AMENDMENTS IN TAX AUDIT UNDER SECTION-44AB

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Income Tax Audit Form No. 3CD amended by The Central Board of Direct Taxes through Notification No. 33/2018, dated. 20 July, 2018.

The new features of Form 3CD will be in effect from 20th August, 2018 to incorporate further reporting requirement related to Goods and Service Tax (GST), Transfer pricing, Statement of Financial Transactions, Section 32AD, Income from other sources as referred to in clause (x) of sub-section (2) of section 56, Cash Receipt / Payment of More than 2 Lakhs from a single person in a day. 

The following rules made are as under Income-tax Rules, 1962, namely:-

  1. These rules may be called the Income–tax (8th Amendment) Rules, 2018.
  2. Changes in Appendix II, in Form No. 3CD,-
  • in serial number 4, there is a Requirement to furnish the GST No.
  • in serial number 19 & 24, Section “32AD” has been added to allow the deduction in respect of investment in notified backward areas of Andhra Pradesh, Bihar, Telangana, West Bengal.
  • In serial number 26, clause (f) of section 43B is added which allows the liability towards Railways for use of their assets on actual basis.
  • After serial number 29,
  • no. 29A is added for section 56(2)(ix) of the Act. to tax the advance amounts received against the capital asset in the course of negotiation, but later forfeited and no transfer effected.
  • It is worthwhile to be noted that any amount comes under this head then specify the Nature of income and amount.
  • No. 29B to show whether any amount is to be included as referred in clause (x) of sub-section   (2) of section 56 chargeable under the head ‘income from other sources’
  • It is worthwhile to be noted that any amount comes under this head then specify the Nature of income and amount.
  • After serial number 30, Sr. No. 30A is added for section 92CE, According to this section any primary transfer pricing adjustments made in the case of an assessee, the assessee is required to make a secondary adjustment provided that:
  • The given primary adjustment is more than 1 crore; and
  • It also pertains to assessment year on or after 1 April 2016.  

Where such amount is not recovered, then balance should be treated as an advance given to AE and  recovered along the interest. 

  • No. 30B is added which provides that where the assessee has incurred expenditure during previous year as a interest or of similar expenditure exceeding one crore rupees as referred to in sub-section (1) of section 94B.

It is noted that where the above provision follows, assessee should provide the following:-

Amount of expenditure by way of interest or of similar nature incurred.

  1. Earnings before interest, tax, depreciation and amortization during the previous year.
  2. Amount of expenditure as an interest or of similar nature as per (i) above which exceeds 30% of EBITDA as per (ii) above:
  3. Amount of interest expenditure brought forward as per the section 94B.
  4. Amount of interest expenditure carried forward as per the section 94B.
  • no. 30C is added for section 96 of the Act. to ascertain whether the assessee has entered into an impermissible avoidance arrangement where such agreement creates such rights between the parties, by misuse of the provision of the Act, which not created in normal course between parties dealing at arm’s length.

It is noted that assessee provide the following details if cover under the above provisions as follows:-

  • Nature of the impermissible avoidance arrangement.
  • Amount of tax benefit in the previous year arising to all the parties to the arrangement.

In serial number 31, Clause (ba), (bb), (bc) and (bd) has been included pertaining to section 269ST of the Act as follows:-

  1. “(ba) Particulars of each transaction where an amount received in aggregate of INR Two Lakhs from a person in a day or in respect of a single transaction or in respect of transactions during the previous year, where such amount is received other than by a Cheque or bank draft or any of the electronic clearing system. Following information is required as stated below:-
  • Name, address and PAN No. of the assessee;
  • Nature of the transaction;
  • Amount of receipt;
  • Date of receipt;
  1. (bb) Particulars of each transaction where amount received in aggregate of INR Two Lakhs 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. Following information is required as stated below:-
  • Name, address and PAN No. of the assessee;
  • Amount of receipt
  1. (bc) Particulars of each and every transaction payment made in an amount exceeding INR Two Lakhs 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 any electronic clearing system through a bank account during the previous year. Following information is required as stated below:-
    • Name, address and PAN of the payee;
    • Nature of transaction;
    • Amount of payment
    • Date of payment.
  1. (bd) Particulars of each and every transaction payment made in an amount exceeding INR Two Lakhs 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 any electronic clearing system through a bank account during the previous year. Following information is required as stated below:-
    • Name, address and PAN of the payee;
    • Amount of payment.

