48 TAX AUDIT PROBLEMS AND SOLUTIONS BY CA NITESH MORE, KOLKATA INDEX
48 TAX AUDIT PROBLEMS AND SOLUTIONS
BY CA NITESH MORE, KOLKATA
1. Steps for Filling Online Tax Audit Report
2. Software Requirements
3. Problem in Slowdown of System
4. Problem of Negative Figures
5. Problem of Providing Quantitative Details
6. Problem in Entry of Large No. Of Fixed Assets
7. Problem in Viewing Stock Figures
8. Problem of Depreciation in Webtel Software
9. Problem of No Space for Commodity
10. Problem in Calculation of NP Ratio
11. Problem of Blank Fields in Saved Draft Xml File
12. Problem of Viewing Data of Xml before Uploading
13. Problem of Printing/Saving Uploaded Xml File
14. Problem of Fakepath
15. Problem in Viewing Xml File from Client’s Login
16. How to Print Uploaded Xml Files
17. Problem in Getting Activation Link/SMS for Completing Registration
18. Unable to See Xml in Assessee’s Login
19. Non Acceptance of Negative Figures in Form 29B
20. Use of Special Characters
21. Problem of Non Generation of XML
22. Problem of Swapping Of Due Date and Actual Date
23. TAR Rejected By Assessee If Uploaded Again
1. No. of Tax Audit a CA can Sign? Issue of section 44AD
2. Online Filling, Date of Signing and Date of Filling
3. Can a Partner Sign On Behalf Of Other Partners?
4. Can Return Be Filed After Due Date
5. ITR 7 to Be Filed Online?
6. Mandatory E-Filling of Trust, Society
7. Responsibility of Tax Auditor for Delay in Uploading
8. Penalty for Non Furnishing of Report
9. Waiver of Penalty for Non Furnishing
10. Format of Maintenance of Records of Tax Audit
11. Communication with Previous Auditor
12. Should CA Accept Tax Audit If Undisputed Fees of Previous Auditor Not Paid
13. Tar of Pvt Ltd Company
14. Address for NRI Director in ITR
15. Pan of Relative for Unsecured Loan
16. Return Can Be Uploaded Before TAR
17. Problem of Three Tax Auditors of Same Assessee
18. Problem of Different Methods of Valuation of Stock in Two Firms
19. Approval of Tar by Assessee Is Mandatory
20. How to Show Additional Depreciation
21. Date Of TAR Vs Date Of Furnishing TAR
22. Format For Tax Audit U/S 44AD
FREQUENTLY ASKED QUESTIONS ON E-FILLING OF TAX AUDIT REPORTS - TECHNICAL ISSUES
1. STEPS FOR FILLING ONLINE TAX AUDIT REPORT
Q1. What are the steps to be followed for E-filling of Tax Audit Report?
Ans. Step 1- One Time Registration of Chartered Accountant at E-filling website
Step 2 – Login to Assessee account at e-filling website and Add CA
Step 3 – Downloading, Preparing Tax Audit Report Utility & Generating XML file.
Step 4 – Uploading XML file at E-filling website from CA’s Login Id
Step 5 – Approval of form uploaded by CA at E-filling website from Assessee’s Login Id
Step 6 – Do not forget to file Income Tax Return in Relevant ITR separately
2. SOFTWARE REQUIREMENTS
Q2. What are operating system and runtime environment requirement for E-filling of Tax Audit Report?
Ans. Operating System – Windows XP with Service Pack 3/ Windows 7/ Windows 8.
Runtime Environment – JRE 1.7 Update 6 and above, 32 Bit is required to run applets for offline forms to work.
3. PROBLEM IN SLOWDOWN OF SYSTEM
Q3. Our system becomes very slow during working on e-utility. What should we do?
Ans. Remove all old versions of Java to improve performance. Better use Google chrome. Can also use Mozilla Firefox.
