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TMI BlogRECTIFIED 50 TAX AUDIT PROBLEMS AND SOLUTIONS - BY CA NITESH MORE, KOLKATAX X X X Extracts X X X X X X X X Extracts X X X X ..... RECTIFIED 50 TAX AUDIT PROBLEMS AND SOLUTIONS - BY CA NITESH MORE, KOLKATA - By: - ca nitesh more - Income Tax - Dated:- 6-9-2013 - - 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 syste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 MISMATCH IN NAME DOB AS PER ICAI AND PAN DATA Q4. I am unable to register as CA as there is difference in name/date of birth as per ICAI and PAN data. What to do? Ans. It is requested to file form 49 amendment and get data rectified in PAN immediately. Kindly also note that the day you receive a SMS that your pan amendment has been approved, you will be able to register at site whether you actually receive PAN or not. 5. ATTACHMENTS Q5. What are the documents to be attached to Tax Audit Report? Ans. B/S, P L, Schedules, Annexures, Notes, Cost Audit Report and Excise Audit and Other Report, if any, scanned in pdf format after being duly signed by Assessee and CA, whether digital or physical. Kindly note that word/excel file can also be digitally signed. 6. PROBLEM OF NEGATIVE FIGURES Q6. System is not accepting negative figures in brackets i.e. () . What should we do? Ans. Use negative sign. i.e. minus - 7. PROBLEM OF PROVIDING QUANTITATIV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E DETAILS Q7. 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" 8. PROBLEM IN ENTRY OF LARGE NO. OF FIXED ASSETS Q8. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before 2 nd October : For ease of entry in online form 3CD , we will argue that all assets were put to use on 2 nd October, wherever possible. ii. Assets put to use after 2 nd 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 31 st 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 groupscan be further divided into 2 parts. (i) Assets put to use on or before 2 nd October (ii) assets put to use after 2 nd October (eligible for half of depreciation) Step 3 - For assets brought on or before 2 nd October, we can argue that those assets were put to use on 2 nd October and accordingly relevant entries can be made in the online form 3CD . Step 4 - For assets brought after 2 nd October, we can argue that those assets were put to use on 31 st March and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 9. PROBLEM IN VIEWING STOCK FIGURES Q9. 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. 10. PROBLEM OF DEPRECIATION IN WEBTEL SOFTWARE Q10. 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-d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction 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 . 11. PROBLEM OF NO SPACE FOR COMMODITY Q11. 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). 12. PROBLEM IN CALCULATION OF NP RATIO Q12. 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. 13. PROBLEM OF BLANK FIELDS IN SAVED DRAFT XML FILE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Q13. 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. 14. PROBLEM OF VIEWING DATA OF XML BEFORE UPLOADING Q14. 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 Microsoft Office Microsoft Office Access 2003/2007 New blank data base Click blank data base A window with file name database1.accdb will appear on the right hand side pane. 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 Click XML file Browse the xml file for which you want to create/view or save the data Click OK Import XML Click OK Check the box "Save import steps" Close. Your ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Detailed procedural step for Microsoft Access Office 2007 as well as Microsoft Office 2003 is attached (2 files attached namely Importing XML in MS Office 2003 version Importing XML in MS Office 2007 version herewith for ready understanding. 15. PROBLEM OF PRINTING/SAVING UPLOADED XML FILE Q15. 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. 16. PROBLEM OF FAKEPATH Q16. 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... older 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. 17. PROBLEM IN VIEWING XML FILE FROM CLIENT S LOGIN Q17. 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. 18. HOW TO PRINT UPLOADED XML FILES Q18. 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. 19. PROBLEM IN GETTING ACTIVATION LINK/SMS FOR COMPLETING REGISTRATION Q19. A Chartered Accountant in practice registered himself with his DSC in the e-filing website. But he neit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her 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 [email protected] . 20. UNABLE TO SEE XML IN ASSESSEE S LOGIN 20. 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. 21. NON ACCEPTANCE OF NEGATIVE FIGURES IN FORM 29B Q21. 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 Softwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Is Rectified By Department 22. USE OF SPECIAL CHARACTERS Q22. Can we use special characters while typing address? Ans. No, special characters are not allowed while typing address. 23. PROBLEM OF NON GENERATION OF XML Q23. 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 24. PROBLEM OF SWAPPING OF DUE DATE AND ACTUAL DATE Q24. