34 Checklist Tax Audit Annexure I and II To Form No 3cd Revised 2008

Private & Confidential
Price Waterhouse
Client:
Tax Audit Year (Assessment Year) :

Previous Year :
Checklist for Tax Audit Report u/s - Form 3CD - Annexure I & II
Requirements Compliance
Annexure I to Tax Audit Report u/s 44 AB of IT Act, 1961 - Form 3CD No Reportable Issues
Annexure II to Tax Audit Report u/s 44 AB of IT Act, 1961 - Form 3CD No Reportable Issues
General Instructions
Conclusions: Issue Sheet
Preparer's Signature and Date:
Audit In-charge
(i) I have satisfied myself that the above checklists has been properly
completed except as stated below.
(ii) All matters requiring the attention of Audit Partner are set forth in Audit
Disposal Notes.
Signature and Date:
Review Manager
(i) I have reviewed the work done by the assistant-in-charge and have
satisfied myself that the above checklist have been satisfactorily
completed.
(ii) Working Papers Reviewed
(iii) Agree with the conclusions above
Signature and Date:
Home
General Instructions
1 The home page contains the links to the detailed checklist of each Annexure responses
and space for comments, if any, for the respective clauses. The conclusion column on the
home page has a drop down menu for choosing the appropriate option.
2. Please select the name of the audit firm from the dropdown menu on the home
page.Please fill in other details like name of client, audit period etc., The home page also
contains affirmation as to work done, review made etc., Please fill in necessary details on
completion and review of the checklist.
3. Critical matters and matters for reporting to management and other

exceptions should be summarised in the 'Issue sheet' (last worksheet in the
workbook). Issue sheet can also be accessed through the link on home page
4. Please complete the details as to prepared/reviewed by etc., on the individual checklist

