Form No. 3CA, the tax auditor should make the necessary change in respect to “me/us” while reporting the disclaimer as per the language used in Para 57.9 of ICAI’s Guidance Note on Tax Audit regarding the inability to verify whether the cheques or DDs by which deposits or loans were taken were crossed account payee or not. Since the general language is provided in the Guidance Note, the report in Form No. 3CA should be reworded as applicable.

Clause 31(b): Particulars of each specified sum in an amount exceeding the limit specified in section 269SS taken or accepted during the previous year:

(i) name, address and Permanent Account Number or Aadhaar Number (if available with the assessee) of the person from whom specified sum is received;

(ii) amount of specified sum taken or accepted;

(iii) whether the specified sum was taken or accepted by cheque or bank draft or use of electronic clearing system through a bank account;

(iv) in case the specified sum was taken or accepted by cheque or bank draft, whether the same was taken or accepted by an account payee cheque or an account payee bank draft.

Note the following points:

• “Specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to the transfer of an immovable property, whether or not the transfer takes place.
• E-filing utility requires reporting of every advance for transfer of immovable property exceeding the limit of ₹ 20,000 whether or not the transfer takes place and irrespective of the mode by which it is received.
• The MRL obtained for Clause 17 of Form No. 3CD containing details of sales of immovable properties should contain details of advances received along with details of mode of receipt. Details of advances received in MRL should be verified.
• The Tabular format in the e-filing utility in Clause 31(b) works on the same lines as the last two columns of Tabular format in Clause 31(a).
• The word “each specified sum” in the opening line of clause 31(b) suggests that reporting of consolidated figures mentioning ‘various parties’ will not suffice. Details of the specified sum received will have to be reported person-wise (buyer-wise).
• In the Observations/Qualifications paragraph i.e., clause (3) of Form No. 3CA, the tax auditor should make the necessary change with respect to “me/us” while reporting the disclaimer as per the language used in Para 57.9 of ICAI’s Guidance Note on Tax Audit regarding the inability to verify whether the cheques or DDs by which specified sums were received were crossed account payee or not. Since the general language is provided in the Guidance Note, the report in Form No. 3CA should be reworded as applicable.
• In cases of sales of immovable properties where advance has been received and property not transferred by executing sales deed, the tax auditor should verify whether advance has been forfeited and, if so, whether the same requires reporting under clause 29A.
• If the property for which the advance is received is transferred by execution of the sale deed, the matter requires reporting under clause 17.

Clause 31(ba): Particulars of each receipt in an amount exceeding the limit specified in section 269ST, in aggregate from a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion from a person, during the previous year, where such receipt is otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account:

(i) Name, address and Permanent Account Number or Aadhaar Number (if available with the assessee) of the payer;

(ii) Nature of transaction;

(iii) Amount of receipt (in Rs.);

(iv) Date of receipt;

Note the following:

• Clause 31(ba) requires reporting of particulars of each receipt in an amount exceeding the limit of ₹ 2,00,000 specified in section 269ST, in aggregate from a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion from a person, during the previous year, where such receipt is otherwise than by a cheque or a bank draft or use of ECS through a bank account. Clause 31(ba) requires reporting of such receipts where the mode of receipt is other than cheque or DD or ECS. In other words, such receipts through cash, debit card, credit card, Net banking, RTGS, NEFT, BHIM, UPI, and Aadhaar Pay will have to be reported under clause 31(ba). The particulars are required to be furnished in the Tabular format prescribed by e-filing utility of Form No. 3CD.
• Once the receipt exceeds the limit specified in section 269ST, the particulars of such transactions will have to be reported under this clause irrespective of whether receipt is on capital account and revenue account or whether receipt is taxable or tax-exempt.
• Clause 31(ba) requires particulars to be furnished if receipts,

(a) are from one person in a day, whether related to a single transaction or otherwise, even if the receipts individually are lower than Rs. 2 lakh but in aggregate amount to Rs. 2 lakh or more, or

(b) relate to a single transaction (even if the receipts are on different dates and individual receipts are less than Rs. 2 lakh) or

(c) are in respect of more than one transaction but relate to a single event or occasion even if the receipts are on different dates and individuals are less than Rs. 2 lakh.

