Tax Audit | Detailed Analysis of Clause 31 | 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 clause 31, which is contained in Part B of Form 3CD.

1. 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

Following particulars are required to be disclosed in relation to each loan or deposit in an amount exceeding the limit specified in section 269SS (i.e., 20,000 or more) under this clause:

• The auditor should make scrutiny of books of accounts specifically loans that the assessee has taken during the year and deposits which the assessee has accepted during the year.
• The limit of Rs. 20,000 will have to be reckoned person wise by aggregating the transaction with as under:

1. 1. The amount of such loan or deposit or specified sum or the aggregate of such loan, deposit and specified sum; or
   2. The amount of such loan or deposit or specified sum taken or accepted earlier, is remaining unpaid on the date of taking or accepting such loan or deposit or specified sum
   3. The amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b)

• Loan/deposit as per section 269SS should not include transfer entries, collection of sale proceeds by selling agent, when contractee retains amount against the performance of the contract and not under a contract, advance against the agreement of sale of goods.
• If the auditor face difficulties in verifying whether loan/deposit taken or accepted by cheque/bank draft is account payee or not then he should mention in tax audit report that it is not possible to verify whether loans or deposits are received through account payee cheque or account payee bank draft or necessary evidence is not in the possession of the assessee.

2. 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

Following particulars of each specified sum of money receivable, whether as advance or otherwise in relation to transfer of immovable property, whether or not the transfer takes place in an amount exceeding the limit specified in section 269SS (i.e., 20,000 or more) taken or accepted during the previous year are required to be reported under this clause:

• The auditor should make scrutiny of books of accounts specifically specified sum that the assessee has taken or accepted during the year.
• The auditor should also scrutinize agreements through which transfer is affected or is proposed to be affected
• If the auditor face difficulties in verifying whether the specified sum taken or accepted by cheque/bank draft is account payee or not then he should mention in tax audit report that it is not possible to verify whether sum of money received/accepted by the account payee cheque or account payee bank draft or necessary evidence is not in the possession of the assessee.

3. Clause 31b(a) to 31b(d)

Particulars of clauses 31b(a) to 31b(d) need not be given in the case of receipt by or payment to a government company, a banking company, a post office saving bank, a cooperative bank, or in the case of a transaction referred in section 269SS.

4. Clause 31(c)

Particulars of each repayment of loan or deposit or any specified advance in an amount exceeding the limit specified in section 269T made during the previous year

Following particulars are required to be disclosed in relation to repayment of loan or deposit or any specified advance in an amount exceeding the limit specified in section 269T (i.e., 20,000 or more) under this clause:

• The auditor should ensure that if the assessee is a company then those loans/deposits which are repayable on demand is not considered as loan or deposit for the purpose of this section. Whereas in the case of non-company assessee “deposit” is defined to mean a deposit of any nature.
• Transfer entries that give the effect of repayment of loan or deposit shall be considered as repayment otherwise than by account payee cheques or account payee bank drafts therefore also reported here.
• The auditor should also scrutinize all the loans, deposits, and advance against the immovable property during the and report all repayments made to any person where the deposit along with interest is Rs. 20,000 or more, even though the amount of repayment is less than Rs. 20,000.
• The monetary limit of Rs. 20,000 applies branch-wise to banking companies, cooperative banks, and to assessee as a whole in other cases.
• If the auditor face difficulties in verifying whether loan or deposit or specified advance is paid by account payee cheque or an account payee bank draft or not then he should mention in tax audit report that it is not possible to verify whether loans or deposits or specified advance has been paid by the account payee cheque or account payee bank draft or necessary evidence is not in the possession of the assessee.

5. Clause 31(d)

Particulars of repayment of loan or deposit or any specified advance in an amount exceeding the limit specified in section 269T received otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account during the previous year.

If the loan or deposit or specified advance given is received back otherwise than by cheque or bank draft or ECS (in contravention of s. 269T), then the same is to be reported under this clause.

6. Clause 31(e)

Particulars of repayment of loan or deposit or any specified advance in an amount exceeding the limit specified in section 269T received by a cheque or bank draft which is not an account payee cheque or account payee bank draft during the previous year.

Particulars of repayment of loan or deposit or any specified advance in an amount exceeding the limit specified in section 269 T received by a cheque or bank draft which is not an account payee cheque or account payee bank draft during the previous year is required to be reported under this clause.

If the auditor face difficulties in verifying whether the payment made by cheque/bank draft is account payee or not then he should mention in a tax audit report that it is not possible to verify whether payment is made through account payee cheque or account payee bank draft or necessary evidence is not in the possession of the assessee.

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 30 to Clause 30C
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