It is further advised to be note that the Particulars at (ba), (bb), (bc) and (bd) are not required to provide if the amount is receipt by or paid to a Government company, a banking Company, a post office savings bank, cooperative Bank.

  • In sr. number 34, in place of item (b), the following Para shall be substitute as:-

Whether an assessee is required to furnish the statement of TDS or TCS. If the assessee required for the above then he specify the following below information’s:-

  • Tax deduction & Collection Account Number
  • Type of Form
  • Whether the statement of TDS or TCS contains information about all details/transactions which are required to be reported
  • serial number 36A included for deemed dividend u/s 2(22)(e) .It suggests that the assessee who holds not less than ten percent voting power received by way of loan or advance provide the information regarding Amount and Date of Receipt.
  • After serial number 41 and the entries relating thereto, the following shall be inserted, namely:-

Sr.No. 42 inserted in respect of form no. 61, 61A, 61B

Auditor must satisfy himself that all the required information is submitted, if not provided then ensure that same should be provided in Form 3CD.

  1. Form 61- it provide the detail of form 60. Transaction under rule 114B follows and document with that regard has been collected by the assessee without PAN, then assessee collect detail in Form 60.
  2. Form 61A-Furnish the information regarding the transaction given under rule 114E implemented during the financial year.
  3. Form 61B- Statements of the Accounts which should be reported in accordance with FATCA and CRS for a calendar year.
  • No. 43 inserted w.r.t. to country by country reporting under section 286 of the act.

Section 286 specifies the companies liable to comply with country by country reporting. They are requiring to complying with the reporting requirement of form 3CEAC and Form 3CEAD, wherever applicable.

The information required as stated below

  1. Name of parent entity
  2. Name of alternate reporting entity (if applicable)
  3. Date of furnishing report
  • No.44 inserted to provide the following information regarding the Break-up of  expenditure of entities whether registered or not under the GST as follows:-
  1. Total expenditure incurred during the year.
  2. Expenditure relating to goods and services not liable to tax
  3. Expenditure of entities falling under the composition scheme
  4. Expenditure relating to the entities not registered in GST

Conclusion:

The liability of the Auditor is increased towards the requirement of documentation and verification towards the compliance of the provisions and rules of the Act.

Disclaimer:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Before making any decisions do consult your Professional / tax Advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. The author is a Chartered Accountant and the Chief Gardener & Founder Director of Rajput Jain & Associates , a leading Tax & Investment Planning Advisory Service Provider. His blog can be found at https://carajput.com/blog/For any query you can write to info@carajput.com. Hope the information will assist you in your Professional endeavors. For query or help, contact:   info@carajput.com or call at 09811322785/4 9555 5555 480)

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VALUATION OF UNQUOTED SHARES –AN ANALYSIS

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Finance Act, 2017 inserted two new provisions under the Act- clause (x) under Section 56(2) and section 50CA. The said sections were inserted to deal with a situation where the property, including unquoted shares, are being transacted for inadequate consideration much below the FMV of such property.

Insertion of clause (x) in section 56(2) to provide that receipt of money or specified property by any person for inadequate consideration or without consideration from any person shall be subject to tax

NEW SECTION 50CA

Section 50CA to provide that where consideration for transfer of shares of a company other than a quoted share is less than the FMV of such share, the FMV determined as per the Rules shall be deemed to be the full value consideration for computing income under the head “capital gains”.

Explanation.—For the purposes of this section, “quoted share” means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business.’.

AMEND RULE 11UA

Amend Rule 11UA and to introduce Rule 11UAA for computing the FMV of unquoted shares of a company for the purpose of Sections 56(2)(x) and 50CA respectively.

The fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner-

The fair market value of unquoted equity shares =

(A+B+C+D – L) × (PV)/ (PE)

WHERE:-

A= book value of all the assets (other than jewellery, artistic work, shares, securities and immovable property) in the balance-sheet as reduced by,—

(i)any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any; and

(ii)any amount shown as asset including the unamortized amount of deferred expenditure which does not represent the value of any asset;

B = the price which the jewellery and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer;

C = fair market value of shares and securities as determined in the manner provided in this rule;

D = the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of the immovable property;

L= book value of liabilities shown in the balance sheet, but not including the following amounts, namely:—

(i)the paid-up capital in respect of equity shares;