4. PROBLEM OF NEGATIVE FIGURES
Q4. System is not accepting negative figures in brackets i.e. “()”. What should we do?
Ans. Use negative sign. i.e. minus “-“
5. PROBLEM OF PROVIDING QUANTITATIVE DETAILS
Q5. Due to nature and complexity of the business of the assessee, we do not have quantitative information about the stock. The software is not accepting any comment and it is accepting only numeric value. What should we do?
Ans. Kindly note that Quantitative details of only principle items is to be given. However, in my opinion, if details are not available,
a) Write nil in online form 3CD &
b) Report why quantitative details is not provided in the following two places:
i) In paper form 3CD &
ii) Notes to accounts
c) The Following Statement Should Be Written In Paper Form 3CD As Well As Notes: "Due To Nature & Complexity of Business of Assessee, It Is Not Possible To Provide Quantitative Details"
6. PROBLEM IN ENTRY OF LARGE NO. OF FIXED ASSETS
Q6. An assessee had purchased, say 5000 assets. His details of purchase are there in schedule. Online form 3CD again requires filling each purchase. It is a huge task resulting duplicity of work.
Ans. In view of our time constraint, such fixed assets may be grouped into different blocks of assets and each of these groups can be further divided into 2 parts.
i. Assets put to use on or before 2nd October: For ease of entry in online form 3CD, we will argue that all assets were put to use on 2nd October, wherever possible.
ii. Assets put to use after 2nd October (eligible for half of depreciation): For ease of entry in online form 3CD, we will argue that all assets were put to use on 31st March, wherever possible.
It is also advised to attach the working of calculation of depreciation under the Income Tax act, 1961 as a schedule so that breakup of each group is easily visible to the IT department.
The above can be summarized in the following steps:
Step 1 - All fixed assets may be grouped into different blocks of assets.
Step 2 - Each of these groups can be further divided into 2 parts. (i) Assets put to use on or before 2nd October (ii) assets put to use after 2nd October (eligible for half of depreciation)
Step 3 - For assets brought on or before 2nd October, we can argue that those assets were put to use on 2nd October and accordingly relevant entries can be made in the online form 3CD.
Step 4 - For assets brought after 2nd October, we can argue that those assets were put to use on 31st March and accordingly relevant entries can be made in the online form 3CD.
Step 5 – Sale of assets for each of group should be entered in a separate row while filling online form 3CD.
Step 6 - It is also advised to attach the working of calculation of depreciation under the Income Tax act, 1961, as a schedule, so that breakup of each group is easily visible to the IT department.
7. PROBLEM IN VIEWING STOCK FIGURES
Q7. I filled stock details in point 28A. When after validating and saving, I reopen the form; only one stock figure is displayed.
Ans. It is the inherent problem of the software but your xml file contains the correct data. Open the xml file in Internet Explorer and check it. You can edit xml file, however you have to adopt unceremonious way to edit the xml file for the necessary correction for the item in subsequent rows of point 28A. Therefore it is advised to fill up point 28A before filling any other point from point 7 onwards.
8. PROBLEM OF DEPRECIATION IN WEBTEL SOFTWARE
Q8. We have received demand relating to AY 2012-13, for almost for all companies for which income tax return were filled using Webtel software. The demand pertains to non-deduction of deprecation u/s32 in the return processed u/s 143(1) by CPC Bangalore, as claim by us in ITR 6. I just want to know if any other user of Webtel are also facing same problem.
Ans: The Problem Was Faced Many CA Using Webtel Software Due To Non Updation. I Suggest Submitting Revised Return or Making Rectification U/S 154.
9. PROBLEM OF NO SPACE FOR COMMODITY
Q9. In online Form 3CD, nature of business is to be mentioned i.e. Trading/Manufacturing & Retailer/ Wholesaler, but there is no space given for a particular commodity, say, cloth/ medicine/ cement. What should we do?
Ans. You can select, say, retailers & thereafter choose others (i.e. 104, 204, etc as applicable).
