Tax Audit | Detailed Analysis of Clause 30 to Clause 30C | 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 30 to 30C, which are contained in Part B of Form 3CD.

1. Clause 30

Details of any amount borrowed on hundi or any amount due thereon (including interest on the amount borrowed) repaid, otherwise than through an account payee cheque. [Section 69D]

Requirement:

This clause requires the assessee to give the following details of borrowings on Hundi or repayment thereof, otherwise, than through an account payee cheque, it also requires to comply with provisions of section 69 D of the income tax act.

An auditor should obtain from the assessee list of such loans taken or repayments and verify the same with books of accounts, bank books, and bank statements.

If the auditor is unable to obtain satisfactory evidence regarding such borrowing/repayment then he should obtain management representation in this regard.

Where, the amount was borrowed on hundi in an earlier previous year ‘otherwise than by account payee cheque’ and was treated as income in that year, then, on repayment of such amount in the previous year ‘otherwise than by account payee cheque’, no reporting is required. Only the interest portion, if any, need to be reported.

1.1 Section 69D

According to this section where any amount is borrowed on a hundi (Promissory Note drawn in a vernacular language), or any amount due thereon is repaid to any person otherwise than through an account payee cheque drawn on a bank (Account payee draft should also be treated as account payee cheque), the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying the amount aforesaid for the previous year in which the amount was borrowed or repaid.

Where any amount borrowed on a hundi has been deemed under the provisions of this section to be the income of any person, such person shall not be liable to be assessed again in respect of such amount under the provisions of this section on repayment of such amount.

2. Clause 30A

1. Whether primary adjustments to transfer price, as referred to in sub section (1) of section 92CE, has been made during the previous year? (Yes/No)
2. If yes, please furnish the following details:-

• • Under which clause of subsection (1) of section 92CE primary adjustment is made?
  • Amount (in Rs.) of primary adjustment
  • Whether the excess money available with the associated enterprise is required to be repatriated to India as per the provisions of subsection (2) of section 92CE? (Yes/No)
  • If yes, whether the excess money has been repatriated within the prescribed time (Yes/No)
  • If no, the amount (in Rs.) of imputed interest income on such excess money which has not been repatriated within the prescribed time.

2.1 Section 92CE

Primary Adjustment

Where a primary adjustment (“primary adjustment” to a transfer price, means the determination of transfer price in accordance with the arm’s length principle resulting in an increase in total income or reduction in the loss, as the case may be, of the assessee) made to transfer price:

(i) Has been made suo motu by the assessee in his return of income;

(ii) Made by the Assessing Officer has been accepted by the assessee;

(iii) Is determined by an advance pricing agreement entered into by the assessee

(iv) As per the safe harbour rules

(v) Arising as a result of the resolution of an assessment by way of the mutual agreement procedure

If primary adjustment is made in any of the above cases then the assessee shall make a secondary adjustment. Secondary adjustments are required only in respect of TP adjustments relating to international transactions and not in respect of domestic transactions.

Secondary adjustment shall not apply if the amount of primary adjustment made in any previous year does not exceed one crore rupees or primary adjustment is made in respect of an assessment year commencing on or before the 1st day of April 2016:

Secondary Adjustment

Where, as a result of a primary adjustment to the transfer price, there is an increase in the total income or reduction in the loss, as the case may be, of the assessee, the excess money (excess money means the difference between the arm’s length price determined in primary adjustment and the price at which the international transaction has actually been undertaken) which is available with its associated enterprise shall be repatriated from any of the associated enterprises of the assessee which is not a resident in India.

If such excess money not repatriated to India within the time as may be prescribed, shall be deemed to be an advance made by the assessee to such associated enterprise, and the interest on such advance, shall be computed in such manner as may be prescribed.

