Tax Audit | Detailed Analysis of Clause 15 and Clause 16 | As per the Guidance Note issued by the ICAI

Description includes details of capital asset such as land, building, plant, machinery, shares, securities etc., in case of depreciable asset details of section 32 shall also be given.

Period of holding of asset should be verified to ensure whether it is long term or Short term asset and for this purpose verify date of purchase of asset from documents.

The cost of acquisition as per books of account is to be mentioned. While verifying the cost of acquisition, principles are given in AS 10/IND AS 16 should be kept in mind.

In the case of companies where CARO, 2020, Companies (Auditor’s Report) Order, is applicable, the cost would be readily available in the Fixed Assets Register. Whereas in other cases, it may not be practically possible to fulfill the reporting requirements of sub clause (c) then, in such a case, the tax auditor should state that it is not practicable, along with the reasons.

The amount recorded in books of account in respect of the converted asset should be reported under this clause.

The auditor’s responsibility is to ensure all items falling under section 28 of Income Tax Act, 1961 which are not credited to the profit and loss account is reported here and for this purpose, the auditor should make scrutiny of items on the credit side to ensure that these items are either accounted properly in books or reported here.

Here, an auditor should verify whether income reflected in Form 26 AS is fully accounted for in the books. In case of any difference, proper reconciliation is made.

Also, heads like capital reserves, other reserves, capital account, expense heads are to be verified to ascertain whether any income instead of being credited in profit and loss account, has been capitalized under these heads.

The proforma credits, drawbacks, refunds of duty of customs or excise or service tax or refunds of sales tax or value-added tax or Goods and Service Tax, where such credits, drawbacks, or refunds are admitted as due by the authorities concerned.

The words ‘admitted by the concerned authorities would mean ‘admitted within the relevant previous year’. Therefore for the above-mentioned items if admitted as due by concerned authorities but not credited to profit and loss accounts are to be stated. However, if the assessee follows the cash basis of accounting the admittance of claim without an actual receipt will have no significance.

Also, the information provided in this clause needs to be correlated with the information obtained for clause 41 of Form 3CD.

For this purpose, auditor should make scrutiny of relevant files and records related to such refunds and also obtain an appropriate management representation.

Escalation claims accepted during the previous year but not credited to the profit and loss account should be stated.

Where assessee follows cash basis of accounting, whether details of escalation claims accepted without actual receipt is to be reported.

Income taxable under a specific section yet not credited to P&L shall be reported.

This covers items tax auditor considers as income based on his verification of records and documents but not credited to profit and loss account other than those covered U/S 28 as they are already covered in part a.

While doing this auditor should also refer to AS 9 or IND AS 115 as the case may be.

This clause shall enclose details of capital receipt which is not credited to the profit and loss account but govt. grant in relation to a specific fixed asset and deducted from the gross value of that asset is not to be reported in clause 16(e) of Form No. 3CD.

Loans and borrowings (although capital receipts) are not required to be reported under this clause.