issues in tax audit ca avinash gupta acclaim management solutions private limited

Issues in Tax Audit

CA Avinash Gupta

Acclaim Management Solutions Private Limited

Acclaim Management Solutions Private LimitedIssues in Tax Audit

Finance Act, 1984

Hon. Finance Minister

“Tax Audit intented to ensure that the books of account and other records are properly maintained and faithfully reflect the true income of

the taxpayer”


Applicability of Section 44AB

• Applicable to every person-– Carrying on business having turnover > Rs 60 Lacs– Carrying on profession having gross receipts > Rs 15 Lacs

• Limits increased by Finance Act, 2010 to Rs60 lacs & Rs15 lacs respectively wef 01-04-2011

• In case the assessee claims income to be less than the presumptive basis provided u/s 44AD, 44AE, 44AF, 44BB, 44BBB


Liability of Tax Audit

• Income exempt from tax• Trust carrying on business• Income below taxable limits• Non-residents


Business v Profession

• Section 2(13) - Business includes any trade, commerce or any adventure or concerning the nature of trade, commerce or manufacture;

• Profession means– Architectural– Authorised Representative– Company Secretary– Engineering– Film Artists, etc– Interior Decoration– Legal and Medical– Technical Consultancy– Information Technology


Business v Profession

• Advertising agent• Clearing, forwarding and shipping agents• Couriers• Insurance agent• Nursing home• Stock and share brokers• Travel agents• Dealing in shares• Derivatives• Jobbing• Speculation• Sale of Capital Assets


Turnover or Gross Receipts

• Speculative transactions:- Sum total of positive and negative differences

• Derivatives, futures and options:- Total of favourable and unfavourable differences + premium received on sale of options

• Delivery based transactions:- Total value of sales


Turnover or Gross Receipts

• Sales returned• Trade discount• Scrap credited to misc. income• Service / installation charges• Excise duty / sales tax• Cash discount• Sale proceeds of fixed assets• Sale of investments


Applicability of Sec 44AD

• The amended provisions of this section are applicable with effect from 1stApril, 2011 and will accordingly apply in relation to assessment year 2011‐12 and subsequent assessment years.

• Brief eligibility– Individuals, HUFs & partnerships firms (not being a LLP)– Any business except the business covered unde Sec.44AE.– Gross Receipts should not exceed Rs 60 lakhs– No requirement of payment of advance tax– 8% of Gross Receipts or such higher as may be earned by the

assessee


Applicability of Sec 44AD

• Issues

• Whether 44AD is optional or mandatory ?

• If the total income is not chargeable to tax, audit u/s 44AB is to be conducted or not?

• Whether speculative business is covered or not?


Issues in 3CEB report


Issues in 3CEB report

Essentially comments :

- whether the tax payer has maintained the transfer pricing documentation as required by the legislation,

- whether as per the transfer pricing documentation the prices of international transactions are at arm’s length, and

- certifies the value of the international transactions as pert he books of account and as per the transfer pricing documentation are “true and correct”

Conclusion to be given

International transactions- goods- services- intangibles- loans

Independent entity

Resident

Associated enterprise

Resident

Transfer price

Arm’s length price


How to arrive at the ALP

Choice to be made from the following methods (Section 92C):

(a) comparable uncontrolled price method (CUP Method);

(b) resale price method (RPM);

(c) cost plus method (CPM);

(d) profit split method (PSM);

(e) transactional net margin method (TNMM);

(f) such other method as may be prescribed by the Board.

Acclaim Management Solutions Private LimitedD – 10,Kailash ColonyNew Delhi: 110 048

Ph: +91 11 2410 8838Fax: +91 11 40556069W: www.acclaimindia.com

Avinash Gupta: +91 98107 [email protected]@gmail.com

issues in tax audit ca avinash gupta acclaim management solutions private limited

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