Every business with turnover above a certain threshold undergoes Income tax Audit. Tax audits are conducted by tax auditors who are qualified CAs. A tax auditor evaluates financial records to determine whether the taxpayer complies with the applicable Income Tax laws by verifying his books of accounts to validate the Income Tax computation and compliance with the laws of Income Tax. Form 3CD is the tax audit report to be furnished by the tax auditors to the Income Tax department. The due date to furnish the same is 30th September of every year. It contains two parts and 41 clauses. Let us learn about the same in detail in this guide by H&R Block.
In simple terms, Form 3CD describes the format of the Audit Report which is to be filed by tax auditors under Section 44AB of Income Tax Act, 1961. The Income Tax Department of India has clearly laid down the rules associated with the use of this form. A tax audit is mandatory if the turnover of a business exceeds Rs 1 crore (Rs 2 crores in case of Carrying on business (opting presumptive taxation scheme under section 44AD)or exceeds Rs. 50 Lacs in case of Professionals.
As per rule 6G, there are two types of forms to be furnished under section 44AB. One is Audit report in from 3CA / 3CB and other is a statement showing relevant particulars in Form 3CD.
The due date of filing Tax audit report under Section 44AB is 30th September of the assessment year. However, if the assessee is liable for transfer pricing audit the due date for filing the Tax Audit is 30th November of the Assessment year-filing of tax audit report is mandatory from the AY 2013-14 onwards.
Form 3CD as per rule 6G (2) has two parts –PART A and PART B.
Let’s discuss each clause in depth.
This part generally includes the basic information like:
Clause 1: Name of the assessee
Here, mention the name of the assessee whose accounts is to be audited under section 44AB of the Income Tax Act.
Clause 2: Address
Mention the address under this clause and it should be same as the one communicated by the assessee to the Income Tax Department for assessment purpose as on date of signing of audit report.
Clause 3: Permanent Account Number
It is a mandatory field which requires the Permanent Account Number allotted to the assessee.
Clause 4: Whether the assessee is liable to pay indirect tax like excise duty, service tax, sales tax, customs duty, GST, etc. If yes, please furnish the registration number or any other identification number allotted for the same status. Registration number under different indirect tax must be mentioned here in case the assessee is liable to pay indirect tax.
Clause 5: Status
Status means the status as per section 2 (31) of the IT act and not the residential status. (Section 2(31) describes “person” and it includes an Individual, HUF, Firm, Company etc…)
Clause 6: Previous year from…………………….to……………….
Mention the period in this clause.
Clause 7: Assessment year
Here, you have to mention the assessment year.
Clause 8: Indicate the relevant clause of section 44AB under which the audit has been conducted
Here the relevant clauses accordingly must be mentioned:
Clause 12: Whether the profit and loss account includes any profits and gains assessable on the presumptive basis, if yes, indicate the amount and the relevant section (44AD, 44AE, 44AF, 44B, 44BB, 44BBA, and 44BBB, Chapter XII-G, First Schedule or any other relevant section.)
Clause 13: This is the clause recently added in the form and contains the particulars as shown in the image:
Clause 14: Here, Mention the effect on the profit and loss account of deviation from method of valuation prescribed under Section 145A individually on the opening and closing stocks. Both the effects should be disclosed separately and not as per accumulated basis. In case there is netting off, there should be proper disclosure for the same.
Clause 15: Here, the details of capital asset if converted into stock-in-trade should be given.
Clause 16: Mention the amount not credited to profit and loss account.
NOTE: Only the claims accepted previous year must be disclosed in clause 16, barring mere claims on negotiation. Case CIT v. Hindustan Housing and Land Development Trust Ltd.  161 ITR 524 (SC)
Clause 17: Mention the transactions related to 50C, (in case any land or building is transferred less than the consideration value.)
NOTE: Stamp Duly value is to be specified for land or building or both sold whether held in nature of Capital assets or Stock in trade.
Clause 18: Mention all the details related to depreciation allowable as per Income tax act along with change in rate of currency and subsidy or grant reimbursed by the government.
Clause 19: Mention all the admissible expenses in the profit and loss according to the section prescribed in the form.
Clause 20: Any bonus or commission paid to the employer instead of profits or dividends payable to him must be mentioned here.
Also if any contribution received from the employee for various funds as referred to in section 36(1)(va): should be described.
Clause 21: Here,
Clause 22: Mention any amount of Interest inadmissible under section 23 of the Micro, small and medium enterprises.
Clause 23: In case payment is made to specified persons under section 40A (2) (b) of Income tax act must be describe here.
Clause 24: In case any profit and gain is earned or deemed to be earned under section 32AC or 33AB or 33ABA or 33AC of the Income tax act should be disclosed here.
Clause 25: Any amount which is chargeable to tax under section 41 should be explained along with the computation
Clause 31: The tax auditor has to mandatorily mention the details of loans or deposits in case it exceeds the amount specified in section 269SS along with relevant documents.
NOTE: 269SS describes certain limits for lending and accepting the loans and deposits.
Clause 32: Prescribe the details of depreciation, brought forward losses and other relevant details applicable.
There are certain principles or points the assessee or taxpayer must remember while preparing Form 3CD as described below:
It is the statutory duty of the tax auditor to prepare Form 3CD and submit the same to the Tax Authority. The auditor then verifies and authenticates the furnished information. Here, are some important points to be kept in mind by the tax auditor while furnishing details in Form 3CD:
The tax auditor may qualify his report on matters in respect of which information is not furnished to him and state in his report that the relevant information has not been furnished by the assessee.