10. PROBLEM IN CALCULATION OF NP RATIO
Q10. If any businessman having a cloth business & also keeps photocopy machine/ agent of LIC, the income from photocopy machine / commission received from LIC is used for calculating the NP ratio. If so, then in this case GP ratio is less then NP ratio. So what to do about it?
Ans. You have to calculate NP ratio as a whole of the business for which tax audit was conducted.
11. PROBLEM OF BLANK FIELDS IN SAVED DRAFT XML FILE
Q11. When we reopen draft saved xml file, many fields which we had already entered is showing blank.
Ans. The software has some inherent errors as a result when we reopen draft saved xml file, it shows blank i.e. we have to re-enter the fields again. These fields are 7(B), 8(B), 9(A), 10, 11(D), 12(B), 21(Notes), 22(A), 22 AND 23.
12. PROBLEM OF VIEWING DATA OF XML BEFORE UPLOADING
Q12. How we can view data of XML before uploading?
Ans. You can view the xml file of tax audit report prepared in e utility of department. CA P.K. Agarwalla has prepared the screen shots of the process to view the same. The process is as follows:
Go to Programme à Microsoft Office àMicrosoft Office Access 2003/2007 à New blank data base àClick blank data base à A window with file name database1.accdb will appear on the right hand side pane. à Click on create. Your new date base is saved by default in my Documents. (You may save the same to your choice folder)
A new data base is opened. Go to and click External data à Click XML file>Browse the xml file for which you want to create/view or save the data àClick OKàImport XMLàClick OKàCheck the box "Save import steps"à Close.
Your data base is ready, on the left hand side pane the indexes for “All Tables” do appear. By clicking any Table/ any point you can easily view and save its contents presently appearing in the XML file. Once the xml file is saved and the data base is reopened it will show the updated entries lying in the XML file. If some member finds any error in the tables he can easily make corrections opening the utility.
13. PROBLEM OF PRINTING/SAVING UPLOADED XML FILE
Q13. There is no provision for saving or printing downloaded Forms 3CB-3CD, or XML file.
Ans. U can save the work in middle by using “Save Draft” Button. To view the print option opens the xml file in Microsoft Access 2007 using new projects. U can find the Data in tabular form.
14. PROBLEM OF FAKEPATH
Q14. When we are uploading the 3CA and 3CD online one error is coming cannot read fake path file. I have placed the XML file in c drive fakepath folder and using Google chrome for that. Please help on the issue.
Ans. Kindly check the name of folder is “fakepath” and not as fake path, in C drive.
15. PROBLEM IN VIEWING XML FILE FROM CLIENT’S LOGIN
Q15. We uploaded form 3CD of a client. When it is viewed from the client’s login (i.e. for approving or rejecting), the dates in point no. 16(b) of form 3CD is getting interchanged (i.e. in the due dates column actual dates are seen and vice versa). But there is no mistake at our end. We have filled in the data in the income tax offline utility correctly and generated xml.
Ans. Your XML File contains the right data. Do not worry, upload it.
16. HOW TO PRINT UPLOADED XML FILES
Q16. CA has no option to print uploaded xml files. How to print?
Ans. CA has no option to print uploaded xml files. However, it can be printed from assessee’s login id, even before approval by assessee as the said xml file can be downloaded, from assessee’s login id, in the pdf format by default.
17. PROBLEM IN GETTING ACTIVATION LINK/SMS FOR COMPLETING REGISTRATION
Q17. A Chartered Accountant in practice registered himself with his DSC in the e-filing website. But he neither received any sms nor any activation link in his e-mail. When he tried again to register himself, the message was that he is already registered. But when he tried to log in, it was informed that the link is not activated. What should he do now?
Ans. Go to login page and enter your User ID i.e. ARCA(Mem. No.) e.g. ARCA300700 and enter your Password as given then click on "Resend Activation Link". You will get a mail from the site. If it does not work then reset your Password by sending mail at firstname.lastname@example.org.
