DOCUMENTATION OF TAX AUDIT PEER REVIEW Baroda Branch

DOCUMENTATION OF TAX AUDIT & PEER REVIEW Baroda Branch of WIRC of ICAI August 11, 2018 By CA ABHAY VASANT AROLKAR e. Mail : abhay@avarolkar. com

DOCUMENTATION

DOCUMENTATION Ø “The skill of an accountant can always be ascertained by an inspection of his working papers. ”— Robert H. Montgomery, Montgomery’s Auditing, 1912 Ø Standard on Auditing (SA) 200, “Basic Principles Governing an Audit” (Paragraph 11), states, “The auditor should document matters which are important in providing evidence that the audit was carried out in accordance with the basic principles. ”

DOCUMENTATION Ø ü 4 Documentation, for purposes of this Standard, refers to the working papers prepared or obtained by the auditor and retained by him, in connection with the performance of his audit. Ø Working papers: • aid in the planning and performance of the audit; • aid in the supervision and review of the audit work; and • provide evidence of the audit work performed to support the auditor’s opinion.

No one will believe you did something on an audit if there is nothing in your ü 5

DOCUMENTATION The working papers are classified as follows : ü Permanent Audit Files ü Current Audit Files ü 6

DOCUMENTATION ü 7 A permanent audit file normally includes: ü Copy of initial appointment letter if the engagement is of recurring nature ü Record of communication with the retiring auditor, if any, before acceptance of the appointment as auditor ü NOC from previous auditor ü Information concerning the legal and organisational structure of the entity. ü In the case of a company, this includes the Memorandum and Articles of Association. ü In the case of a statutory corporation, this includes the Act and Regulations under which the corporation functions

DOCUMENTATION ü 8 ü Organizational structure of the client ü List of governing body including Name, Address and contact details. For Instance, the List of Directors in case of a company, List of partners in a partnership and list of Trustees in a Trust. ü Extracts or copies of important legal documents, agreements and minutes relevant to the audit. ü A record of the study and evaluation of the internal controls related to the accounting system. This might be in the form of narrative descriptions, questionnaires or flow charts, or some combination thereof. ü Copies of audited financial statements for previous years

ü 9 DOCUMENTATION ü Analysis of significant ratios and trends ü Copies of management letters issued by the auditor, if any. ü Notes regarding significant accounting policies. ü Significant audit observations of earlier years. ü Assessment of risks and risk management ü Major policies related to Purchases and Sales ü Details of sister concerns ü Details of Bankers, Registrars, Lawyers etc ü Systems and Data Security policies ü Business Continuity Plans

DOCUMENTATION ü 10 A Current audit file normally includes: ü Correspondence relating to acceptance of annual reappointment. ü Extracts of important matters in the minutes of Board Meetings and General Meetings, as are relevant to the audit. ü Evidence of the planning process of the audit and audit programme ü Analysis of transactions and balances. ü A record of the nature, timing and extent of auditing procedures performed, and the results of such procedures ü Evidence that the work performed by assistants was supervised and reviewed. ü Copies of communications with other auditors, experts and other third parties.

DOCUMENTATION üCopies ü 11 of letters or notes concerning audit matters communicated to or discussed with the client, including the terms of the engagement and material weaknesses in relevant internal controls. üLetters of representation or confirmation received from the client. üConclusions reached by the auditor concerning significant aspects of the audit, including the manner in which exceptions and unusual matters, if any, disclosed by the auditor’s procedures were resolved or treated. üCopies üAudit of the financial information being reported on and the related audit reports. review points and highlight. üMajor weakness in Internal control

DOCUMENTATION Documentation under Income Tax Act, 1961 Normal audit procedures Standard Peer üA. V. Arolkar of Auditing SA 230 (Revised) Review & Co. , Chartered Accountants ü 12

DOCUMENTATION for TAX AUDIT U/S 44 AB OF THE INCOME TAX ACT 1961

Recent Amendment – Reports signed on or after 20 -08 -2018 ü 14 Only for reports signed on or after 20 -08 -2018. Discriminatory provision. Gives space for malpractices. Assessees may not be equipped to provide details required under the amended Form as the accounting system at many small and medium enterprises are not geared for pulling out such information. Thus it will involve costs to comply. The word “audit” does not refer to preparation and compilation of books of account. It only refers to expression of opinion on such books of account to verify the true and fair financial results of the assessee. Bajrang Textiles vs Dy. CIT [2004] 3 SOT 115 (Jodh. ). Whether fair to require auditors to provide such details. üA. V. Arolkar & Co. , Chartered Accountants

Recent Amendment – Reports signed on or after 20 -08 -2018 ü 15 Information sought under Clause 44 is already part of Annual Return under GST which is to be filed along with the reconciliation statement as per Sec. 35(5) r/w Sec. 44(2) of the CGST Act, 2017. Due date for furnishing the Annual Return is 31 st December The details sought are merely factual in nature and do not warrant an opinion of an auditor on the same. Hence such details, even if sought, should not be part of the Audit Report. Tax auditor may not be in a position to certify the details sought as he may have limited time at his disposal. During FY 2017 -18, first three months were under the old regime and nine months thereafter are under the GST regime. Thus the data may be difficult to collate as simply as put in the new form. üA. V. Arolkar & Co. , Chartered Accountants

Recent Amendment – Reports signed on or after 20 -08 -2018 ü 16 Separate field is not there for import of goods/services. Hence the quantum to be shown in the field “Expenditure relating to entities not registered under GST” will not give the accurate picture of goods/services obtained only from the unregistered suppliers since the said field will also include imports. Illthought out compliances. The allowability of expense does not depend on whether the expenditure is incurred if from entities registered under GST or otherwise. This may create a needless bias in respect of expenditure from unregistered persons, which may lead to making fishing inquiries üA. V. Arolkar & Co. , Chartered Accountants

INTRODUCTION Ø ü 17 The whole idea of audit u/s 44 AB of the Income Tax Act, 1961 was to ensure that the books are correctly maintained and income is rightly computed as per the provisions of the law. Ø The main objective of the tax audit is to compute the taxable income according to the law and for maintaining transparency in the financial statements filed by the assesses with the Income-tax department. Ø The tax audit u/s. 44 AB of the Income-tax Act 1961 is significant practice area for Chartered Accountants. Since the introduction of tax audit, we have been given responsibilities to discharge the duties as tax auditors for the proper compliance of tax law by the assessees.

