Clause wise discussion on form 3CD Clause 10

[Tax Audit Report]

Whether the profit and loss account includes any profits and gains assessable on presumptive basis, if yes, indicate the amount and the relevant
sections (44 AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB or any other relevant section).

[Clause 10]

[Tax Audit Report]

Where the profits and gains of the business are assessable to tax under presumptive basis under any of the sections mentioned below, the amount of such profits and gains credited/debited to the profit and loss account should be indicated under this clause.

Sr. No.	Section	Business Covered
1	44AD	Civil construction business
2	44AE	Transport business
3	44AF	Retail trade
4	44B	Shipping business of a non-resident
5	44BB	Exploration etc. of mineral oil by a nonresident
6	44BBA	Operation of aircraft by non-resident
7	44BBB	Civil construction etc. in certain turnkey power project by non-residents.
8	Any other Relevant section like section 115 VA	This refers to the sections not listed above under which income may be assessable on presumptive basis like section 115 VA for Business of operating qualifying ships and will include any other section that may be enacted in future for presumptive taxation.

If the profit and loss account does not include profit assessable on presumptive basis, then, there is no requirement to furnish the particulars under this clause.

It is also relevant to state that the provisions of sections 44AD & 44AF have been replaced by the new substituted section 44AD as under:

New Section 44AD as substituted by the Finance (No.2) Act, 2009 with effect from assessment year 2011-12

All ‘eligible businesses’. ‘Eligible business’ means: u any business except plying/leasing or hiring goods carriages referred to in section 44AE; and u whose gross receipts or turnover from eligible business does not exceed Rs.60 Lakhs during the financial year.[clause(b) of the Explanation to section 44AD] Retail traders presently covered under section 44AF upto assessment year 2010-11 shall be covered under section 44AD with effect from assessment year 2011-12

8% of gross receipts or turnover from ‘eligible business’

all ‘eligible assessees’ engaged in any ‘eligible business’. Eligible assessee means anyindividual, HUF or firm(i.e. general partnership not LLP) who has not claimed deduction under sections 10A,10AA,10B,10BA or deduction under any provisions of Chapter VIA under the heading “C-Deductions in respect of certain incomes” in the relevant assessment year. [clause(a) of the Explanation to section 44AD]. LLP is not an “eligible assessee”.

[Tax Audit Report]

Means the amount included in the profit and loss account.

The tax auditor is not required to indicate as to whether such amount corresponds to the amount assessable under the relevant section relating to presumptive taxation.
As such, the reporting requirement gets satisfied if the amount as per profit and loss account is reported.
However, the tax auditor may clarify by way of a note that the amount mentioned under this clause is not necessarily the actual amount of profits and gains chargeable to tax under the relevant section.

[Tax Audit Report]

CASE:

Where the assessee, maintaining regular books of account has more than one business which include business of the nature assessable on presumptive basis under any of the said sections and the profit and loss account prepared from such books of account, inter alia, includes the income of the business assessable under the scheme of presumptive taxation.


The tax auditor may proceed as follows:

This situation may give rise to the problem of apportionment of common expenditure in order to arrive at the correct amount of profit credited to profit and loss account and assessable on a presumptive basis.In such a situation, the endeavour of the tax auditor should be to arrive at a fair and reasonable estimate of such expenditure on the basis of evidence in possession of the assessee or by asking the assessee to prepare such estimate which should be checked by him. It is also necessary to mention the basis of apportionment of common expenditure. However, if the tax auditor is not satisfied with the correctness of such apportionment, he should indicate such fact under this clause by a suitable note and the exact tenor and nature of such remarks has to be formulated on the basis of “Statement on Qualifications in Auditors’ Report” issued by the ICAI

[Tax Audit Report]

CASE:

Where the assessee has more than one business including some business(es) falling under any of the aforesaid sections, but maintains separate sets of accounts for each such businessand opts for getting the accounts of all such businesses audited under section 44AB.


The tax auditor may proceed as follows:

In this case, since a separate set of accounts are maintained for respective businesses, it poses no problem for the tax auditor in ascertaining the amount of profit to be disclosed.

[Tax Audit Report]

CASE:

Where the assessee, having regular books of account for his main business, has some additional business of the nature described in any of the aforesaid sections and no books of account whatsoever is maintained for such additional business but the net income is credited to the main profit & loss account of the assessee.


The tax auditor may proceed as follows:

Here, the tax auditor is unable to satisfy himself about the correctness of the net income from the presumptive business credited to the profit and loss account. He should, therefore, state the amount of income as appearing in the profit and loss account, with a suitable note expressing his inability to verify the said figure. In the absence of books of account, the tax auditor would be unable to form an opinion about the true and fair view of the profit and loss account or balance sheet of the assessee and therefore it would become necessary for him to qualify his report in Form No. 3CB.

[Tax Audit Report]

In the case of an assessee opting against presumptive taxation, the provisions of section 44AB (c) requires such an assessee to get his accounts audited irrespective of the fact that his turnover has not exceeded Rs.40 lakhs.(the limits gets increased to Rs. 60 lakhs from assessment year 2011-12)

There may be another circumstance where an assessees has mixed nature of business amenable to taxation on presumptive basis and under normal provisions of law – turnover of which does not exceed 40 lakhs.
In such a case, the tax auditor auditing the books of account etc. relating to business covered by the provisions relating to presumptive taxation should sufficiently indicate in his report that his audit report in Form No. 3CB and particulars in Form No.3 CD only relate to the business covered by the provisions relating to presumptive taxation and his audit report does not relate to business assessable under the normal provisions of the Act.

[Tax Audit Report]

Even where the assessee opts for presumptive taxation , the tax auditor should impress upon the assessee that it would be advisable to maintain some basic records to support the turnover/gross receipts declared for presumptive taxation.

[gopalji]

As per ICAI guidance Note - Issues on Tax Audit, the net profit is to be reported under this clause.

But when the accounts are composite and it is not possible to work out the net profit due to mixed expenses which may not be segregated or apportioned reasonable then the auditor may not be in a position to report this amount hence he should clearly state the fact in form 3CD.

For more discussion on the subject, please forward your query at knowledgebible.com.

But it would not be amount to non-receipt of all information or explanantions considerting the circumsances of the business of the assessee.

[gopalji]

If the assessee does not opt for presumtive rate of taxation and opt for regular books and audit etc. then no amount is to be stated under this clause and fact should be stated that the assessee has not opted for the presumptive rate of taxation.