Supplementary Guidance Note on Tax Audit under section 44AB of the Income-tax Act, 1961

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2. Share application money/ current account of partner or proprietor, if any

The information regarding share applicable money is applicable for corporate assessees. Particulars about the amount received as share application money should be furnished under this clause.

Regarding partner or sole proprietor, the net balance in the current account is to be shown. The tax auditor should verify the amount received in regard to application and ensure proper disclosure under this clause. In regard to current account of partner or proprietor he has to verify the correctness of the particulars of the current account.

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3. Reserves and surplus/ Profit and loss account

The Guidance Note on terms used in financial statements defines "reserves" as the portion of earnings, receipts or other surplus of an enterprise (whether capital or revenue) appropriated by the management for a general or a specific purpose other than a provision for depreciation or diminution in the value of assets or for a known liability. The reserves are primarily of two types: capital reserves and revenue reserves. Further, surplus is the credit balance in the profit and loss
statement after providing for proposed appropriations, e.g., dividend or reserves. Part III of Schedule VI of the Companies Act, 1956 contains interpretation of the terms "provision", "reserve" and "capital reserve". The tax auditor should have due regard to these definitions and ensure that proper information is given in regard to reserves and surplus. In the case of non-corporate assessees besides reserves, surplus in the profit and loss account not appropriated to the capital
accounts of partners or proprietor is to be disclosed under this item.

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8. Gross turnover/gross receipts

The term sales, turnover or gross receipts has been explained in paragraph 5 of this Guidance Note. The term "gross turnover" is a commercial term and it should be construed in accordance with the method of accounting regularly employed by the assessee. Further, the Guidance Note defines "sales turnover" as the aggregate amount for which sales are effected or services rendered by an enterprise. The terms "gross turnover" and "net turnover" (or gross sales and net sales) are sometimes used to distinguish the same aggregate before and after deduction of returns and trade discounts. The information to be provided under this item accordingly shall be the gross turnover/

gross receipts as per the method of accounting being followed by the assessee. The tax auditor should have due regard to the method of accounting while verifying the particulars regarding "gross turnover/ gross receipts".

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15. Net profit (or loss) before tax as per profit and loss account

The net profit or loss as per the books of account before tax is to be furnished under this item. The Guidance Note defines net profit as the excess of revenue over expenses during a particular accounting period. When the result of this computation is negative it is referred to as net loss. The tax auditor should verify the figure of net profit or net loss with the profit and loss account and the balance sheet. The net profit to be stated here should be the same as considered for working out/turnover ratio under sub-clause (b) of clause 32. For this, attention is invited to para 56.3