(ii)the amount set apart for payment of dividends on preference shares and equity      shares where such dividends have not been declared before the date of transfer at a general body meeting of the company;

(iii) Reserves and surplus, by whatever name called, even if the resulting     figure is negative, other than those set apart towards depreciation;

(iv)any amount representing provision for taxation, other than amount of income-tax paid, if any, less the amount of income-tax claimed as refund, if any, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;

(v) Any amount representing provisions made for meeting liabilities, other than ascertained liabilities;

(vi) Any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;

PV= the paid up value of such equity shares;

PE = total amount of paid up equity share capital as shown in the balance-sheet

 

New Rule 11UAA prescribes that for the purposes of section 50CA, the FMV of the share of a company other than a quoted share, shall be determined as provided in Rule 11UA(1)(c)(b)/(c), and that the reference to valuation date in the rule 11U and rule 11UA shall mean the date on which such shares are transferred.

the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assesses may obtain a report from a merchant banker or an accountant in respect of which such valuation.

Disclaimer:

All efforts are made to keep the content of this site correct and up-to-date. But, this site does not make any claim regarding the information provided on its pages as correct and up-to-date. The contents of this site cannot be treated or interpreted as a statement of law. In case, any loss or damage is caused to any person due to his/her treating or interpreting the contents of this site or any part thereof as correct, complete and up-to-date statement of law out of ignorance or otherwise, this site will not be liable in any manner whatsoever for such loss or damage.

The visitors may visit the web site of Government site Like Income Tax Department, Services Tax, VALUE  ADDED TAX,Excise, Etc for resolving their doubts or for clarifications.

 

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Quick review of the latest updates of Income tax:

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AADHAAR VS PAN VS NEW ITR FORMS

Government of India mandates Aadhar Card for Atal Pension Yojana (APY). Finance Ministry has exempted nonresident, non citizens, a person who is of the age of eighty years or more at any time during the year from Mandatory Quoting of Aadhaar for filing ITR and for allotment of PAN. Adhaar card and Pan linking option now activated on income tax website whereby now, name as per Adhaar card also to be given. Both get linked even if there is difference in name.

Govt. asserted in the Supreme Court that Aadhaar was made mandatory for PAN card to weed out fake PAN cards which were used for terror financing and circulation of black money, while terming the concerns over privacy as “bogus”.

Finance ministry has extended the time limit for providing Permanent Account Number (PAN) or Form No. 60 by bank account holders who have not given it at the time of account opening or later to June 30, 2017.

CBDT has issued draft rules for stakeholder comment providing the manner of valuation- of an unquoted equity share for the purposes of section 56(2)(x) and section 50CA of the Income-tax Act, 1961.

All cash payments over Rs 2 lakh for loans and credit card bills during the 50 day period after demonetization will have to be disclosed in the new one page Income Tax return form.

Prime Minister has asked the revenue department to scale up e-assessment facilities to cover 25 cities, take corrupt officers to task and promote a regime friendly to taxpayers. He also asked the department to train guns on benami properties and focus on broadening the tax net.

Interest on FDs earned during the pre-operative period is taxable as ‘Income from Other Sources’ under the provisions of Income Tax Act. ITAT Hyderabad: DRS Warehousing (South) v. ITO.

Members who have not shared their PAN with ICAI, It has been informed by the Income Tax Dept that the e-Filing account of the members will be blocked by the Income Tax Authorities.

New ITR forms released by I. Tax Department, effective from 01.04.2017. The Income-tax (Fourth Amendment) Rules, 2017 dated 30.03.2017.

Form No. ITR-1: SAHAJ: For Individuals having Income from Salaries, one house property, other sources (Interest etc.) and having total income upto Rs.50 lakhs (1 Page Return).

Form No. ITR-2: For Individuals and HUFs not carrying out business or profession under any proprietorship.

Form No. ITR-3: For individuals and HUFs having income from a proprietary business or profession.

Form No. ITR-4: Sugam: For Presumptive Income from Business & Profession.

Form No. ITR-5: For persons other than  (i) individual (ii) HUF (iii) company and (iv) person filing Form ITR-7

Form No. ITR-6: For Companies other than companies claiming exemption under section 11].

Form No. ITR-7: For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) or 139(4E) or 139(4F).

Section 269ST from 1-4-2017 provides that no person shall receive an cash amount of two lakh rupees or more:

  1. In aggregate from a person in a day; or
  2. In respect of a single transaction; or
  3. In respect of transactions relating to one event or occasion from a person.

