Representation

1. Hardships in respect of Electronic furnishing of the report of audit under section 44AB, 92E or 115JB of the Act

1.1 Proviso to Rule 12(2) of the Income-tax Rules, 1961 [the Rules], inserted by IT (Third Amdt.) Rules, 2013 notified on 1-5-2013 w.r.e.f. 1-4-2013, provided as under:

“Provided that where an assessee is required to furnish a report of audit under section 44AB, 92E or 115JB of the Act, he shall furnish the same electronically.”

1.2 After the notification, the forms and the utility files were hosted on the efiling website in the month of July 2013 and have undergone several changes. After each change, an assessee, who has partly filled in a report but has not uploaded it, is required to re-feed the entire data, verify and then upload in the latest version for the report to be furnished on the website.

1.3 Considering the time involved in re-entering the voluminous data in the specified format for uploading the reports in Form 3CD, considerable time will be required by each assessee / tax practitioner / Chartered Accountant to upload a tax audit report.

1.4 In addition, there are many issues / difficulties in filling in the various clauses / columns of electronic Form 3CD, which requires immediate attention and clarification. For example:

i) Attachment of the Financial Statements – It is not clear as to whether the Financial Statements to be attached MUST BE A SCANNED COPY of manually signed statements or a PDF file digitally signed will be treated as sufficient compliance.

ii) Clause 14 – Depreciation – There is no column to give details of additional depreciation. Whether date wise details of all the minor items of additions to fixed assets are to be given? This data could run into a few thousands for many businesses, and would take substantial time to reenter. Is there any limitation on the number of items one can enter?

iii) Clause 15 – Under sub clauses a) & b) is it necessary to select each section & put ‘0’ in the amounts column if there is nothing to report under this clause? Or can we simply skip filling any information in this clause?

iv) Clause 17 & 17A – Under sub clauses a) & b), h)B) of Clause 17 & Clause 17A, it is normal practice to give appropriate comments by the assessee / tax auditor. But for e filing form, the space provided is not sufficient. So in that case is it proper for the assessee tax auditor to keep the appropriate comments / remarks / explanation in the hard copy but in the online form we only fill “NIL’ or ‘0’?

v) Clause 19 – Under this clause whether we have to select each section and fill NIL ‘0’ or we can skip filling this clause, if there is no information to be reported?

vi) Clause 21 – Under sub clause (i)(B) (b), normally the Tax Auditor fills the information till the date of signing of the Audit Report. If the payment is made after the date of Audit Report but before the due date of filing ITR u/s 139(1) of the Act the same is allowed u/s 43B of the Act. Now if the Tax Audit Report is signed on 20.6.2013 and the amounts unpaid are shown under the above sub clause and the Form 3CD is being uploaded on 16.8.2013, by which time the said amounts have already been paid, what information should be filled in this sub clause? Further suppose the payment is not yet made, and the Form 3CD is uploaded on 16.8.2013 and the assessee makes the payment after 16.8.2013 but before 30.9.2013, and while uploading the ITR does not disallow the amounts u/s 43B of the Act, will there be a problem of disallowance while processing the ITR by CPC, Bengaluru?

vii) Clause 24 – Under sub clauses a) & b) if the loan is accepted or repaid by way of any journal / transfer entry or electronic funds transfer, the remark to that effect is given in Tax Auditor’s report. However, in the e filing of the Form 3CD, the assessee/ tax auditor has to only state whether the amount was accepted / repaid by otherwise than by account payee cheque or demand draft, and options available are only ‘Yes’ or ‘No’. In this case, selection of option ‘No’ without appropriate remarks may lead to penal proceedings under the Act.

viii) Clause 27 – Under sub clause a), the tax auditor normally gives the appropriate remarks/comments/explanation in this regard. But in the online form 3CD, only ‘Yes’ or ‘No’ options are provided under this sub clause. So in that case is it proper that in tax auditor’s hard copy he keeps the appropriate remarks / comments / explanation, but in the online form he only fills “Yes’ or ‘No’?

ix) Clause 27-Sub clause b)(ii) – Besides the normal short deduction, a Tax Auditor normally reports the cases wherein the tax is deducted under wrong section resulting in short deduction, e.g. if tax is deducted u/s 194C instead of u/s 194J. However, in the online form 3CD, short deduction only in the respective section can be reported. Under these circumstances, how does one report the fact of short deduction due to wrong section?

x) Clause 27 – Sub clause b)(iii) – In addition to the late deduction, the tax auditor normally gives the information about tax deducted but paid late i.e. after the due date of payment. However, there is no such option in the online form 3CD. In that case is it proper that the tax auditor gives this information in the hard copy but no reporting is done in the online form3CD?

xi) Clause 27 (b)(iv) – Normally nowadays there is no such situation wherein tax is deducted but not paid to the Central Govt. as in such a situation the entire expense gets disallowed. However, it is possible that till conclusion of the Tax Audit Report, the TDS may not have been paid. So in a situation wherein the Tax Audit Report is finalized on 20.6.2013, and under this clause a default is reported. Till uploading of the online Form 3CD, say on 16.8.2013, the TDS is not paid. The assessee pays the TDS after 16.8.2013 but before 30.9.2013 and uploads the ITR without disallowing any amount U/S 40(a)(ia). What will be the consequences?

xii) Clause 28 – This clause deals with quantitative details. In case of Trading / Manufacturing Unit normally the data is available. But if the same is not available, the tax auditor simply reports “Information Not Available”. Now the questions are 1) If the data is not available at all till uploading of the report, can a tax auditor skip this clause? 2) If the data is made available after signing of the Tax Audit Report but before uploading the Form 3CD, whether the same should be filled in? In that case, whether the signed Tax Audit Report needs to be revised?

xiii) Clause 28(b)(A) – In case of manufacturing assessees, if yield is more than 100%, the utility does not accept it.

xiv) Clause 32 – In case of service industry or professionals, normally the tax auditors report states that “The activity of the assessee is neither trading nor manufacturing – as such these ratios are not applicable.”