ü 18 Applicability of Tax Audit – Section 44 AB Income from Business Where the total sales, turnover or gross receipts exceeds one crore rupees in any previous year Where tax is being paid on presumptive basis and the income declared is less than the presumption as stated in the respective sections, as follows: Section 44 AE – Business of goods carriage, by heavy goods vehicle or other than heavy goods vehicle Section 44 BB – Business of exploration etc, . Of mineral oils Section 44 BBB – Business of civil construction etc. , in certain turnkey power projects Section üA. V. Arolkar 44 AD – Income from business on presumptive basis & Co. , Chartered Accountants

ü 19 Applicability of Tax Audit – Section 44 AB Income from Profession Where the gross receipts in profession exceed fifty lakh rupees in any previous year Where tax is being paid on presumptive basis and the income declared is less than the presumption as stated in Section 44 ADA. Issues What is the position as to audit for income from derivatives (F&O)? What is the position as to audit, where the turnover in case of business exceeds one crore rupees and the person has adopted presumptive basis under Section 44 AD? üA. V. Arolkar & Co. , Chartered Accountants

ü 20 Tax Audit u/s 44 AB - Report Ø Main Report u/s 44 AB ü Form 3 CA ü Form 3 CB

Basic Details of Assessee – {Clause 1 to 8} {also in Annexure 1} ü 21 Name of the assessee Address Permanent Account Number (PAN) Registration No. /Identification No. under indirect tax law like excise duty, service tax, sales tax, goods and service tax, customs duty, etc. as may be applicable. 5. Status Previous year from……………. . to …………… Assessment year Indicate the relevant clause of section 44 AB under which the audit has been conducted

ü 22 Identity proof Residence/Address Proof PAN Card In case of An individual : a proprietary letter/Shops and Establishment Licence A firm : Partnership deed ; Registration Certificate A company – Certificate of incorporation; Certificate to commence business (in case of public companies) Any other entity : Incorporation/registration certificate or formation deed Registration certificate under indirect tax law, if any. Last Balance Sheet or date of commencement of business

Partners and their Profit Sharing Ratios –ü 23 {Clause 9} ü If firm or Association of Persons, indicate names of partners / members and their profit sharing ratios {Clause 7(a)} ü If there is any change in the partners/members or their profit sharing ratios since the last date of preceding year, the particulars of such change. {Clause 7(b)} ü Documentation – Deed of partnership, Deed of Amendment or Addendum to Deed of partnership

Nature of Businesses or Professions – {Clause 10} ü ü 24 Nature of business or profession (if more than one business or profession is carried on during the previous year, nature of every business or profession) ü If there is any change in the nature of Business or profession, the particulars of such change.

ü 25 Management Representation letter Extracts of Objects Clause of the Memorandum of Association or the Deed of Partnership or basic document of the entity. Sales Tax/ VAT registration Certificate/ Service Tax and now GST Registration certificate Any other specific registrations such as NBFC, Chemists and Druggists etc. , Copy of last return of income filed

List Books of Accounts - {Clause 11} ü 26 Whether books of account are prescribed under section 44 AA, if yes, list of books so prescribed. List of books of account maintained and the address at which the books of accounts are kept. (In case books of account are maintained in a computer system, mention the books of account generated by such computer system. If the books of accounts are not kept at one location, please furnish the addresses of locations along with the details of books of accounts maintained at each location. ) List of books of account and nature of relevant documents examined.

ü 27 Management Representation letter List of Books maintained Any law requiring the assessee to maintain the books of accounts for such businesses e. g. professionals under the Income Tax Act, 1961; traders under the VAT Laws etc. ,

ü 28 Profit and Gains Assessable on Presumptive Basis {Clause 12} ü Whether the profit and loss account includes any profits and gains assessable on presumptive basis, if yes, indicate the amount and the relevant section 44 AD – Any Business 44 AE – Plying, Hiring, or Leasing Goods Carriages 44 ADA – Any Profession 44 B – Shipping Business 44 BB – Exploration of Mineral Oils 44 BBA – Operation of Aircraft 44 BBB – Turnkey Power Projects or any other relevant section

ü 29 Chapter XII G First Schedule Whether falling within the definition of Eligible business Eligible assessee Basis of Presumptive Tax

Method of Accounting - {Clause 13} ü 30 ü Method of accounting employed in the previous year. ü Whethere has been any change in the method of accounting employed visà-vis the method employed in the immediately preceding previous year. ü ügive details of such change, and the effect thereof on the profit or loss. If answer to (b) above is in the affirmative, give details of such change, and the effect thereof on the profit or loss. Serial No. Particulars Increase in profit (Rs. ) Decrease in profit (Rs. )

Method of Accounting - {Clause 13} (Contd. , ) ü 31 Whether any adjustment is required to be made to the profits or loss for complying with the provisions of income computation If answer to (d) above is in the affirmative, give details of such adjustments: Increase in Profit (Rs. ) ICDS ___ üA. V. Arolkar & Co. , Chartered Accountants Decrease in Profit (Rs. ) Net Effect (Rs. )

ü 32 Disclosures as per ICDS I Accounting Policies ICDS II Valuation of Inventories ICDS III Construction Contracts ICDS IV Revenue Recognition ICDS V Tangible Fixed Assets ICDS VI Changes in Foreign Exchange Rates ICDS VII Governments Grants ICDS VIII Securities ICDS IX Borrowing Costs ICDS X Provisions, Contingent Liabilities and contingent assets üA. V. Arolkar & Co. , Chartered Accountants

ü 33 Management representation letter Last audit report Provisions of law such as companies can maintain only accrual method of accounting Final statement of accounts for the year under audit and the immediate preceding financial year. Relevant ICDS applicable Deviation, if any and the quantification thereof.