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 IS NOT 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 30 th September? Ans. As the word before has been used in sec. 44AB , w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e should not sign Tax Audit Report on 30 th September. You should sign Tax Audit Report before 30 th September, since the assessee is required to obtain Tax Audit Report before the due date i.e. 30 th 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 30 th September. However, for these assesses Report u/s 92E as well as Tax Audit Report can be filled by 30 th 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? Ans. 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 beha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of his firm, any balance-sheet, P L a/c, report or financial statements "] 4. PROBLEM OF TWO TAX AUDITORS OF SAME ASSESSEE Q7. An individual has two businesses audited by two different tax auditors. How to submit Tax Audit Report? Ans. In my view, you can follow the below mentioned steps: a) Combine data of two B/S, P/l, tax audit report and submit as one b) If tax audit conducted by two CAs, any CA can submit. c) It is advised to attach physical copies of both Tax Audit Reports too, for disclosure of the fact that (i) two CAs have done Tax audit and (ii) that CA who is filling had relied on the work of other CA 5. CAN RETURN BE FILED AFTER DUE DATE Q8. Can Income tax Return be e-filed after 30 th September? However we will file Tax Audit Report within 30 th September? Ans. Yes, Online Tax Audit Report is to be filed by 30 th September to avoid penalty of Rs. 1.5 Lakhs or % of Turnover, whichever is lower. However, return may be filed later. However, such return will be treated as belated return. 6. REVISION OF TAX AUDIT REPORT ONCE FILED Q9. Can online filed Tax Audit Report be revised? Ans. A Tax Audit Report which has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approved by assessee can be revised. However after it has been approved by the assessee, it should not be revised. However, there is no restriction by the utility, as of now, to upload revised xml. So we should take due care, so that correct data is uploaded in the first instance itself. However, members may kindly note that, all the xml files uploaded will be there in their domain. 7. OFFLINE FILED TAX AUDIT REPORT TO BE SUBMITTED ONLINE AGAIN? Q10. I have uploaded 5 returns without uploading tax audit as it was required to submit offline at that time. Should we submit these again online? Ans. No, you are not required to submit IT Return online again. However, kindly ensure that Tax audit Report is duly uploaded within due date. 8. ITR 7 TO BE FILED ONLINE? Q11. 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 9. MANDATORY E-FILLING OF TRUST, SOCIETY Q12. 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. 10. RESPONSIBILITY OF TAX AUDITOR FOR DELAY IN UP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LOADING Q13. 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. 11. PENALTY FOR NON FURNISHING OF REPORT Q14. 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. 12. WAIVER OF PENALTY FOR NON FURNISHING Q15. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 13. FORMAT OF MAINTAINANCE OF RECORDS OF TAX AUDIT Q16. 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. Sl. No. Name of the Auditee AY of the Auditee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 1 2 3 4 5 6 7 14. COMMUNICATION WITH PREVIOUS AUDITOR Q17. Is communication with the previous tax auditor necessary? Ans. Yes 15. SHOULD CA ACEEPT TAX AUDIT IF UNDISPUTED FEES OF PREVIOUS AUDITOR NOT PAID Q18. 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 16. TAR OF PVT LTD COMPANY Q19. 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 17. ADDRESS FOR NRI DIRECTOR I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N ITR Q20. 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 Name Designation Residential Address PAN S.No. 18. PAN OF RELATIVE FOR UNSECURED LOAN Q21. 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. 19. RETURN CAN BE UPLOADED BEFORE TAR Q22. 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. 20. PROBLEM OF THREE TAX AUDITORS OF SAME ASSESSEE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Q23. 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. 21. PROBLEM OF DIFFERENT METHODS OF VALUATION OF STOCK IN TWO FIRMS Q24. 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. 22. APPROVAL OF TAR BY ASSESSEE IS MANDATORY Q25. What If The Assessee Does Not Approve The Audit Report Submitted Before The Due Date Ans . It may be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resumed that no tar has been submitted by assessee 23. HOW TO SHOW ADDITIONAL DEPRECIATION Q26. How To Show Additional Depreciation in the Online Form 3CD . Ans . Add It with Normal Depreciation PREPARED BY :- CA NITESH KUMAR MORE Click here to Connect to my Facebook FOR JOINING OUR GOOGLE GROUP TO RECEIVE IMPORTANT UPDATES: #1. Email to [email protected] or #2 visit [email protected] Courtesy - CA Deepak Tibrewal, CA P.K. Agarwalla CA Raj Singhania - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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