• Exercise care and caution while arriving at the particulars of receipts pertaining to a single transaction or relating to a single event or occasion.
• Link all receipts otherwise than by the modes specified in section 269ST received in respect of a single transaction and verify if the aggregate amount exceeds the limits specified in section 269ST.
• Whether the receipts are pertaining to a single transaction or different transaction will depend on facts of the case.
• One cannot blindly go invoice-wise. A single invoice may relate to multiple transactions and multiple bills may relate to a single transaction.
• The tax auditor will have to exercise his professional judgment to decide whether the receipts/payments pertaining to a single transaction.
• Tax auditor will have to exercise his professional judgment in deciding whether received/payments though pertaining to more than one transaction, pertain to a single event or occasion. For example, for a function organised by a person, assessee contractor may have been given catering contract as well as contract for flower decoration. In such a case, while the transactions may be different the occasion or event would be the same and provisions of section 269ST will be attracted if the receipts exceeding the limits specified under section 269ST are by mode other than those specified in the section.
• CBDT’s Circular No. 22/2017 dated 3rd July 2017 clarifies that ‘in respect of receipt in the nature of repayment of loan by NBFCs or HFCs, the receipt of one instalment of loan repayment in respect of a loan shall constitute a ‘single transaction’ as specified in clause (b) of section 269ST of the Act and all the instalments paid for the loan shall not be aggregated for the purposes of determining the applicability of the provisions of section 269ST.’
• The assessee may have purchased goods or services while simultaneously he may have sold goods or services to the same party consideration for which exceeds Rs. 2 lakh. In such a case if the amount of consideration for purchase is set off against the amount receivable for the sale of goods or services, such set-off is not a receipt as contemplated under section 269ST. If the amount of such set-off exceeds Rs. 2 lakh, the tax auditor may give an appropriate note in clause (3) of Form No. 3CA to the effect that such set off not being a receipt or payment has not been included in the particulars given and the relevant sub-clause.
• If such receipts are otherwise than by account payee cheque or an account payee draft or by use of an electronic clearing system through a bank account, then the tax auditor will have to verify the mode of the receipt.
• The words “each receipt in an amount exceeding the limit specified in section 269ST” in opening line of clause 31(ba) suggest that consolidated reporting of consolidated figures mentioning ‘various parties’ will not suffice. However, where the receipts pertain to a single transaction or transactions relating to one event or occasion, such receipts may be grouped together while reporting.
• The tax auditor may also keep in his record date of the receipts reported under clause 31(ba), although not required to be reported under the said clause.
• In terms of section 285BA, an assessee and certain other specified/prescribed persons are required to furnish a statement in respect of specified financial transactions. The statement in respect of specified financial transactions is to be furnished to the Director of Income-tax (Intelligence and Criminal Investigation) or Joint Director of Income-tax (Intelligence and Criminal Investigation) in Form No. 61A.
• Rule 114E provides that statement of financial transactions (SFT) required to be furnished under section 285BA shall be furnished in Form No. 61A.
• The statement is to be furnished in respect of the financial year on or before 31st May of the immediately following financial year. Table in sub-rule (2) gives the nature and value of transaction in respect of which the statement is required to be filed and persons who are required to file the statement.
• Specified transactions include receipt of cash payment exceeding ₹ 2 lahks for sale by any person (who is liable for audit under section 44AB) of goods and services of any nature other than those specified at serial numbers 1 to 10 in the Table in sub-rule (2) of Rule 114E.
• Verify whether the assessee has received more than ₹2 lakh in cash in a single transaction in the financial year for the sale of goods and services, without applying the rule of aggregation. If so, verify whether SFT in Form 61A has been filed. If not, report the default in Clause 42 of Form No. 3CD.
• Reporting under clause 31(ba) is necessary even where SFT in Form 61A has been filed in respect of cash receipt transaction. However, the auditor may consider indicating by way of a Note in Clause (3) of Form 3CA that Form 61A has been filed in respect of items indicated in serial nos…. in clause 31(ba).

Clause 31(bb): Particulars of each receipt in an amount exceeding the limit specified in section 269ST, in aggregate from a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion from a person, received by a cheque or bank draft, not being an account payee cheque or an account payee bank draft, during the previous year:

(i) Name, address and Permanent Account Number or Aadhaar Number (if available with the assessee) of the payer;

(ii) Amount of receipt (in Rs.)