18. UNABLE TO SEE XML IN ASSESSEE’S LOGIN
18. I had uploaded one Form 3CD, 10 days back and same was reflecting in my log in and I also received message for uploading. Now when I go to assessee log, same form is not available for validation. When I try to re-file from my log in I am getting massage that you are already submitted and assessee has not rejected/accepted.
Ans. Kindly Go to Work lists and approve it.
19. NON ACCEPTANCE OF NEGATIVE FIGURES IN FORM 29B
Q19. In the department utility, the point no.9 of Annexure A of Form 29B is not accepting negative figures.
Ans. Kindly Type 0, Until Such Inherent Error in Software Is Rectified By Department
20. USE OF SPECIAL CHARACTERS
Q20. Can we use special characters while typing address in different places of online form 3CD?
Ans. No, special characters are not allowed while typing address.
21. PROBLEM OF NON GENERATION OF XML
Q21. The department utility is opening the saved data and saving draft successfully but it does not generate XML file when we click generate XML file
Ans. First validate it and generate
22. PROBLEM OF SWAPPING OF DUE DATE AND ACTUAL DATE
Q22. I have noticed that under the Clause No. 16(b) there is an error in the utility. The columns of due date and actual date for payments as show in the utility have been reversed against the actual data being generated in the XML file. The column headers should be swapped. The same is also evident from the form being generated at the time of approval.
Ans. This is the inherent problem. Kindly do not swap the dates at the time of data entry. IT department had been communicated with such problems.
23. TAR REJECTED BY ASSESSEE IF UPLOADED AGAIN
Q23. If a TAR is rejected by assessee and uploaded again, then an error message comes.
Ans. This is the inherent problem. Kindly download and fill up fresh form.
FREQUENTLY ASKED QUESTIONS ON E-FILLING OF TAX AUDIT REPORTS – OTHER ISSUES
1. NO. OF TAX AUDIT
Q1. Whether Tax Audit Report u/s 44AD etc will be counted in the specified limits of 45 Tax Audits?
Ans. As per Council Guidelines No.1-CA(7)/02/2008, dated 8th August,2008, these will not be included and you can file unlimited such Tax Audit Reports
Q2. What are the limits on signing of Tax Audit Report?
Ans. As per Council Guidelines No.1-CA(7)/02/2008, dated 8th August,2008,
a) A CA can sign up to 45 Tax Audit.
b) In case of Partnership Firm, limit will be 45 / Partner.
c) Audit U/S 44AD, 44AE, 44AF will not be included in the limit. (FROM FY 2012-13, SEC 44AF ISNOT APPLICABLE)
2. ONLINE FILLING, DATE OF SIGNING AND DATE OF FILLING
Q3. What are the Tax Audit Reports which are to be compulsorily filed online?
Ans. As per Notification No. 34/2013 dated 01/05/2013, & Notification No. 42/2013 dated 11/06/2013, Audit reports under Sections 10 (23C) (iv), (v), (vi) or (via), 10A, 12A (1)(b), 44AB, 80-IA, 80-IB, 80-IC, 80-ID, 80JJAA, 80LA, 92E or 115JB are to be filed electronically. (It covers audit report u/s 44AD, 44AE, 44AF also) (FROM FY 2012-13, SEC 44AF is not applicable)
Q4. Should we sign Tax Audit Report on 30th September?
Ans. As the word “before” has been used in sec. 44AB, we should not sign Tax Audit Report on 30th September. You should sign Tax Audit Report before 30th September, since the assessee is required to “obtain” Tax Audit Report before the due date i.e. 30th September.
Q5. Where audit is to be conducted u/s 92E, what is the last date of filling online Tax Audit Report?
Ans. Normally, Tax Audit Report is to be submitted by 30th September. However, for these assesses Report u/s 92E as well as Tax Audit Report can be filled by 30th November.
