Tax Audit | Detailed Analysis of Clause 17 to Clause 19 | As per the Guidance Note issued by the ICAI

Income-tax law requires the assessee to get his books of accounts audited in pursuance of the requirement under Section 44AB of The Income Tax Act, 1961. The Chartered Accountant conducting the tax audit is required to give his findings, observations, etc., in the form of an audit report at the e-filing portal of Income-tax in Form No. 3CA/3CB and 3CD. In this story, we would discuss the reporting requirement of clauses 17 to 19, which are contained in Part B of Form 3CD.

1. Clause 17

Where any land or building or both is transferred during the previous year for a consideration less than the value adopted or assessed or assessable by any authority of a State Government referred to in section 43CA or 50C.

This clause is applicable to all the assessees. In the case where any land or building or both whether held as capital asset (Sec. 50 C) (where the assessee has transferred a capital asset for capital gain purposes) or business asset (Sec. 43CA) (where an assessee has transferred an asset other than a capital asset, i.e., being stock-in-trade) is transferred during the previous year for consideration less than the value adopted or assessed or assessable by any authority of a State Government (for stamp duty value/circle rate), please furnish:

For reporting liability, the auditor should:

• Obtain the information about the sale of Land or Building or both during the previous year.
• Check the same with the books of account and Financial Statements.
• Check whether the profit or loss incurred due to transfer of land or building or both have transferred to profit & loss or not.
• Obtain a copy of the registered sale deed if the property is registered.
• Obtain relevant documents from relevant authorities where the property is not registered
• Check whether the provisions of section 50C or 43CA are appropriately applied.
• In case of conversion into stock in trade mode of transfer, verify that necessary details are reported in clause 15 as well, with suitable references.
• Suitable note shall be incorporated in clause 17 in case the assessee has disputed the stamp duty value adopted by stamp value authority in appeal or revision.
• Ensure that reporting is done only if the land or building or both is transferred for a consideration less than the value adopted, assessed, or assessable by any state government authority.

2. Clause 18

Particulars of depreciation allowable as per the Income-tax Act, 1961 in respect of each asset or block of assets, as the case may be, in the following form:

2.1 Description of asset/block of assets

In this clause, it is to be ascertained that the classification of asset for block made by the assessee for block of asset is correct and updated. Also, an auditor should check the data reported under clause 18 with the disclosures made in Clause 13(f). In case where auditor is not satisfied with the classification made by assessee for block, the auditor needs to disclose the same with suitable reasons.

Where, there is any dispute between the assesse and the department regarding classification, rate of depreciation etc., the auditor should give its suitable disclosures.

2.2 Rate of depreciation

An auditor should verify that the rate applied on each block of asset is in compliance with rate prescribed in Appendix I of Income Tax Rules, 1962.

2.3 Actual cost of written down value, as the case may be

The actual cost of assets should be determined as per provisions of 43(1) of the Income Tax Act, 1961. And also check compliance with provisions of the AS 10 or Ind AS 16. Further, to ensure whether the opening WDV of Block of Assets is same as closing WDV of previous year, the auditor has to obtain the ITR and/or Tax audit report of PY.

2.3(a) Adjustment made to the written down value under section 115BAC/115BAD

One time adjustment to WDV of block of assets is made by increasing the WDV by the additional depreciation u/s 32(1)(iia) pertaining to any assessment year prior to the assessment year 2021-22, which is not allowed to be set off under section 115 BAC or 115BAD.

2.3(b) Adjustment made to written down value of Intangible asset due to excluding value of goodwill of a business or profession

Goodwill is no longer being a part of a depreciable asset w.e.f. AY 2021-22, for income tax purposes. Therefore, the assessee needs to make adjustments to WDV of Intangible assets due to excluding the value of goodwill of a business or profession is to be disclosed.

2.3(c) Adjusted written down value

It is the result of sub-clauses (c), (ca) and (cb) of clause 18 as above.

2.4 Additions/deductions during the year with dates

In the case of any addition of an asset, date put to use; including adjustments on account of:

1. Central Value Added Tax credits claimed and allowed under the Central Excise Rules, 1944, in respect of assets acquired on or after 1st March, 1994,
2. change in rate of exchange of currency, and
3. subsidy or grant or reimbursement, by whatever name called.

To verify the additions or deletions made during the year, an auditor should:

• Obtain the supplier’s invoice, purchase order, GRR, authorization for sale, etc. of fixed assets purchased during the previous year (PY).
• In case, an addition was made in a block of assets, check the date on which it was put to use by obtaining a certificate from a technical person.
• Check, if payment for the acquisition of any asset is in violation of the proviso to section 43(1), the expenditure should be excluded from the actual cost.

2.5 Depreciation allowable

In this sub-clause, the auditor has to verify that the depreciation claimed by the assessee is in compliance with relevant provisions of the Income Tax Act, 1961.

2.6 Written down value at the end of the year

Under this clause, an auditor should verify the numerical calculations is in accordance with the provisions of the Income Tax Act, 1961.

3. Clause 19

Amounts admissible under sections:

An Auditor should indicate the amount debited to the Profit & Loss Account and the amount actually admissible in accordance with the said sections. Also, amounts not debited to Profit & Loss Account but admissible under any sections mentioned in the clause have to be stated.

While reporting auditor should verify the documents and records in support of the various payments/contributions made and deductions claimed and also conditions of allowability of various deductions. In addition, approval from various authorities should be taken wherever required. However, if condition under relevant sections is not fulfilled then they are treated as deemed profits & gains of business and are taxable in certain cases and the same should be reported under clause 24 of Form 3CD.

Generally, the amount covered by these sections is debited to P&L, but in certain sections, a deduction is based on capital expenditure, these are treated as an asset and thus not debited to profit and loss accounts. In such a case auditor should ensure it is stated either Nil/NA under the second column of the table in which amount admissible is to be mentioned.

Dive Deeper:
Detailed Analysis of Clause 9 to 12
Detailed Analysis of Clause 13 and Clause 14
Detailed Analysis of Clause 15 and Clause 16
Detailed Analysis of Clause 20 and Clause 21
Detailed Analysis of Clause 22 to Clause 25
Detailed Analysis of Clause 26 to Clause 29
Detailed Analysis of Clause 30 to Clause 30C
Detailed Analysis of Clause 31
Detailed Analysis of Clause 32 to Clause 34
Detailed analysis of Clause 35 to Clause 38
Detailed Analysis of Clause 39 to Clause 41
Detailed Analysis of Clause 42 and Clause 43