Method of Valuation of Closing Stock – {Clause 14} ü 34 ü Method of valuation of closing stock employed in the previous year. ü Details of deviation, if any, from the method of valuation prescribed under section 145 A, and the effect thereof on the profit or loss. Serial number Particulars Increase in profit (Rs. ) Decrease in profit (Rs. )

Method of Valuation of Closing Stock –ü 35 {Clause 14} Particulars Increase in Profit (Rs. ) Decrease in Profit (Rs. ) 1 Increase in cost of opening stock on inclusion of excise duty on which Cenvat available / availed XXX 2 Increase in purchase cost of RM on inclusion of excise duty on which Cenvat available / availed XXX 3 Increase in sales of finished goods on inclusion of ED XXX 4 ED paid on Sale of FG due to inclusion in Sales XXX 5 Increase in closing stock of RM on inclusion of ED XXX 6 Increase in closing stock of FG on inclusion of ED XXX 7 Increase in ED on closing stock of FG as a result of its inclusion in closing stock of FG XXX 8 Accounting of Cenvat credit availed and utilised on RM consumed in payment of ED on FG accounted on basis of RM consumed XXX * The above format needs to be suitable adapted for GST

ü 36 Management Representation letter Expert advise, if any required Type of business and customs and usages in such trade/business Applicability of Section 145 A Deviations, if any and quantification thereof. Statement of reconciliation of profit, in case of deviation or change of method of valuation

ü 37 Particulars of Capital Asset Converted into Stock-in-trade – {Clause 15} Give the following particulars of the capital asset converted into stock-in trade: (a) Description of capital asset; (b) Date of acquisition; (c) Cost of acquisition; (d) Amount at which the asset is converted into stock-intrade.

ü 38 Management Representation letter/Board Resolution Details of the Capital Asset Reasons for conversion Impact of conversion

ü 39 Amounts not Credited to Profit & Loss Account – {Clause 16 } a) The items falling within the scope of section 28; b) The Proforma credits, drawbacks, [refund of duty of customs or excise or service tax, or refund of sales tax or value added tax], where such credits, drawbacks or refunds are admitted due by the authorities concerned. c) escalation claims accepted during the previous year; d) any other item of income; e) capital receipt, if any.

ü 40 Claims made and Refund Orders Documentary evidence depending on nature of capital receipt and reasons for not crediting the profit and loss account

ü 41 Sale of Land/Building (Clause 17) Where any land or building or both is transferred during the previous year for a consideration less than value adopted or assessable by any authority of a State Government referred to in section 43 CA or 50 C, please furnish: Details of property üA. V. Arolkar & Co. , Chartered Accountants Consideration received or accrued Value adopted or assessable

ü 42 Sale of Land/Building (Clause 17) Deed of Registration Adjudication order, if any Management Representation letter Expert opinion, where necessary. üA. V. Arolkar & Co. , Chartered Accountants

Particulars of Depreciation of Fixed Assetsü– 43 {Clause 18} ü Particulars of depreciation allowable as per the Income-tax act, 1961 in respect of each asset or block of assets, as the case may be, in the following form : a) Description of asset / block of assets. b) Rate of depreciation c) Actual cost or written down value, as the case may be.

Particulars of Depreciation of Fixed Assetsü– 44 {Clause 18} ü Particulars of depreciation allowable as per the Income-tax act, 1961 in respect of each asset or block of assets, as the case may be, in the following form : d) Additions / deductions during the year with dates; in the case of any addition of an asset, date put to use; including adjustments on account of i. Central Value Added Tax credit claimed and allowed under the Central Excise rules, 1944, in respect of assets acquired on or after 1 st March 1994. ii. Change in rate of exchange of currency, and iii. Subsidy or grant or reimbursement, by whatever name called. e) Depreciation allowable f) WDV at end of the year

ü 45 Copies of bills in respect of assets purchased during the audit period Details of fixed assets sold, scrapped or discarded or impaired Computation of addition/reduction in value on account of CENVAT Credit or exchange difference or Government subsidy Rates of depreciation applicable to each type of asset Extracts of Fixed Assets Register

Amounts Admissible various clauses of – ü 46 {Clause 19} Ø Amount admissible under sections: 32 AC ; 32 AD ; 33 ABA ; 35 (1)(i) ; 35(1)(iia) ; 35(1)(iii) ; 35(1)(iv) ; 35(2 AA) ; 35(2 AB) ; 35 ABB ; 35 AC ; 35 AD ; 35 CCA ; 35 C. CB ; 35 CCC ; 35 CCD ; 35 DDA ; 35 E.

ü 47 Details of such expenses and the category of such assets Assess whether the expenditure is incurred for business purpose? Documentary evidence as to its payment/receipt

Amount Paid / Received from the Employees ü– 48 {Clause 20} Any sum paid to an employee as bonus or commission for services rendered, where such sum was otherwise payable to him as profits or dividend. [Section 36(1)(ii)] Details of contributions received from employees for various funds as referred to in section 36(1)(va): Serial number Nature of fund Sum received Due date for from payment employees The actual amount paid date of payment to the concerned authorities

ü 49 List of employees and their salaries, applicability of PF and the contribution of the employer/employee Terms of employment Applicability of gratuity and other labour laws. Copies of challans and working of the respective liabilities Copies of returns filed under the respective laws. In case of any agreement with any trade union, copy thereof

ü 50 Amount Debited to Profit and Loss Account – {Clause 21} a) expenditure of capital nature; b) expenditure of personal nature; c) expenditure on advertisement in any souvenir, brochure, tract, pamphlet or the like, published by a political party; d) expenditure incurred at clubs, i. as entrance fees and subscriptions; ii. as cost for club services and facilities used;

Amount Debited to Profit and Loss Account – ü 51 {Clause 21} i. expenditure by way of penalty or fine for violation of any law for the time being in force; ii. any other penalty or fine; iii. expenditure incurred for any purpose which is an offence or which is prohibited by law;

ü 52 Clause 21(a) Format for reporting Nature Serial number Particulars Amount in Rs.