3. CAN A PARTNER SIGN ON BEFALF OF OTHER PARTNERS
Q6. Please advice in case of partnership firm can only one partner sign all the reports?
a) Clause 12 Of Part I of Schedule I of Chartered Accountants Act allow a partner to sign on behalf of (i) Other Partner (ii) Firm
b) Sign can be either digital or physical
c) In my view, one partner can sign form 3CD etc. keeping in view the limit of 45 audits per partner.
[Clause 12 of Part I of Schedule I of Chartered Accountants Act states that “A CA in practice will be guilty if he allows a person not being a member of the institute in practice, or a member not being his partner to sign on his behalf or on behalf of his firm, any balance-sheet, P&L a/c, report or financial statements"]
4. CAN RETURN BE FILED AFTER DUE DATE
Q7. Can Income tax Return be e-filed after 30th September? However we will file Tax Audit Report within 30th September?
Ans. Yes, Online Tax Audit Report is to be filed by 30th September to avoid penalty of Rs. 1.5 Lakhs or ½% of Turnover, whichever is lower. However, return may be filed later. However, such return will be treated as belated return.
5. ITR 7 TO BE FILED ONLINE?
Q8. Whether e-Filing of ITR 7 For AY 2013 - 14 mandatory or can we file paper returns also?
Ans. It Is Mandatory To Submit Online
6. MANDATORY E-FILLING OF TRUST, SOCIETY
Q9. Are All Charitable Trust and Cooperative Society’s Income Tax Return Are to E-File?
Ans: The Charitable Trusts etc. are Required To File Return Online Also.
7. RESPONSIBILITY OF TAX AUDITOR FOR DELAY IN UPLOADING
Q10. Is tax auditor responsible for delay in uploading of Tax Audit Report?
Ans. Guidance Note on Tax Audit states that normally, it is the professional duty of the CA to ensure that the audit accepted by him is completed before the due date. Hence, yes, if delay is attributable to his part.
8. PENALTY FOR NON FURNISHING OF REPORT
Q11. What are the penalties for non furnishing a Tax Audit Report?
Ans. Sec 271B states that, if any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred fifty thousand rupees, whichever is less.
9. WAIVER OF PENALTY FOR NON FURNISHING
Q12. What are the circumstances under which penalty cannot be imposed for non furnishing of Tax Audit Report?
Ans. As per section 273B, no penalty is imposable under section 271B on the assessee for the above failure if he proves that there was reasonable cause for the said failure. The onus of proving reasonable cause is on the assessee. Some of the instances where Tribunals/Courts have accepted as "reasonable cause" are as follows:
(a) Resignation of the tax auditor and consequent delay;
(b) Bona fide interpretation of the term `turnover' based on expert advice;
(c) Death or physical inability of the partner in charge of the accounts;
(d) Labour problems such as strike, lock out for a long period, etc.;
(e) Loss of accounts because of fire, theft, etc. beyond the control of the assessee;
(f) Non-availability of accounts on account of seizure;
(g) Natural calamities, commotion, etc.
10. FORMAT OF MAINTAINANCE OF RECORDS OF TAX AUDIT
Q13. What is the format for maintaining records of Tax Audit Assignments?
Ans. Record of Tax Audit Assignments
1. Name of the Member accepting the assignment
2. Membership No.
3. Financial year of audit acceptance
4. Name and Registration No. of the firm/ firms of which the member is a proprietor or partner.
Name of the Auditee
AY of the Auditee
Date of Appointment
Date of acceptance
Name of the firm on whose behalf the member has accepted the assignment
Date of communication with the previous auditor (applicable)
11. COMMUNICATION WITH PREVIOUS AUDITOR
Q14. Is communication with the previous tax auditor necessary?
12. SHOULD CA ACEEPT TAX AUDIT IF UNDISPUTED FEES OF PREVIOUS AUDITOR NOT PAID
Q15. Should a CA accept Tax audit where undisputed fees of previous auditor have not been paid?