Otherwise penalty, a sum equal to the amount of such receipt.

Lease deed, power bill etc may be needed for claiming HRA rebate as producing fake property rent receipt, often from parents and relatives, has been an easy way to lower tax burden.

Major Role: Secretarial, Legal Compliances and FEMA Compliances, Banking related documentation, etc. The work done is categorized below:

Secretarial & legal compliances:

Filing of replies for notices of strike off of Companies · Advisory services to Corporates- Legal opinions · Incorporation of Companies as per Companies Act, 2013

Preparation of Directors’ Report, Management Discussion and Analysis, Corporate Governance Report, · Convening of Board Meetings and EGM of Private and Public Limited Companies · Preparation of various e – Forms CHG-1, CHG-4, INC 7, INC 1, INC 22, INC 24, MR1, GNL 2, DIR 12 and addendum forms & Annual returns filing of the Private and Public Limited Companies. · Filing of MGT-14 for various purposes.

Handling XBRL and non XBRL Annual Filings, E-forms and Secretarial Compliances with MCA portal · Prepare Minutes of Board Meetings, Annual General Meetings & Extra-Ordinary General Meetings. · Drafting of various documents, e.g. Notice, Resolutions, Board Report, Minutes, etc. · Work relating to increase in authorized capital, alteration in MOA, change of name, change of registered office. · Apply & obtaining of DIN & DSC of class 2 and class 3.

Maintaining the statutory register & records under Companies, Act 2013

Liasoning & dealing with Registrar of Companies, Revenue Department, DGFT etc. · Preparation of share certificates & payment of stamp duty online on allotment of shares of the Company. · Inspection of Company document by paying requisite fees in MCA -21.

Allotment of Shares through Preferential cum Private Placement Basis and Right Issue.

Preparation of various Board resolutions & authorization letters for various purposes like execution of MOU, lease deed, sale deed, registration in sales tax, service tax, VAT, obtaining license from PESO and various other industries

Vetting of various agreements like Lease Agreements, Takeover agreement, Shareholder agreement, etc. · Formation & winding up of LLPs

Compliance in relation to appointment and remuneration of KMP in accordance with Companies Act, 2013. · Issue of Debentures · E-voting

FEMA, DGFT & other related Compliances: · Online Reporting of FDI to RBI through AD banker in ARF form. · Filing of online FCGPR with RBI · Filing of Foreign Liabilities & Assets return (FLA) with RBI · Compliances related to Downstream Investment · Application and online modification of IEC with DGFT, also done some compliances related to the application of EPCG license. · Liasoning with various Banks for the documents like KYC, UIN, FCGPR registration no. & other acknowledgements related to FDI.

Application of Registration Cum Membership Certificate (RCMC) from Federation of Indian Export Organization (FIEO). · Liasoning with NIC. · Registration of Trust under FCRA (Foreign Contribution Regulation Act) · Registration of Societies and Trusts.

Banking, Demat, Pledge & other Compliances: · Preparing Due Diligence Report of the Company · Preparing Search Report of the Company · Vetting of the availing of term loan and working capital limits documents with various Banks. · Opening of Bank accounts · Preparation of Corporate Action Information Forms for the demat of shares · Opening of Demat Account of Individuals & Companies. · Pledging of shares with the Bank. · Liasoning with Depository, Depository Participant & RTA in relation to the demat of shares. · Entering into agreement with Depository for opening of demat account of Companies. · Application of PAN & TAN of Companies

Application of Trademarks, Copyrights and other Intellectual Properties: Application of trademarks, copyrights, patents, designs, logos and filing their replies.

Attending hearing We provide services to CA firms, Corporates, individuals into their own business for ROC and other related work. We look forward to the opportunity to work with you in the near future.

We look forward for your valuable comment www.carajput.com

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Disclaimer:

All efforts are made to keep the content of this site correct and up-to-date. But, this site does not make any claim regarding the information provided on its pages as correct and up-to-date. The contents of this site cannot be treated or interpreted as a statement of law. In case, any loss or damage is caused to any person due to his/her treating or interpreting the contents of this site or any part thereof as correct, complete and up-to-date statement of law out of ignorance or otherwise, this site will not be liable in any manner whatsoever for such loss or damage.

The visitors may visit the web site of Government site Like Income Tax Department, Services Tax, Excise, Etc for resolving their doubts or for clarifications.

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