In the online filing there is no space for this comment. In this situation can a tax auditor simply skip this clause? In that case, is it proper that a tax auditor gives this statement in the hard copy but no reporting is done in the online form3CD?

xv)    In addition, many other clauses of Form 3CD need appropriate disclosures by way of Notes etc. No disclosure can be made unless space is provided in required fields, e.g. Disclosure of section 145A, Payments made by cheque or bank draft for section 40A(3), 269SS and 269T, etc.

xvi)    The Annexure II is still part of the Form 3CD. However, from A.Y. 2010-11 the provisions of FBT are made ineffective. The online Form 3CD also does not provide this Annexure II. What is the exact position? Are tax auditors supposed to report NIL under this annexure? Normally, tax auditors report NIL and the fact that provisions of FBT are made ineffective from A.Y. 2010-11 is also reported.

1.5    Certain voluminous data needs to be keyed in into the utility, such as asset wise addition to fixed assets, which would take a considerable amount of time for many assessees. Presently, no software is readily available which will automatically convert existing tax audit reports in word or excel format into xml files.

1.6    Suggestions

c.    Clarification should be issued immediately in respect of various issues arising in respect of electronic filing of Form 3CA/3CB/3CD, as pointed out above.

2.    Schedule AL in Form ITR-3 & ITR-4

2.1    From Assessment Year 2013-14, in Return Forms ITR 3 and ITR 4, an additional Schedule AL is inserted. In cases, where the assessee’s total income exceeds Rs. 25 Lakh, he is required to disclose the cost of certain assets, which are not business assets, which includes cost of Land, building, balance in bank, shares and securities, Insurance policies, loans and advances given, cash in hand, jewellery, bullion, drawings, painting, vehicles, yachts, air crafts, etc.

2.2    There are various issues / difficulties in giving the cost of certain assets mentioned above, some of which are as under:

i)    Insurance policies: What is the meaning of ‘cost’ of life insurance policy? Whether bonus to be included? It is not clear whether the premiums paid, or the surrender value or the maturity value is to be mentioned. Premiums may have been paid by either parent or spouse, and may not necessarily have been paid by the assessee. It is not clear as to what the cost should be taken as in such cases. Whether only life insurance or also general insurance?

In cases of partial cash back received, whether cost to be reduced? By amount of cash back or proportionately?

ii)    Land/ building and Jewellery / bullion: These may have been acquired by way of gift or inheritance. The cost would be zero in such cases. In case of self acquired assets, the exact cost may not be known if the property is old and same is not shown in personal Balance Sheet of the assessee. It is also not clear whether it includes property agreed to be purchased – possession & conveyance pending? Whether includes property agreed to be purchased & possession taken – conveyance pending? Cost – whether payment yet to be made to be included? In relation to Cost – whether includes stamp duty, registration fee, transfer fee, brokerage? Whether pre-EMI interest on housing loan forms part of cost? Whether interest on loan for purchase of land forms part of cost? All this need clarification.

iii)    Archaeological Collections, Drawings, Paintings, Sculptures, Works of Art: Many works of art may have been received as gifts, etc. from friends or relatives. The schedule does not draw any distinction between works of art costing a few hundred rupees, and works of art costing a few thousand rupees. Assessees may not have details of the cost of inexpensive works of art. It is also not clear whether the following have to be included:

•  Stamp Collections

•  Coins/Currency Note Collections

•  Valuable Old Edition Books, Maps

•  Photographic Collections etc.

iv)    Deposit in banks: It is not clear whether the Savings bank balances to be mentioned have to be – as per bank passbook/ statements or as per personal accounts of assessee? Fixed Deposits – whether interest accrued to be added? PPF Account/ Senior Citizens Savings Scheme Account with banks – whether to be included? Whether Post Office MIS Deposits or Savings Accounts to be included?

v)    Loans and Advances given: Interest bearing as well as interest free loans to be taken.

Whether to include loans to partnership firm by partner? Advances for purchase of property/other assets – whether to be taken?

vi)    Whether in case of non-residents, foreign assets and liabilities are to be included in this schedule? How to disclose assets received as gift/inheritance?

In addition, there are various other practical difficulties in filling up this schedule.

2.3    Suggestions:

c.    Clarifications should be issued in respect of various issues in this regard particularly, what is meant by cost in different situations, with an additional column of remarks in the ITR, so that the assessee can make appropriate disclosure.

3.    Today there is no provision for making disclosure of certain debatable claims while filing the income tax returns. At times, this gives rise to unnecessary litigation regarding levy of penalty u/s.271(1)(c) for concealment. In such cases, though there is no intention to conceal, no disclosure can be made on account of the e return format.

Just as in the case of tax audit report, where scanned copies of signed accounts have to be annexed, provision should also be made in the e return for attaching a pdf statement making disclosures which the assessee desires to make. This will avoid unnecessary litigation.

In view of above, we therefore request you to grant extension of time for filing Report u/s 44AB & 115JB at the earliest, to defer the applicability of the Schedule AL to AY 2014-15 and to permit filing of disclosures in pdf format as attachments to the e return. Your early action in this regard shall be highly appreciated.

Yours truly,

For Bombay Chartered Accountants’ Society

Naushad Panjwani
President

Gautam Nayak
Chairman
Taxation Committee