Ans. As per Council Guidelines No.1-CA(7)/02/2008, dated 8th August,2008, “a member of the Institute in practice shall not accept the appointment as auditor of an entity in case the undisputed audit fee of another CA for carrying out the statutory audit under the Companies Act, 1956 or various other statutes has not been paid”
13. TAR OF PVT LTD COMPANY
Q16. Whether Form 3CA or Form 3CB to use for Tax Audit Report purpose of a Pvt. Ltd. Co. having statutory Audit done by the same CA.
Ans. Form No 3CA-3CD
14. ADDRESS FOR NRI DIRECTOR IN ITR
Q17. While filling Director Details in ITR 6, only Indian Address is accepted in the form. However, one of the directors is an NRI and having foreign address. Should we fill in a local address of the Director and proceed or there is some other way out?
Ans. ITR-6 Required Residential Address. If Indian Address Available Then Give.
Particulars of MD, Directors, Secretary and Principal officer(s)
who have held the office during the previous year
15. PAN OF RELATIVE FOR UNSECURED LOAN
Q18. Whether it is mandatory to mention Pan No of Party Related with Unsecured Loan in online 3CD Form
Ans. EFiling software is not accepting it without PAN. Hope error will be rectified soon.
16. RETURN CAN BE UPLOADED BEFORE TAR
Q19. Is there any problem in uploading Income Tax Return before filing/approval of Tax Audit forms?
Ans. Date of furnishing TAR to department is to be mentioned in ITR. So TAR is to be filed first.
17. PROBLEM OF THREE TAX AUDITORS OF SAME ASSESSEE
Q20. An Individual Has Three Businesses Audited By Same/Different Tax Auditors. How To Submit Tax Audit Report?
Ans. In my view, you can follow the below mentioned steps.
a) Combine data of all B/S, P/l, tax audit report and submit as one
b) If tax audit conducted by different CAs, any CA can submit.
c) It is advised to attach physical copies of all Tax Audit Reports too, for disclosure of the fact that (i) different CAs have done Tax audit and (ii) that CA who is filling had relied on the work of all other Cas. (iii) There are three different Tax audit report whose data has been combined while submitting online TAR.
18. PROBLEM OF DIFFERENT METHODS OF VALUATION OF STOCK IN TWO FIRMS
Q21. An Individual Have 2 Firms. In One Firm, Method Of Valuation Of Closing Stock Is Cost Or Market Price Whichever Is Less. However, In Other Firm, Stock Is Valued At Market Price. How To Show It In Online Form 3cd?
Ans. It is better to mention the facts in separate sheet and attach with the online audit report.
19. APPROVAL OF TAR BY ASSESSEE IS MANDATORY
Q22. What If The Assessee Does Not Approve The Audit Report Submitted Before The Due Date
Ans. It may be presumed that no tar has been submitted by assessee
20. HOW TO SHOW ADDITIONAL DEPRECIATION
Q23. How To Show Additional Depreciation in the Online Form 3CD.
Ans. Add It with Normal Depreciation
21. DATE OF TAX AUDIT REPORT VS DATE OF FURNISHING TAX AUDIT REPORT
Q24. What is the difference between date of TAR and date of furnishing of TAR?
Ans. Date of TAR is the date of signing by the auditor and date of furnishing TAR is the date on which assessee approves the audit report uploaded by CA.
22. FORMAT FOR TAX AUDIT U/S 44AD
Q25. What is the format for Tax Audit u/s 44AD?
Ans. The Tax Audit under the provisions of section 44AD are to be conducted u/s 44AB. Hence, the format prescribed for Tax Audit u/s 44AD is 3CB & 3CD.
PREPARED BY :- CA NITESH KUMAR MORE
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Courtesy - CA Deepak Tibrewal, CA P.K. Agarwalla & CA Raj Singhania