Note the following:

• Clause 31(bb) requires reporting of particulars of each receipt in an amount exceeding the limit specified in section 269ST as above received by a cheque or bank draft not being an account payee cheque or an account payee bank draft.
• Once the receipt by non-account payee cheque/DD exceeds the limit of ₹ 2,00,000 specified in section 269ST, the particulars of such transactions will have to be reported under this clause irrespective of whether the receipt is on capital account and revenue account or whether the receipt is taxable or tax-exempt.
• Where a receipt is by cheque or demand draft, there will be practical difficulties in verifying whether the relevant receipt or payment is by account payee cheque or account payee draft. In such cases, the tax auditor should verify the transactions with reference to such evidence which may be available. In the absence of satisfactory evidence, the tax auditor, in his report may make comment in Clause (3) of Form No.3CA that “It is not possible for me/us to verify whether the receipts/payments have been accepted/made otherwise than by an account payee cheque or an account payee bank draft, as necessary evidence is not in the position of the assessee”.
• Tax auditor should take care to strike off or omit “me” or “us” inapplicable from above comment.
• The assessee may have purchased goods or services while simultaneously he may have sold goods or services to the same party consideration for which exceeds Rs. 2 lakh. In such a case if the amount of consideration for purchase is set off against the amount receivable for the sale of goods or services, such set-off is not a receipt as contemplated under section 269ST. If the amount of such set-off exceeds Rs. 2 lakh, the tax auditor may give an appropriate note in Clause (3) of Form No.3CA to the effect that such set-off not being a receipt or payment has not been included in the particulars given and the relevant sub-clause.
• The words “each receipt in an amount exceeding the limit specified in section 269ST” in opening line of clause 31(ba) suggest that consolidated reporting of consolidated figures mentioning ‘various parties’ will not suffice. However, where the receipts pertain to a single transaction or transactions relating to one event or occasion, such receipts may be grouped together while reporting.
• The tax auditor may also keep in his record date of the receipts reported under clause 31(ba), although not required to be reported under the said clause.

Clause 31(bc): Particulars of each payment made in an amount exceeding the limit specified in section 269ST, in aggregate to a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion to a person, otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account during the previous year:

(i) Name, address, and Permanent Account Number or Aadhaar Number (if available with the assessee) of the payee;

(ii) Nature of transaction;

(iii) Amount of payment (in Rs.);

(iv) Date of payment;

Note the following:

• Clause 31(bc) requires reporting of particulars of each payment made in an amount exceeding the limit in section 269ST, otherwise than by an account payee cheque or account payee bank draft or use of ECS, during the previous year.
• It may be noted that section 269 ST applies to receipts, not to payments. Nevertheless, Clause 31(bc) requires particulars of large payments made otherwise than by account payee cheque or account payee bank draft or use of ECS – Particulars of each payment exceeding the limit of Rs. 2,00,000 reckoned according to section 269ST. The e-filing utility of Form No. 3CD requires information to be furnished in a Tabular format.
• Clause 31(bc) requires reporting of such payments where mode of payment is other than cheque or DD or ECS. In other words, such payments through cash, debit card, credit card, Net banking, RTGS, NEFT, BHIM, UPI and Aadhaar Pay will have to be reported under clause 31(bc). The particulars are required to be furnished in the Tabular format prescribed by the e-filing utility of Form No. 3CD.
• Cash payments below the ₹ 10,000 limit in section 40A(3)/section 40A(3A)/2nd proviso to section 43(1)/₹ 35,000 limit in section 40A(3)/(3A) in case of payment to transporters cannot be ignored if they pertain to the same event or transaction and part of cash payments aggregating up to ₹ 2,00,000 or more [sub-clauses (bc) of clause 31 of Form No. 3CD]
• Clause 31(bc) requires particulars to be furnished if payments,

(a) are to one person in a day, whether related to a single transaction or otherwise, even if the payments individually are lower than Rs. 2 lakh but in aggregate amount to Rs. 2 lakh or more, or

(b) relate to a single transaction (even if the payments are on different dates and individual payments are less than Rs. 2 lakh) or

(c) are in respect of more than one transaction but relate to a single event or occasion even if the payments are on different dates and individuals are less than Rs. 2 lakh.