ü 53 Ledger Extracts Query sheet in respect of Ledger Scrutiny Details of such payments on scrutiny of such expenses/cash or bank book, receipts thereof. Justification as to the reasonableness of the expenditure Management representation letter

ü 54 Clause 21(b)(i) Amounts inadmissible under section 40(a): - (i) as payment to non-resident referred to in sub-clause (i) (A) Details of payment on which tax is not deducted, namely, date, amount and nature of payment as also the name and address of the payee (B) Details of payment on which tax has been deducted but has not been paid during the previous year or in the subsequent year before the expiry of time prescribed under section 200(1) that is date, amount and nature of payment, TDS, as also the name and address of the payee üA. V. Arolkar & Co. , Chartered Accountants

ü 55 Payments made to Persons specified u/s 40 A(2)(b) – {Clause 23} Details of specified persons under Section 40 A(b) Ledger Scrutiny and the scrutiny of cash and bank books Copies of TDS returns filed and working thereof Form 15 CA/15 CB filed in respect of payments to non-residents üA. V. Arolkar & Co. , Chartered Accountants

ü 56 Clause 21(b)(ii) as payment referred to in Section 40(a)(ia) (A) Details of payment on which tax is not deducted namely the date, amount and the nature of payment as also the name and address of the payee (B) Details of payment on which tax has been deducted but has not been paid on or before the due date specified in sub- section (1) of section 139, namely the date , amount and nature of payment, the amount of tax deducted and the amount out of the said TDS actually deposited, if any üA. V. Arolkar & Co. , Chartered Accountants

ü 57 Clause 21(b)(iii - viii) (iii) Details under sub-clause (ic), being fringe benefit tax paid, wherever applicable. (iv) Details under sub-clause (iia), being wealth tax paid (v) Details under sub-clause (iib), being royalty, licence fee etc exclusively levied on or appropriated from, whether directly or indirectly, a State Government undertaking by the State Government. (vi) Details under sub-clause (iii), being the Salaries paid outside India or to a non-resident, being the date, amount and the name and address of the payee. (vii) under sub-clause (iv), being interest paid to any partner in excess of 12% per annum (simple interest) (viiii) under sub-clause (v) being remuneration paid to any partner in excess of the limits prescribed. üA. V. Arolkar & Co. , Chartered Accountants

ü 58 Clause 21(c) Amounts debited to profit and loss account being, interest, salary, bonus, commission or remuneration inadmissible under section 40(b)/40(ba) and computation thereof; Documentation: Partnership Agreement üA. V. Arolkar & Co. , Chartered Accountants

ü 59 Clause 21(d) (A) On the basis of the examination of books of account and other relevant documents/evidence, whether the expenditure covered under section 40 A(3) read with rule 6 DD were made by account payee cheque drawn on a bank or account payee bank draft. If not, please furnish the details in the prescribed format. (B) On the basis of the examination of books of account and other relevant documents/evidence, whether the payment referred to in section 40 A(3 A) read with rule 6 DD were made by account payee cheque drawn on a bank or account payee bank draft If not, please furnish the details of amount deemed to be the profits and gains of business or profession under section 40 A(3 A), in the prescribed format; üA. V. Arolkar & Co. , Chartered Accountants

ü 60 Clause 21(d) Prescribed format Serial number Date of payment üA. V. Arolkar & Co. , Chartered Accountants Nature of payment Amount Name and Permanent Account Number of the payee, if available

ü 61 Clause 21 (e) to (i) (e) provision for payment of gratuity not allowable under section 40 A(7); (f) any sum paid by the assessee as an employer not allowable under section 40 A(9); (g) particulars of any liability of a contingent nature; (h) amount of deduction inadmissible in terms of section 14 A in respect of the expenditure incurred in relation to income which does not form part of the total income; (i) amount inadmissible under the proviso to section 36(1)(iii). üA. V. Arolkar & Co. , Chartered Accountants

ü 62 Certificate from the assessee Details of such payments made Management representation letter/Note on such expenses List of contingent liabilities provided for in the books of accounts Details of Total income Details of Exempt income Details investments and total assets Actuarial certificate, calculation of gratuity paid

ü 63 Amount of Interest u/s. 23 of MSME Act, 2006 – {Clause 22} Ø Amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006. ü Documentation : Correspondence with suppliers ascertaining their registration under the MSMED Act, 2006 ü Management representation letter ü Amounts outstanding to such enterprises and calculation of interest thereon Ø Whether interest paid to MS&M enterprises is disclosed.

Payments to persons specified under 40 A(2)(b) – {Clause 23} ü 64 List of persons specified under Section 40 A(2)(b) Extract of Minutes of Board Meetings Management representation letter Ledger extracts Related Party Transactions List of related parties; shareholders and subsidiaries and associates. List of Directors’ shareholdings in other companies üA. V. Arolkar & Co. , Chartered Accountants

ü 65 Amounts Deemed to be Profits – {Clause 24} Refer Sections 32 AC – Non-compliance of conditions specified in the said section after claiming deduction on investment in new plant & machinery 33 AB – Non-compliance of conditions specified in the said section after claiming deduction on tea/coffee or rubber development account. 33 ABA – Non-compliance of conditions specified in the said section after claiming deduction in respect of Site Restoration Fund. 33 AC – Non-compliance of conditions specified in the said section after claiming deduction in respect of reserves for shipping business. üA. V. Arolkar & Co. , Chartered Accountants

ü 66 Types of business Profits during the period Transfer of profits to Reserve/Fund and investment thereof as per law Board resolution

ü 67 Profit Chargeable to tax – Clause 25 Income specified in Section 41 such as allowances/deductions made in any previous year but received by the assessee or his successor Difference between the actual cost and WDV where the asset which is used in business, is sold and the sale consideration including the scrap value exceeds the original cost. Bad debt recovered Profit where the asset being capital expenditure on scientific research is sold. Income in respect of discontinued business Any Special reserve u/s 36, withdrawn

ü 68 Sum Referred u/s. 43 B – {Clause 26} Sums referred u/s 43 B A. Pre-existed on the first day of the previous year but was not allowed in the assessment of any preceding previous year and was a) Paid during the previous year ; b) Not paid during the previous year Ø state whether sales tax, customs duty, excise duty or any other indirect tax, levy, cess, import, tec. , is passed through the profit and loss account. üA. V. Arolkar & Co. , Chartered Accountants

