Changes in Income Tax Audit Form AY 2018-19

CBDT has vide Notification No. 33/2018 dated July 20, 2018 amended Income Tax Audit Form No. 3CD with effect from 20thAugust, 2018. The following are the major amendments made in Tax Audit Report (TAR) (Form No. 3CD):

  1. Primary adjustment relating to Transfer Pricing-As per section 92CE,where primary transfer pricing adjustment is made in case of an assessee(eithersuo motoby the assessee, or by Assessing Officer, pursuant to an advance pricing agreement or under safe harbour rules or by way of Mutual Agreement Procedure), the assessee is required to repatriate the excess money which is available with its Associated Enterprise due to the aforesaid adjustment, failing which the same is deemed as advance after the prescribed time period and interest is imputed on such advances. The new clause 30A requires disclosure of amount of primary adjustment and the amount of imputed interest income on the excess money not repatriated within the prescribed time.
  2. Limitation on deduction of interest - Section 94B of the Act provides that where an Indian Company or PE of a foreign company in India, being the borrower, incurs any expenditure by way of interest or of similar nature exceeding Rs. 1 Crore, deductible in computing income chargeable under the head “Profits & Gains of Business or Profession’, in respect of any debt issued by a non-resident, being an AE of such borrower,the interest computed shall be disallowed to the extent of total interest paid/ payable in excess of 30% of Earning Before Interest, Taxes, Depreciation and Amortisation (EBITDA) of the borrower or interest paid/payable to AE whichever is lower. To report disclosure of disallowance under section 94B where interest paid to AE exceeds Rs. 1 crore during the year, clause 30B has been inserted in TAR to report the following information:
    • Amount of expenditure by way of interest or of similar nature incurred;
    • EBITDA during the year;
    • 30% of EBITDA - Amount of interest incurred (referred in (a) above);
    • Details of interest expenditure brought forward/carried forward as per section 94B(4).
  1. Impermissible avoidance arrangement-The provisions of General Anti Avoidance Rules (GAAR) (applicable form AY 2018-19) provide that an arrangement entered into by an assessee may be declared to be an impermissible avoidance arrangement. Impermissible avoidance arrangement means an arrangement the main purpose of which is to obtain a tax benefit, and it creates rights/ obligations between the parties to the agreement, which are not ordinarily created in normal course or lacks commercial substance or results in misuse of the provisions of the Act. In new clause 30C, the nature and amount of tax benefit arising during the year in aggregate to all the parties to suchimpermissible avoidance arrangementare required to be disclosed.
  1. Reporting cash receipts of Rs 2 lakh or more:As per section 269ST, which is applicable from April 01, 2017, a person is not permitted toreceive payment of an amount exceeding Rs. 2 lakh or more:
    • in aggregate from a person in a day; or
    • in respect of a single transaction; or
    • 30% of EBITDA - Amount of interest incurred (referred in (a) above);
    • in respect of transactions relating to one event or occasion from a person

      otherwise than by anaccount payee cheque/ account payee bank draft or use of electronic clearing system. The new amendments to TAR requires disclosure of each receipt/ payment of Rs. 2 Lakh or more where the payment is not by permitted modes as per section 269ST.
  2. Reportingbreakup of expenditure with respect to registered/ unregistered entities under GST- New clause 44requires reporting of the entire expenditure debited to Profit & Loss accountgiving breakup under the following heads:
    1. Expenditure in respect of entities registered under GST
    • relating to goods or services exempt under GST
    • relating to entities falling under composition scheme
    • relating to other registered entities
    • total payment to registered entities
          2. Expenditure in respect of entities registered under GST

         Clause 4 of TAR has also been amended to include GST number.

  1. Reporting details of transactions not disclosed/ specified in Form No. 61/ 61A/ 61B - Clause 42 of TAR requires tax auditor to report date of furnishing ofForm no. 61 (details of no PAN transactions) / Form no. 61A (Specified Financial Transactions)/ Form no. 61B (Statement of reportable accounts). Where all the details/ transactions required to be furnished in such forms are not contained in such forms, the tax auditoris required to report the unreported details/ transactions in TAR.
  2. Reporting whether assessee/ its parent entity/ alternate reporting entity is liable to furnish the report (CBCR) u/s 286(2)-Section 286 specifies the Companies which are liable to file Country by Country Report (CbCR). The new clause 43 of TAR requires reporting of name of parent entity/ alternate reporting entity and date of furnishing of CbCR,where the entity is required to file CbCR in India.
  3. Reporting of deemed dividend under section 2(22)(e) of the Act- Clause 36A has been inserted to include reporting of deemed dividend in the handsof the assessee during the year.
  4. Reporting of advance received forfeited on capital assets- Under the new clause 29A, the tax auditor is required to report the nature and the amount of money received as an advance or otherwise by the assesseeduring the course of negotiations for transfer of capital asset, taxable under section 56(2)(ix) under the head income from other sources.
  5. Reporting of income of taxable gifts and properties received without/inadequate consideration exceeding Rs. 50,000- Under the new clause 29B, the tax auditor is required to report the nature and amount of gift /property exceeding Rs. 50,000 received by the assessee (except in the case of certain exemptions i.e. gifts from relatives, receipt undera will and certain other situations such as amalgamation, demerger etc), which are taxable under section 56(2)(x). 
  1. Details of TDS/ TCS Return- Earlier under clause 34(b), the tax auditor was required to report whether the TDS/TCS statement submitted contains information about all transactions which are required to be reported. Such reporting was to be made where the assessee made default in timely furnishing of TDS/ TCS statement. With the amendment to clause 34(b), TAR now requires reporting of such details/ transactions which are not reported in TDS/TCS return, whether or not TDS/TCS statement was filed by the due date.
  2. Reporting of payments on actual payment basis- Section 43B provides for certain deductions which can be claimed by the assessee only on their actual payment before the date of filing of return. Clause 26 of TAR has been amended to include payments covered by section 43B(f) (which is applicable from AY 2017-18), which requires disclosure ofany sum payable by the assessee to the Indian Railways for use of railway assets i.e. railway siding and shunting etc.