This clause requires the assessee to give above-mentioned details if any primary adjustment to the transfer price has been made as per section 92CE(1) of the Act:

Disclosure under this clause is required in respect of each and every primary adjustment made in the previous year under audit irrespective of the previous year to which adjustment pertains

Further, primary adjustments for earlier years prior to AY 2017-18 and primary adjustments totaling less than Rs. 1 crore for a previous year which does not warrant secondary adjustment should also be reported under clause 30A(b)(i).

Clause 30A(b)(iii) may be answered as “No”, in case the adjustment relates to the assessment year prior to the assessment year 2017-18, or the primary adjustment is of less than Rs. 1 crore, the excess money is not required to be repatriated to India.

Where the excess money is not repatriated within the prescribed time, the imputed interest income needs to be computed. For this, the tax auditor need to verify the correctness of the calculation of interest on the basis of certificates regarding SBI/LIBOR rates plus the incremental interest as per rule 10CB. If the imputed interest is calculated till the date of filing of tax audit report, then the tax auditor shall bifurcate the amount of interest pertaining to the period till 31^st March of the previous year and the interest pertaining to the period beginning from 31^st March of the previous year till the date of filing tax audit report.

3. Clause 30B

1. Whether the assessee has incurred expenditure during the previous year by way of interest or of similar nature exceeding one crore rupees as referred to in subsection (1) of section 94B? (Yes/No)
2. If yes, please furnish the following details:-

• • Amount (in Rs.) of expenditure by way of interest of similar nature incurred:
  • Earnings before interest, tax, depreciation, and amortization (EBITDA) during the previous year (in Rs.)
  • Amount (in Rs.) of expenditure by way of interest or of similar nature as per (i) above which exceeds 30% of EBITDA as per (ii) above.
  • Details of interest expenditure brought forward as per sub-section (4) of section 94B:

• Details of interest expenditure carried forward as per sub-section (4) of section 94B:

3.1 Section 94B

Where an Indian company or a Permanent Establishment of a foreign company in India, being the borrower, incurs any expenditure by way of interest or of similar nature exceeding Rs. 1 crore which is deductible in computing income chargeable under the head “Profits and gains from business or profession” in respect of any debt issued by a non-resident, being an associated enterprise of such borrower, the interest shall not be deductible in the computation of income under the said head to the extent that it arises from excess interest, the excess interest shall mean an amount of total interest paid or payable in excess of 30% of earnings before interest, taxes, depreciation and amortization of the borrower in the previous year or interest paid or payable to associated enterprises for that previous year, whichever is less

For the purpose of section 94B, expenditure of similar nature includes discount or premium on securities, finance cost component of lease rentals or other finance charges.

Further, an assessee should appropriately disclose that for the purpose of calculating the limit of Rs. 1 crore, whether the aggregate of all interest paid or payable to non-resident associate enterprises is considered or the interest paid or payable to each non-resident associate enterprise is considered

The reporting under this clause shall be provided in the manner below:

4. Clause 30C

This clause was inserted in Form No. 3CD by Notification no. GSR 666 (E), dated 20.07.2018 with effect from 20.08.2018. However, the reporting under this clause was kept in abeyance till 31.03.2022. But, it has now become applicable for all the reports submitted after 31.03.2022.

For reporting under this clause, the auditor should examine whether the Principal Commissioner or the Commissioner or the Approving Panel has, in any earlier previous year, declared any arrangement as Impermissible Avoidance Agreement (IAA) or whether any reference has been made for declaring an arrangement as an impermissible avoidance arrangement. In case, any transaction pertaining to or in connection with such declared that IAA has taken place during the previous year under the audit, the tax auditor is expected to report this fact. Also, an auditor shall report the tax benefit arising from such transaction to all the parties to the arrangement in the previous year.

But, if, due to the factors mentioned in the earlier paragraphs, he is unable to ascertain the tax benefit arising in the previous year, in aggregate to all the parties to the arrangement, the same shall be indicated in Form 3CA or Form 3CB, as the case may be.

Further, where the assessee has given a response to any show cause notice or has preferred an appeal, along with outcome thereof should be taken into consideration while reporting.

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 17 to Clause 19
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 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