ü 69 Sum Referred u/s. 43 B – {Clause 26} B. Was incurred in the previous year and was a) Paid on or before the due date for furnishing the return of income of the previous year under section 139(1); b) Not paid on or before the aforesaid date. üA. V. Arolkar & Co. , Chartered Accountants

ü 70 List of payments specified in Section 43 B The provisions made thereof The amounts paid thereof Copies of returns filed, working and challans thereof Orders passed under other laws such as GST, etc. ,

ü 71 Amount Debited to Profit and Loss Account – {Clause 27} a) Amount of the Central Value Added Tax credit availed of or utilise during the previous year and its treatment in the profit & loss account and treatment of outstanding Central Value Added Tax credits in the accounts. b) Particulars of income or expenditure of prior period credited or debited to the profit & loss account. Ø Refer AS 5 and check prior period items

ü 72 Asset received from specified company for no/inadequate consideration – {Clause 28} Whether during the previous year the assessee has received any property, being share of a company not being a company in which the public are substantially interested, without consideration or for inadequate consideration as referred to in section 56(2)(viia), if yes, please furnish the details of the same. üA. V. Arolkar & Co. , Chartered Accountants

ü 73 Excess Share premium – Clause 29 Whether during the previous year the assessee received any consideration for issue of shares which exceeds the fair market value of the shares as referred to in section 56(2)(viib), if yes, please furnish the details of the same. üA. V. Arolkar & Co. , Chartered Accountants

Income under Other Sources – Clause 29 A and 29 B ü 74 Whether any amount is to be included as income chargeable under the head ‘income from other sources’ as referred to in clause (ix) of sub-section (2) of section 56? (Yes/No) (Clause 29 A) to in clause (x) of sub-section (2) of section 56? (Yes/No)(Clause 29 B) If yes, please furnish the following details: (i) Nature of income: (ii) Amount thereof: üA. V. Arolkar & Co. , Chartered Accountants

ü 75 Details of any amount borrowed – {Clause 30} Ø Details of any amount borrowed on hundi or any amount due thereon (including interest on the amount borrowed) repaid, otherwise than through an account payee cheque [Section 69 D].

ü 76 Section 92 CE – Clause 30 A (a) Whether primary adjustment to transfer price, as referred to in subsection (1) of section 92 CE, has been made during the previous year? (Yes/No) (b) If yes, please furnish the following details: - (i) Under which clause of sub-section (1) of section 92 CE primary adjustment is made? (ii) Amount (in Rs. ) of primary adjustment: Contd. üA. V. Arolkar & Co. , Chartered Accountants

ü 77 Section 92 CE – Clause 30 A (Contd. , ) (iii) Whether the excess money available with the associated enterprise is required to be repatriated to India as per the provisions of sub-section (2) of section 92 CE? (Yes/No) (iv) If yes, whether the excess money has been repatriated within the prescribed time (Yes/No) (v) If no, the amount (in Rs. ) of imputed interest income on such excess money which has not been repatriated within the prescribed time: üA. V. Arolkar & Co. , Chartered Accountants

Section 94 B – Clause 30 B ü 78 (a) Whether the assessee has incurred expenditure during the previous year by way of interest or of similar nature exceeding one crore rupees as referred to in sub-section (1) of section 94 B? (Yes/No) (b) If yes, please furnish the following details: - (i) Amount (in Rs. ) of expenditure by way of interest or of similar nature incurred: (ii) Earnings before interest, tax, depreciation and amortization (EBITDA) during the previous year (in Rs. ): üA. V. Arolkar & Co. , Chartered Accountants

ü 79 Section 94 B – Clause 30 B (Contd. , ) (iii) Amount (in Rs. ) of expenditure by way of interest or of similar nature as per (i) above which exceeds 30% of EBITDA as per (ii) above: (iv) Details of interest expenditure brought forward as per sub-section (4) of section 94 B: (refer Format below) (v) Details of interest expenditure carried forward as per sub-section (4) of section 94 B: (refer Format below Assessment year üA. V. Arolkar & Co. , Chartered Accountants Amount in Rs.

ü 80 Section 94 B – Clause 30 C (a) Whether the assessee has entered into an impermissible avoidance arrangement, as referred to in section 96, during the previous year? (Yes/No) (b) If yes, please specify: - (i) Nature of the impermissible avoidance arrangement: (ii) Amount (in Rs. ) of tax benefit in the previous year arising, in aggregate, to all the parties to the arrangement: ”; üA. V. Arolkar & Co. , Chartered Accountants

Impermissible avoidance arrangement u/s 96 ü 81 An impermissible avoidance arrangement means an arrangement, the main purpose of which is to obtain tax benefit and it – a) creates rights or obligations, which are not ordinarily created between persons dealing at arm’s length; b) Results, directly or indirectly , in the misuse or abuse of the provisions of this Act; c) lacks commercial substance or is deemed to lack commercial substance, in whole or in part; Is enetered into or carried out , by means or in a manner which are not ordinarily employed for bonafide purposes. üA. V. Arolkar & Co. , Chartered Accountants

ü 82 Particulars of each loan or deposit taken or accepted– {Clause 31(a)} (a) Particulars of each loan or deposit in an amount exceeding the limit specified in section 269 SS taken or accepted during the previous year : - (i) name, address and Permanent Account Number (if available with the assessee) of the lender or depositor; (ii) amount of loan or deposit taken or accepted; (iii) whether the loan or deposit was squared up during the previous year; üA. V. Arolkar & Co. , Chartered Accountants

ü 83 Particulars of each loan or deposit taken or accepted– {Clause 31(a)} (Contd. , ) (iv) maximum amount outstanding in the account at any time during the previous year; (v) whether the loan or deposit was taken or accepted by cheque or bank draft or use of electronic clearing system through a bank account; (vi) in case the loan or deposit was taken or accepted by cheque or bank draft, whether the same was taken or accepted by an account payee cheque or an account payee bank draft. üA. V. Arolkar & Co. , Chartered Accountants

