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Bird's eye view - Form 3CD amendments

 

AUGUST 17, 2018

By Vidya Shetty

SECTION 44AB of the Income-tax Act mandates to get the accounts audited and furnish audit report within a stipulated time if the total sales, turnover or gross receipts as the case may be, exceeds the specified monetary limit in the case of a business or profession as a whole or under other specific circumstances. The said report is required to be furnished in Form 3CD. The Form recently underwent change vide notification no. 33/2018 dated 20 July 2018. This article seeks to provide a bird's eye-view of these amendments.

Form 3CD and amendments:

i. GST provisions - With implementation and adoption of GST by the business or the professional community as a whole, related changes are also incorporated in Form 3CD. These changes are:

- GST registration number or other similar identification number now needs to be included in the basic details of assessee.

- Break-up needs to be provided of the expenditure for entities whether registered under GST or not. Break-up of expenditure to be provided in respect of GST registered entities are further sub-divided as those related to goods or services exempt under GST, those falling under the composition scheme or for other registered entities if any and the aggregation of all.

ii. Deduction under section 32AD - Clause 19 of the Form requires the assessee to disclose the claim for deduction under various sections such as 32AC, 33AB and 35 of the Income-tax Act ('Act'), etc. vis-à-vis the actual amounts debited to the profit and loss account. To the list of sections mentioned herein, an additional section 32AD has now been included. The said section (as applicable from AY 2016-17) provides a deduction@ 15% in respect of any new investments in plant or machinery within the prescribed time-limit in the notified backward areas viz. in the state of Telangana, Bihar or Andhra Pradesh.

Under clause 24 of Form 3CD, amount of profits and gains deemed to be arising due to the non-fulfillment of conditions relating to transfer of plant or machinery (within the stipulated time) need to be included. To the host of sections considered under this clause, a new section 32AD has also been included.

These amendments appear to be corrective measures.

iii. Deduction on actual payment basis - Clause 26 of the Form deals with various clauses under section 43B which provides for allowability of amounts on an actual payment basis. To the list of various clauses mentioned herein, a new clause (g) has been added. This clause considers a deduction in respect of any sum payable to the Indian Railways for the use of railway assets.

iv. Taxability of receipts- Additional clauses 29A and 29B requires the assessee to include the details of receipts chargeable to tax under the head 'Income from other sources' under section 56(2)(ix) and 56(2)(x) of the Act respectively. Details to be included are -whether these provisions are applicable and if applicable, the nature of income and amount received:

- 56(2)(ix) deals with any amounts received due to forfeiture of advance or otherwise in the course of negotiations for transfer of a capital asset

- 56(2)(x) provides for any sum of money, movable or immovable properties received under the specified circumstances e.g. for no consideration or for inadequate consideration, etc.

v. Transfer pricing - Clause 30A of the Form needs details on secondary adjustments under section 92CE of the Act. The following information is needed:

- To report whether applicable

- If yes, report the specific clause of section 92CE(1) under which primary adjustment is made and its corresponding amount,

- If yes, report whether the excess money as determined after applying the provisions of primary adjustments has been repatriated and that too within the prescribed time

- If yes, disclose the amount of interest income on deemed advances, if amounts are not repatriated within the specified time-limit.

vi. Interest deduction - Section 94B restricts the deduction of interest or for similar payments (exceeding INR 1 Crore) to 30% of EBITDA [ Earnings before interest, tax, depreciation and amortization] , where they are made to non-resident associated enterprises and such other circumstances. In this regard, clause 30B of Form 3CD requires the assessee to disclose the details viz. whether applicable and if yes, the amounts paid, EBITDA for the previous year, amount in excess of 30% of EBITDA, balance brought and carried forward etc.

vii. General Anti-Avoidance Rule (GAAR) - GAAR implications are also considered to be a part and parcel of the Form. As per Clause 30C Form 3CD, if applicable, details to be included are nature of impermissible avoidance arrangement/s and the amount of tax benefit arising in aggregate to all the parties.

viii. Miscellaneous - Other similar issues which now find reference and details of which require to be reported are-

- Clause 31 - Details of each cash receipt or payment in excess of the limit specified under section 269ST.

- Clause 34 - Also include the details of transactions not reported in TDS / TCS returns.

- Clause 36A - Furnish the details of dividend received under section 2(2)(e) of the Act along with its date of receipt, provided it is applicable.

- Clause 42 -Provide details where the assessee is required to furnish Form 61 or 61A or 61B viz. income-tax department reporting entity identification number, type of form, due date of furnishing, actual date of furnish and provide details of any unreported transactions in either of these specified forms.

- Clause 43 - Reporting where assessee or its parent entity or alternate reporting entity is liable to furnish the CbCR under section 286(2) of the Act.

Conclusion:

The above changes in the reporting requirements appear to be an effort of the government to align these disclosures with various developments on the tax front such as GST, GAAR and CbCR, etc. We may need to wait and watch to understand whether these reporting changes will lead to more litigation or will close various unsettled issues.

[Vidya Shetty is Senior Manager with Deloitte Haskins and Sells LLP. The views expressed are strictly personal.]

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)

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