• Exercise care and caution while arriving at the particulars of payments pertaining to a single transaction or relating to a single event or occasion.
• Link all payments otherwise than by the modes specified in section 269ST made in respect of a single transaction and verify if the aggregate amount exceeds the limits specified in section 269ST.
• Whether the payments are pertaining to a single transaction or different transaction will depend on the facts of the case.
• The assessee may have purchased goods or services while simultaneously he may have sold goods or services to the same party consideration for which exceeds Rs. 2 lakh. In such a case if the amount of consideration for purchase is set off against the amount receivable for the sale of goods or services, such set-off is not a payment as contemplated under clause 31(bc). If the amount of such set-off exceeds Rs. 2 lakh, the tax auditor may give an appropriate note in Clause (3) of Form No. 3CA to the effect that such set-off not being a payment has not been included in the particulars given and the relevant sub-clause i.e. sub-clause(bc) of Clause 31.
• The words “each payment in an amount exceeding the limit specified in section 269ST” in the opening line of clause 31(bc) suggest that consolidated reporting of consolidated figures mentioning ‘various parties’ will not suffice. However, where the payments pertain to a single transaction or transactions relating to one event or occasion, such receipts may be grouped together while reporting.
•  The tax auditor may also keep in his record the date of the payments reported under clause 31(bc), although not required to be reported under the said clause.

Clause 31(bd): Particulars of each payment in an amount exceeding the limit specified in section 269ST, in aggregate to a person in a day or in respect of a single transaction or in respect of transactions relating to one event or occasion to a person, made by a cheque or bank draft, not being an account payee cheque or an account payee bank draft, during the previous year:

(i) Name, address and Permanent Account Number or Aadhaar Number (if available with the assessee) of the payee;

(ii) Amount of payment (in Rs.)

Note the following:

• Clause 31(bd) requires particulars of each payment exceeding the limit of ₹ 2,00,000 specified in section 269ST, made by a cheque or bank draft, not being an account payee cheque or an account payee bank draft, during the previous year. The particulars are required to be furnished in the Tabular format prescribed by the e-filing utility of Form No. 3CD.
• Clause 31(bd) requires reporting of such payments where mode of payment is cheque or DD which is not account payee.
• Payment by cheque or bank draft, not being an account payee cheque or an account payee bank draft, during the previous year, below the ₹ 10,000 limit in section 40A(3)/section 40A(3A)/2nd proviso to section 43(1)/₹ 35,000 limit in section 40A(3)/(3A) in case of payment to transporters, cannot be ignored if they pertain to the same event or transaction and part of payments aggregating up to ₹ 2,00,000 or more [sub-clauses (bc) of clause 31 of Form No. 3CD].
• The words “each payment in an amount exceeding the limit specified in section 269ST” in the opening line of clause 31(bd) suggest that consolidated reporting of consolidated figures mentioning ‘various parties’ will not suffice. However, where the payments pertain to a single transaction or transactions relating to one event or occasion, such receipts may be grouped together while reporting.
• Where payment is made by cheque or demand draft, there will be practical difficulties in verifying whether the relevant receipt or payment is by account payee cheque or account payee draft. In such cases, the tax auditor should verify the transactions with reference to such evidence which may be available. In the absence of satisfactory evidence, the tax auditor, in his report may make a comment in Clause (3) of Form No.3CA that “It is not possible for me/us to verify whether the receipts/payments have been accepted/made otherwise than by an account payee cheque or an account payee bank draft, as necessary evidence is not in the position of the assessee”.
• Tax auditor should take care to strike off or omit “me” or “us” inapplicable from above comment.

Clause 33: Section-wise details of deductions, if any, admissible under Chapter VIA or Chapter III (Section 10A, Section 10AA)

• If the assessee-company has opted for section 115BA/Section 115BAA/Section 115BAB Regime[as reported in clause 8A of Form No. 3CD], then select “yes” in select button at the end of opening line in e-filing utility of Form No. 3CD if deduction under section 80JJAA and/or section 80M is admissible to the company. Then, report admissible deductions under these two sections in the Tabular format. If deduction under section 80JJAA and/or section 80M is not admissible to the company, then select “No” in dropdown in opening line and tabular format need not be filled.