Particulars of each loan or deposit taken or accepted– {Clause 31(b)} ü 84 Particulars of each specified sum in an amount exceeding the limit specified in section 269 SS taken or accepted during the previous year: - (i) name, address and Permanent Account Number (if available with the assessee) of the person from whom specified sum is received; (ii) amount of specified sum taken or accepted; (iii) whether the specified sum was taken or accepted by cheque or bank draft or use of electronic clearing system through a bank account; (iv) in case the specified sum was taken or accepted by cheque or bank draft, whether the same was taken or accepted by an account payee cheque or an account payee bank draft. (Particulars at (a) and (b) need not be given in the case of a Government company, a banking company or a corporation established by the Central, State or Provincial Act. ) üA. V. Arolkar & Co. , Chartered Accountants

ü 85 Particulars of each loan or deposit taken or accepted– {Clause 31(ba)} Particulars of each receipt in an amount exceeding the limit specified in section 269 ST, in aggregate 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, during the previous year, where such receipt is otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account: - (i) Name, address and Permanent Account Number (if available with the assessee) of the payer; (ii) Nature of transaction; (iii) Amount of receipt (in Rs. ); (iv) Date of receipt; üA. V. Arolkar & Co. , Chartered Accountants

ü 86 Particulars of each loan or deposit taken or accepted– {Clause 31(bb)} Particulars of each receipt in an amount exceeding the limit specified in section 269 ST, in aggregate 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: — (i) Name, address and Permanent Account Number (if available with the assessee) of the payer; (ii) Amount of receipt (in Rs. ); üA. V. Arolkar & Co. , Chartered Accountants

ü 87 Particulars of each loan or deposit taken or accepted– {Clause 31(bc)} Particulars of each payment made in an amount exceeding the limit specified in section 269 ST, 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 of electronic clearing system through a bank account during the previous year: - (i) Name, address and Permanent Account Number (if available with the assessee) of the payee; (ii) Nature of transaction; (iii) Amount of payment (in Rs. ); (iv) Date of payment; üA. V. Arolkar & Co. , Chartered Accountants

ü 88 Particulars of each loan or deposit taken or accepted– {Clause 31(bd)} Particulars of each payment in an amount exceeding the limit specified in section 269 ST, 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, made by a cheque or bank draft, not being an account payee cheque or an account payee bank draft, during the previous year: — (i) Name, address and Permanent Account Number (if available with the assessee) of the payee; and (ii) Amount of payment (in Rs. ); (Particulars at (ba), (bb), (bc) and (bd) need not be given in the case of receipt by or payment to a Government/banking Company, a post office savings bank, a co-operative bank or in the case of transactions referred to in section 269 SS or in the case of persons referred to in Notification No. S. O. 2065(E) dated 3 rd July, 2017)”; ; üA. V. Arolkar & Co. , Chartered Accountants

ü 89 Particulars of each loan or deposit taken or accepted– {Clause 31(c)} Particulars of each repayment of loan or deposit or any specified advance in an amount exceeding the limit specified in section 269 T made during the previous year: - (i) name, address and Permanent Account Number (if available with the assessee) of the payee; and (ii) amount of the repayment; (iii) maximum amount outstanding in the account at any time during the previous year; (iv) whether the repayment was made by cheque or bank draft or use of electronic clearing system through a bank account; (v) in case the repayment was made by cheque or bank draft, whether the same was repaid taken or accepted by an account payee cheque or an account payee bank draft. üA. V. Arolkar & Co. , Chartered Accountants

ü 90 Particulars of each loan or deposit taken or accepted– {Clause 31(d)} Particulars of repayment of loan or deposit or any specified advance in an amount exceeding the limit specified in section 269 T received otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account during the previous year: — (i) name, address and Permanent Account Number (if available with the assessee) of the lender, or depositor or person from whom specified advance is received; (ii) amount of repayment of loan or deposit or any specified advance received otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account during the previous year. üA. V. Arolkar & Co. , Chartered Accountants

ü 91 Particulars of each loan or deposit taken or accepted– {Clause 31(e)} 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: — (i) name, address and PAN (if available with the assessee) of the lender / depositor / person from whom specified advance is received; (ii) amount of repayment of loan or deposit or any specified advance received by a cheque or a bank draft which is not an account payee cheque or account payee bank draft during the previous year. (Particulars at (c), (d) and (e) need not be given in the case of a repayment of any loan or deposit or any specified advance taken or accepted from the Government, Government /banking company or a corporation established by the Central, State or Provincial Act). üA. V. Arolkar & Co. , Chartered Accountants

Brought forward loss or depreciation – {Clause 32(a)} ü 92 Details of brought forward loss or depreciation allowance in the following manner, to the extent available Serial Number üA. V. Arolkar Assessment Year & Co. , Chartered Accountants Nature of loss Amount as / allowance (in returned (in rupees) Amounts as assessed (give Remarks reference to relevant order)

Brought forward loss or depreciation – {Clause 32(a)} ü 93 Copy of returns of income filed for the respective years of which the loss is brought forward. Copy of assessment order, if any, available. Statement of loss set off in each of the years or loss which has lapsed. üA. V. Arolkar & Co. , Chartered Accountants

ü 94 Losses – Clause 32 (b) to (e) (b) Whether a change in shareholding of the company has taken place in the previous year due to which the losses incurred prior to the previous year cannot be allowed to be carried forward in terms of section 79. If yes, please furnish the details of the same: (c) Whether the assessee has incurred any speculation loss referred to in section 73 during the previous year, (d) whether the assessee has incurred any loss referred to in section 73 A in respect of any specified business during the previous year, (e) In case of a company, please state that whether the company is deemed to be carrying on a speculation business as referred in explanation to section 73, speculation loss, if any, incurred during the previous year. üA. V. Arolkar & Co. , Chartered Accountants

ü 95 Statement of changes in the Equity shareholding Register of Transfers Copy of Annual Return Last Assessment Order(s) Last Return(s) of income filed

ü 96 Chapter VI A – {Clause 33} Ø Section-wise details of deductions, if any, admissible under Chapter VIA Section under which deduction is claimed üA. V. Arolkar & Co. , Chartered Accountants Amounts admissible as per the provision of the Income Tax Act, 1961 and fulfils the conditions, if any, specified under the relevant provisions of Income Tax Act, 1961 or Income Tax Rules, 1962 or any other guidelines, circular, etc, issued in this behalf.

