Clause wise discussion on form 3CD Clause 13 (a) to (e)

[Tax Audit Report]

Amounts not credited to the profit and loss account, being

(a) the items falling within the scope of section 28

(b) the pro forma credits, drawbacks, refund of duty of customs or excise or service-tax or refund of sales-tax or value added tax, where such credits, drawbacks or refunds are admitted as due by the authorities concerned

(c) escalation claims accepted during the previous year

(d) any other item of income

(e) capital receipt, if any.

[Clause 13 (a) to (e)]

[Tax Audit Report]

Under this clause various incomes falling within the scope of section 28 which are not credited to the profit and loss account are to be stated.

The information under sub-clauses (a), (d) and (e) of clause (13) is to be given with reference to the entries in the books of account and records made available to the tax auditor for the purpose of tax audit under section 44AB.

Section 28 refers to
(a) profits and gains of business or profession,
(b) compensation received on termination of employment, agency etc
(c) income of trade or professional or similar association from specific services to members,
(d) export incentives,
(e) perquisite received during the course of business or profession,
(f) interest, salary, bonus, remuneration, etc. received by a partner of a firm which is allowable under section 40(b)
and
(g) amount received under Keyman Insurance policy.

It will now be necessary to ascertain from the assessee about any receipts under these heads which have not been credited to profit and loss account and state such amounts in this clause.

Clause 13 (b), (c) ,& (d) require information in respect of items which may also be covered under section 28 and as such will also fall in clause 13 (a).

However, those items which are reported in clauses 13(b), (c) and (d) need not be reported in clause 13 (a).

The tax auditor may obtain a management representation in writing from the assessee in respect of all items falling under this clause.

[Tax Audit Report]

The details of the following claims, if admitted as due by the concerned authorities but not credited to the profit and loss account, are to bestated under sub-clause (b).

a) Pro forma credits
b) Drawback
c) Refund of duty of custom
d) Refund of excise duty
e) Refund of sales tax

In respect of items falling under sub-clause (b) the tax auditor should examine all relevant correspondence, records and evidence in order to determine whether any particular refund/claim has been admitted as due and accepted during the relevant financial year. There may be practical difficulties in verifying the information in regard to such refunds and credits. It may, therefore, be necessary for the tax auditor to scrutinise the relevant files or subsequent records relating to such refunds while verifying the particulars and also obtain an appropriate management representation.

The words ‘admitted by the concerned authorities’ would mean ‘admitted by the authorities within the relevant previous year’. The system of accounting followed in respect of these particular items may also be brought out in appropriate cases. If the assessee isfollowing cash basis of accounting, it should be clearly brought out,

since the admittance of claims during the relevant previous year without actual receipt has no significance in cases where cash method of accounting is followed. Credits/claims which have been admitted as due after the relevant previous year need not be reported here. Where such amounts have not been credited in the profit and loss account but netted against the relevant expenditure/income heads, such fact should be clearly brought out.

[Tax Audit Report]

Under sub-clause (c), the escalation claims accepted during the previous year but not credited to the profit and loss account are to be stated. The escalation claims accepted during the year would normally mean “accepted during the relevant previous year”.

If such amount has not been credited to the profit and loss account the fact should be brought out. The system of accounting followed in respect of this particular item may also be brought out in appropriate cases.
If the assessee is following cash basis of accounting with reference to this item, it should be clearly brought out since acceptance of claims during the relevant previous year without actual receipt has no significance in cases where cash method of accounting is followed.

Escalation claims would normally arise pursuant to a contract (including contracts entered into in earlier years), if so permitted by the contract. Only those claims to which the other party has signified unconditional acceptance could constitute accepted claims.

Mere making of claims by the assessee or claims under negotiations or claims which are subjudice CIT v. Hindustan Housing & Land Development Trust Ltd.[1986]161 ITR 524 (SC) cannot constitute claims accepted.

[Tax Audit Report]

Under clause (d) covers any other items which the tax auditor considers as an income of the assessee based on his verification of records and other documents and information gathered, but which has not been credited to the profit and loss account.
In giving the details under subclauses (c) and (d), due regard should be had to AS-9 - Revenue Recognition.

http://www.knowledgebible.com/forum/showthread.php/422-Accounting-Standard-%28AS%29-09-Revenue-Recognition

The tax auditor should scrutinise all the items including casual and nonrecurring items appearing in the books of account, particularly the credit items, and ensure himself whether any such credit which is in the nature of income has been credited to the profit and loss account or not.

[Tax Audit Report]

Under clause 13(e), capital receipt, if any, which has not been credited to the profit and loss account has to be stated.

The tax auditor should use his professional expertise and judgement in determining whether the receipt is capital or revenue.

The tax auditor may also indicate various judicial pronouncements on which he has relied.

The following is an illustrative list of capital receipts which, if not credited to the profit and loss account, are to be stated under this sub-clause.

a) Capital subsidy received in the form of Government grants which are in the nature of promoters’ contribution i.e., they are given with reference to the total investment of the undertaking or by way of contribution to its total capital outlay. For e.g., Capital Investment Subsidy Scheme.

b) Government grant in relation to a specific fixed asset where such grant is shown as a deduction from the gross value of the asset by the concern in arriving at its book value.

c) Compensation for surrendering certain rights.

d) Compensation received for agreeing not to compete.

e) Profit on sale of fixed assets/investments to the extent not credited to the profit and loss account.

Loans and borrowings are not required to be stated under this sub-clause.