Introduction:
Form 3CD is a statement of particulars required to be furnished under section 44AB of the Income Tax Act, 1961. It is essentially an audit report that is required to be filed by certain persons carrying on business or profession. The form requires detailed information regarding various aspects of the taxpayer’s business or profession, including accounting policies, income computation and disclosure, tax audit details, particulars of tax payments, and other relevant information.
The Central Board of Direct Taxes (CBDT) has notified certain modifications to Form No. 3CD, which is the statement related to the tax audit report form, effective immediately from their announcement in the Official Gazette. These are highlighted in Notification No. 27/2024 /F. No. 370142/3/2024-TPL dated 05.03.2024. These changes are made to streamline the process of audit with ever changing legislative and adaptive compliances. This notification includes adjustments and amendments to various clauses, insertion of new section to detailed reporting requirements.
Changes in clauses of form 3CD:
Clause 8a
Whether the assessee has opted for taxation under section 115BA / 115BAA / 115BAB / 115BAC / 115BAD
The Finance Act 2023 introduced an alternative tax scheme for manufacturing co-operative societies under Section 115BAE. Clause 8a has added the reference to Section 115BAE and requires the tax auditor to report “Whether the assessee has opted for taxation under section 115BA/ 115BAA / 115BAB / 115BAC /115BAD/115BAE“.
115BAE talks about opting of tax regime by resident manufacturing co-operative societies. The tax auditor is required to verify and report whether the assessee has exercised the option by e-filing Form 10-IFA.
Clause 12
Reporting whether the profit and loss account includes any profits and gains assessable on presumptive basis
Amendment in Clause 12 requires the tax auditor to report “Whether the profit and loss account includes any profits and gains assessable on a presumptive basis, if yes, indicate the amount and the relevant sections (44AD, 44ADA, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, Chapter XII-G, First Schedule or any other relevant section).
Reference to word Section 44ADA is added in the amendment. Section 44ADA contains special provisions for computing the profits and gains of the Profession(and not business) on a presumptive basis.
Clause 18
Particulars of depreciation allowable as per the Income-tax Act, 1961 in respect of each asset or block of assets as per section 32
Clause 18(ca) has been substituted.
The substituted Clause 18(ca) requires the tax auditor to report as follows:
“(ca) Adjustment made to the written down value––
(i) under the proviso to sub-section (3) of Section 115BAA (for assessment year 2020-21 only);
(ii) under the first proviso to sub-section (3) of section 115BAC or the proviso to sub-section (3) of 115BAD (for assessment year 2021-22 only);
(iii) under the second proviso to sub-section (3) of section 115BAC (for assessment year 2024-25 only).”;
This amendment is consequential to the amendment of Section 115BAC by the Finance Act, 2023, with effect from the assessment year 2024-25.
Clause 19
Amounts admissible under different sections
Clause 19 has been amended to include a reference to the following two entries:
- Adding a row with reference to the entry “35ABA”
- after the row with entry “35E”, reference made to the words “any other relevant section”
This clause specifically deals with reporting of amounts admissible as deductions under various sections dealing with the provisions of Profits and Gains from Business Profession. Auditor will now have to verify all the deductions claimed by businesses while computing incomes.
Clause 21
Details of amounts debited to the profit and loss account, Being in the nature of capital, personal, advertisement expenditure etc.
Under clause 21 following modifications are done:
– Sub-clause (a) under the ‘Nature’ column:
- Modify the wording related to penalties and fines for violations of laws.
- Insert a new row for “Expenditure incurred to compound an offence under any law.”
- Modify the wording related to expenditure for purposes violating laws.
– Sub-clause (b), in paragraph (ii), sub-paragraph (B), replace “payer” with “payee.”
Clause 26
Section 43B(h) dealing with delayed payments to MSME
This amendment is consequential to new clause (h) inserted by Finance Act, 2023, in Section 43B, with effect from the assessment year 2024-25, to disallow on accrual basis sums payable to micro or small enterprises if these are not paid within the time allowed under Section 15 of MSMED Act, 2006. Though the reference to Clause (h) of Section 43B has been inserted in Clause 26 opening sentence, sub-clause (B) of Clause 26 has not been amended to require reporting of amounts not paid within the due date under Section 15 of the MSMED Act.
It reads as follows after amendment:
In respect of any sum referred to in clause (a), (b), (c), (d), (e), (f), (g) or (h) of section 43B, the liability for which:
(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;
(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.
(State whether sales tax, Goods & Services Tax* customs duty, excise duty or any other indirect tax, levy, cess, impost, etc., is passed through the profit and loss account.)
Importantly, under the reporting requirement, where payments of the outstanding amount as of 31-03-2024 are made after 31-03-2024 beyond the due date under Section 15 of the MSMED Act, these are to be reported in Clause 26(B) even if they are made on or before the ITR due date under Section 139(1). The interest payable under Section 16 of MSMEDA with respect to these delayed payments is to be reported in Clause 22.
Clause 32
Details of brought forward loss or depreciation allowance
In clause 32, in sub-clause (a),–
- in the table, in column (5), for the figures and letters “115BAD”, the figures and letters “115BAD/115BAE” shall be substituted;
- in the table, in column (6), for the figures and letters, “115BAD^”, the figures and letters “115BAD/115BAE^” shall be substituted;
- below the table, for the words and figures “To be filled in for assessment year 2021-22 only.”, the words and figures “To be filled in only for assessment year 2021-22 and 2024- 25, as applicable.”, shall be substituted;
This was done to include reference to losses/allowances not allowed under section 115BAE and amount adjusted by way of withdrawal of additional depreciation on account of opting for taxation under section 115BAE.
Conclusion:
Recent amendments to Tax Audit Forms 3CD and Form 65 by the CBDT bring several changes, including the addition of clauses related to various tax regimes, presumptive taxation, and MSME 43B(h) payments implications.
The amendments introduced to Form No. 3CD for the Assessment Year 2023-2024 enables tax auditors in enhancing the accuracy and accountability of tax audit reports. CBDT has set a new standards for tax reporting.
Amendments to tax audit forms primarily address various reporting related aspects but do not provide a concrete view on any extension or modification to the MSME 45-Day Payment mandate which is recently in discussions in industries. Businesses should continue to adhere to the existing mandate until further notifications or changes are introduced by the relevant authorities.
About Author:
CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.