ü 97 Documents : Ø 80 C – Copy of Receipts Copies Ø 80 D – Copy of Insurance Premium Receipts Ø 80 E – Copy of Interest statement or Payment confirmation Ø 80 G – Copy of deduction Certificate or the payment receipt Ø 80 IA, IAB, IB, etc. – Copy of Chartered Accountant Certificate üA. V. Arolkar & Co. , Chartered Accountants

Tax Deducted/Collected at Source – {Clause 34(a)} ü 98 Whether the assessee is required to deduct or collect tax as per the provisions of Chapter XVII-B or Chapter XVII-BB. Tax deduction and collection Account Number (TAN) üA. V. Arolkar Section Total amount of payment or receipt Nature of of the payment nature specified in column (3) & Co. , Chartered Accountants Total amount on which tax was required to be deducted or collected out of (4) Total amount on which tax was deducted or collected at specified rate out of (5) Amount of tax deducted or collected out of (6) Total amount on which tax was deducted or collected at less than specified rate out of (7) Amount of tax deducted or Amount of collected tax not deducted deposited or to the collected credit of on (8) the Central Governme nt out of (6) and (8)

Tax Deducted/Collected at Source – {Clause 34(b)} ü 99 whether the assessee has furnished the statement of tax deducted or tax collected within the prescribed time. If not, please furnish the details. Tax deduction and collection Account Number (TAN) üA. V. Arolkar Type of Form & Co. , Chartered Accountants Due date for furnishing Date of furnishing, if furnished Whether the statement of tax deducted or collected contains information about all details/transactions which are required to be reported. If not, please furnish list of details/transactions which are not reported. ”;

ü 1 Tax Deducted/Collected at Source – {Clause 34(c)} 00 whether the assessee is liable to pay interest under section 201(1 A) or section 206 C(7). If yes, please furnish Tax deduction and collection Amount of interest under section Account Number 201(1 A)/206 C(7) is payable (TAN) üA. V. Arolkar & Co. , Chartered Accountants Amount paid out of column (2) along with date of payment.

ü 1 01 Copies of TDS returns filed Form 26 AS üA. V. Arolkar & Co. , Chartered Accountants

ü 1 02 Stock Summary – {Clause 35} In the case of a trading concern, give quantitative details of principal A. items of goods traded : i. Opening Stock ii. Purchases during the previous year iii. Sales during the previous year iv. Closing Stock v. Shortage / excess, if any

ü 1 Stock Summary – {Clause 28} 03 In the case of a manufacturing concern, give quantitative details of the principal B. items of raw materials, finished products and by -products: (a) Raw Materials: i. Opening Stock ii. Purchases during the previous year iii. Consumption during the previous year iv. Sales during the previous year v. Closing Stock vi. *yield of finished products ; vii. percentage of yield ; viii. Shortage/Excess, if any vii. * percentage of yield

ü 1 Stock Summary – {Clause 28} (b) Finished products / By-products: i. Opening Stock ii. Purchases during the previous year iii. Quantity manufactured during the previous year iv. Sales during the previous year v. Closing Stock vi. Shortage / excess, if any 04

ü 1 05 Stock records to be checked Relevant extracts üA. V. Arolkar & Co. , Chartered Accountants

06 Tax on distributed Profits – {Clause 36} Ø In the case of a domestic company, details of tax on distributed profits under section 115 O in the following form: (a) total amount of distributed profits; (b) amount of reduction as referred to in section 115 -O(1 A)(i); (c amount of reduction as referred to in section 115 -O(1 A)(ii); (d) total tax paid thereon; (e) dates of payment with amounts. üA. V. Arolkar & Co. , Chartered Accountants

ü 1 07 Annual Report Board Resolution recommending final dividend or payment of interim dividend. General Body resolution approving the proposed dividend. Corporate Dividend Tax paid challan üA. V. Arolkar & Co. , Chartered Accountants

ü 1 08 Deemed Dividend – Clause 36 A (a) Whether the assessee has received any amount in the nature of dividend as referred to in sub-clause (e) of clause (22) of section 2? (Yes/No) (b) If yes, please furnish the following details: - (i) Amount received (in Rs. ): (ii) Date of receipt: ”; üA. V. Arolkar & Co. , Chartered Accountants

ü 1 09 Extracts of ledger account of Directors and persons having substantial interest in the company. Last audited Financial statements. üA. V. Arolkar & Co. , Chartered Accountants

ü 1 10 Cost Audit – Clause 37 Whether any cost audit was carried out, if yes, give the details, if any, of disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the cost auditor. Documentation Board/Audit Committee resolution appointing cost auditor Cost audit report üA. V. Arolkar & Co. , Chartered Accountants

ü 1 Audits under other laws – Clause 38 and 39 11 Whether any audit was conducted under the Central Excise Act, 1944, if yes, give the details, if any, of disqualification or disagreement on any matter/item/value/quantity as may be reported oridentified by the auditor. (Clause 38) Whether any audit was conducted under section 72 A of the Finance Act, 1994 in relation to valuation of taxable services, if yes, give the details, if any, of disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the auditor. (Clause 39) üA. V. Arolkar & Co. , Chartered Accountants

Ratios – Clause 40 Report the following major ratios: Serial number Particulars 1. Total turnover of the assessee 2. Gross profit/turnover 3. Net profit/turnover 4. Stock-in-trade/turnover 5. Material consumed/finished goods produced Previous year Preceding previous year Note: The details required to be furnished for principal items of goods traded/manufactured or services rendered üA. V. Arolkar & Co. , Chartered Accountants

Demands/Refunds under other laws – Clause 41 Please furnish the details of demand raised or refund issued during the previous year under any tax laws other than Income Tax Act, 1961 and Wealth tax Act, 1957 along with details of relevant proceedings. Documentation: List of other laws applicable to the company/assesse Management representation letter Orders passed under the respective laws’ Ledger extract üA. V. Arolkar & Co. , Chartered Accountants

ü 1 Furnishing of Statements – Clause 42 14 (a) Whether the assessee is required to furnish statement in Form No. 61 or Form No. 61 A or Form No. 61 B? (Yes/No) (b) If yes, please furnish: Income-tax Type of Form Department Reporting Entity Identification Number üA. V. Arolkar & Co. , Chartered Accountants Due date for furnishing Date of furnishing, if furnished Whether the Form contains information about all details/ transactions which are required to be reported. If not, please furnish list of the details / transactions which are not reported

ü 1 Report of international group – Clause 43 15 (a) Whether the assessee or its parent entity or alternate reporting entity is liable to furnish the report as referred to in sub-section (2) of section 286 (Yes/No) (b) if yes, please furnish the following details: (i) Whether report has been furnished by the assessee or its parent entity or an alternate reporting entity (ii) Name of parent entity (iii) Name of alternate reporting entity (if applicable) (iv) Date of furnishing of report üA. V. Arolkar & Co. , Chartered Accountants

ü 1 16 Break-up of total expenditure of entities registered or not registered under the GST: Sl. No. Total amount Expenditure in respect of entities registered under GST of Expenditure incurred during the year Relating to goods or services exempt from GST (1) üA. V. Arolkar (2) & Co. , Chartered Accountants (3) Relating to entities falling under composition scheme (4) Relating to other registered entities (5) Expenditure relating to entities not registered under GST Total payment to registered entities (6) (7)

ü 1 17 DOCUMENTATION FOR TAX AUDIT Ø A reasonable sample checklist for conducting tax audit þ Appointment Letter defining scope SA-210 þ Management representation letter SA-580 þ List of related parties & transactions AS-18 & SA 550 þ Trial Balance SA-500 þ Financial statements duly signed by the owners SA-500

ü 1 18 DOCUMENTATION FOR TAX AUDIT þ Notes on accounts and Disclosure of accounting policies AS-1 þ Valuation of Inventories and for the total year quantitative inflow, outflow statement AS-2 þ Bank balance confirmation SA-505 þ Bank loan statements SA-505, Sec 43 B of I. T Act þ Major sundry debtors and creditors balance confirmation SA-505 þ Analytical Ratio analysis SA-520 þ Sample purchase and sales bills SA-500

ü 1 19 DOCUMENTATION FOR TAX AUDIT þ Proof of assets purchased & revenue expenditure capitalized SA-500, A. S 10, AS 11 & A. S 16, Sec 36(1)(iii) & 43 A of I. T Act þ Extraordinary Items nature & disclosure AS-5 þ Notes on the nature of business SA-310 þ Depreciation calculation statement AS-6, Sec 32 of I. T Act þ Liabilities including contingent liabilities estimation AS 29 with detailed working Statutory Compliances Relevant P. F, ESI, Bonus, VAT Act’s provisions þ

ü 1 20 DOCUMENTATION FOR TAX AUDIT ü Register for Tax Audits carried out during the year ü Documentation for 3 CD should be separate ü Check list for 3 CD, if possible ü For debatable issues, separate management representations, if required ü Important for Peer Review since tax audit is also an attest function.

DOCUMENTATION OF PEER REVIEW

ü 1 INTRODUCTION Ø 22 Even the best of the professionals need approbation. They are only human beings. They need and deserve the reconfirmation of their abilities and the way they work, from their peers. Such reconfirmation that professional seek is provided by the process of “Peer Review” (PR). Ø The dictionary meaning of the word “Peer” is “A person who has equal standing with another or others” and the term “Review” is defined as “subject to a formal inspection or appraisal and reassessment of the matter in question”. Ø Peer Review for chartered accountants would mean evaluation of a colleague’s work professionally. Ø Peer Review Board was established by the Council of the Institute in March 2002 to conduct the system of PR. Ø It is mandatory for all the practice units who are auditing listed companies and also Bank branches.

ü 1 23 DOCUMENTATION FOR PEER REVIEW The factors that determine the form and content of documentations for a particular engagement are: ü The nature of the engagement ü The nature of the business activity of the client ü The status of the client ü Reporting format ü Relevant legislations applicable to the client ü Records maintained by the client ü Internal controls in operation ü Quality of audit assistants engaged in the particular assignment and the need to direct and supervise their work

ü 1 24 DOCUMENTATION FOR PEER REVIEW The need for Working papers can be listed as follows: ü They aid in the planning and performance of the audit; ü They aid in the supervision and review of the audit work and to review the quality of work performed, in accordance with AAS 17 “Quality Control for Audit Work”; ü ü They provide evidence of the audit work performed to support the auditor’s opinion They document clearly and logically the schedule, results of test, etc. ü The working papers should evidence compliance with technical standards ü They document that Internal control has been appropriately studied and evaluated; and ü They document that the evidence obtained and procedures performed afford a reasonable basis for an opinion.

ü 1 25 DOCUMENTATION FOR PEER REVIEW ü They retain a record of matters of continuing significance to future audits of the entity; ü They enable an experienced auditor to conduct quality control reviews in accordance with Statement on Peer Review issued by the Institute of Chartered Accountants of India; ü The process of preparing sufficient audit documentation contributes to the quality of an audit ü They fulfil the need to document oral discussions of significant matters and communicate to those charged with governance, as discussed in AAS 27, “Communication of Audit Matters with those Charged with Governance.

ü 1 26 DOCUMENTATION FOR PEER REVIEW Guidance to staff on Audit documentation ü Filing/keeping of working papers ü Checklist of documents to be obtained and maintained ü Indexing of documents/ working papers ü Proper numbering/ sequencing of working papers ü Summarizing of overall findings ü Writing of queries ü Discussing with seniors on matters of importance ü Disposing of Query -at staff level/ senior level/ partner level ü Importance of the working papers to be signed, dated and approved by relevant level of audit staff with sufficient cross reference

ü 1 27 DOCUMENTATION FOR PEER REVIEW Tips for Auditors on documentation / working papers ü Clarity and Understanding ü Completeness and Accuracy ü Logical Arrangement ü Legibility and Neatness ü Safety ü Initial and date ü Summary of conclusions

ü 1 28 By CA Abhay Vasant Arolkar Bcom (Hons. ), LLB, ACS, FCA M/s. A. V. Arolkar & Co. , Chartered Accountants, Mobile – 98209 99231 email – abhay@avarolkar. com