sheets. You can get back to home page from individual checklist sheet
5. The Responses column contains a drop down menu with possible responses. Please
select the appropriate response from the options as applicable. Create a Working Paper
for the work done under individual clauses. Specific representations, where required,
should be obtained as a part of firm's standard representation letter.
6. This checklist cannot be construed as a substitute for the Guidance Note on Tax Audit,
the Supplementary Guidance Note on Tax Audit and Changes thereto and Guidance Note
on Audit of Fringe Benefits issued by ICAI. Reference should be made to the said
Guidance Notes guidance and help in specific cases. A copy of these Guidance Notes are
available in the ABAS India Technical Database.
Name of the Client:
Assessment Year:
Completed by: Home
Date:
Reviewed by:
Date:
Checklist for Annexure-I to Tax Audit Report u/s 44 AB of IT Act, 1961 - Form 3CD
Sl No Audit Program Step/Record of Work done Compliance Remarks
Part A
CLAUSE 1: Name of the Assessee
Procedures
Ascertain the name of the assessee from the Yes
incorporation documents (for eg. Certificate of
incorporation, AOA and MOA)
CLAUSE 2: Address
Procedures
Give the Registered Office Address Yes
CLAUSE 3: Permanent Account Number
Procedures
Verify the number from the communication Yes
received from the Income Tax Department
allotting the PAN
CLAUSE 4 : Status
Procedures
Ascertain from the communication received Yes
from the Income Tax Department
CLAUSE 5
Previous Year Ended March 31,
CLAUSE 6
Assessment Year –
Part B
Nature of business or profession in
respect of every business or profession
carried on during the previous year
Procedures
Code to be filled in accordance to the table Yes
provided
Part B
Clauses 1 to 16
1 Paid-up share capital/capital of
2 partner/proprietor
Share Application Money/Current Account of
Partner or Proprietor, if any,
3 Reserves and Surplus/Profit and Loss
4 Account
Secured loans
5 Unsecured loans
6 Current liabilities and provisions
7 Total of Balance Sheet
8 Gross turnover/gross receipts
9 Gross profit
10 Commission received
11 Commission paid
12 Interest received
13 Interest paid
14 Depreciation as per books of account
15 Net Profit (or loss) before tax as per Profit
and Loss Account
16 Taxes on income paid/provided for in the books
Procedures
State the figures as per the audited accounts Yes
for the previous year relevant to the
Assessment year for which the tax audit is
being performed
Code Table for the Nature of business or profession in respect of every
business or profession carried on during the previous year
Sector
(1) Manufacturing Industry
Sub Sector
Agro-based industries 101
Automobile and Auto parts 102
Cement 103
Diamond cutting 104
Drugs and Pharmaceuticals 105
Electronics including Computer Hardware 106
engineering Goods 107
Fertilizers, Chemicals, Paints 108
Four & Rice Mills 109
Food Processing units 110
Marble & Granite 111
Paper 112
Petroleum and Petrochemicals 113
Power and energy 114
Printing & publishing 115
Rubber 116
Steel 117
Sugar 118
Tea, Coffee 119
Textiles, Handloom, Power looms 120
Tobacco 121
Tyre 122
Vanasapati & Edible Oils 123
Others 124
(2) Trading
Chain stores 201
Retailers 202
Wholesalers 203
Others 204
(3) Commission Agents
General Commission Agents 301
(4) Builders
Builders 401
Estate agents 402
Property Developers 403
Others 404
(5) Contractors
Civil contractors 501
Excise Contractors 502
Forest Contractors 503
Mining Contractors 504
Others 505
(6) Professionals
Chartered Accountants, Auditors, etc. 601
Fashion designers 602
Legal Professionals 603
Medical professionals 604
Nursing Homes 605
Specialty hospitals 606
Others 607
(7) Service Sector
Advertisement agencies 701
Beauty Parlours 702
Consultancy Services 703
Courier
Computer Agencies
Training/Educational and Coaching 704
institutes 705
Forex Dealers 706
Hospitality services 707
Hotels 708
I.T. enabled services, BPO service provides 709
Security Agencies 710
Software development agencies 711
Transporters 712
Travel agents, tour operators 713
Others 714
(8) Financial Service Sector
Banking Companies 801
Chit Funds 802
Financial Institutions 803
Financial service providers 804
Leasing Companies 805
Money Lenders 806
Non Banking Finance Companies 807
Share Brokers, sub-brokers, etc. 808
Others 809
(9) Entertainment Industry
Cable T.V. productions 901
Film distribution 902
Film laboratories 903
Motion Picture producers 904
Television Channels 905
Others 906
Name of the Client:
Assessment Year:
Completed by: Home
Date:
Reviewed by:
Date:
Checklist for Annexure II to Tax Audit Report u/s 44 AB of IT Act, 1961 - Form 3CD
Checklist
1 115WB(1)(a) - Any privilege, service,
facility or amenity, directly or indirectly
provided by an employer, whether by way
of reimbursement or otherwise, to his
employees (including former employee
(s)
Important Note:
Section 115WC provides that the value of
fringe benefits liable to FBT shall be the
aggregate of fringe benefits referred to
in Section 115WB(1)(b), (c), (d)and (2)
only.
Section 115WB(1)(d) is applicable from
Assessment Year 2008-09 only
Therefore, any other fringe benefits
though may be covered within the
provisions of this sub-clause shall not be
liable to FBT in the absence of any
computational provisions
2 115WB(1)(b) - Free or concessional ticket 100%
provided by the employer for private
journeys of his employees or their family
members
Procedures:
Check the Company's policy in this regard and Yes
confirm that the expenditure incurred is
subject to FBT to the extent it does not include
leave travel concession or assistance received
by an emplyee falling under the meaning of
salary as defined in Section 17(1).
3 115WB(1)(c) - Any contribution by the 100%
employer to any approved
Superannuation fund for employees
(Please refer Note 1)
Procedures:
Check that all contributions to approved Yes
superannuation funds have been considered in
this regard.
Cross-refer with Clauses 16(b), 17(j) and 21(1) Yes
(A) of Form 3CD
Notes:
Contribution to Gratuity and Pension Fund
(being statutory obligations) are not liable to
FBT.
3A. Applicable from Assessment Year 2008-
09:
115WB(1)(d) Any specified security or
sweat equity shares allotted or
transferred, directly or indirectly, by the
employer free of cost or at concessional
rate to his employees (including former
employee or employees).
Check whether the value of the fringe benefit Yes
in respect of sweat equity shares and specified
securities allotted by the employer to its
employees including former employees has
been computed in accordance with the
provisions of section 115WC(1)(ba)
Note: For the full text of the Section and

the related Valuation Rules, refer to
Appendix A.
4 115WB(2)(A) - Entertainment
Procedures: 20%
Check whether FBT has been calculated for the Yes
following categories of Entertainment
Expenditure in connection with exhibition,
performance, amusement, game or sport, for
affording amusement and gratification,
including expenses incurred for employees on
non festival occasions eg. Annual Day etc but
excluding Independence day and Republic
Day
5 115WB(2)(B) - Provision of Hospitality of
every kind by the employer to any person
Procedures: 20%
(Please refer Note
3)
In case of training, check whether the training Yes
was held in the Company's own training centre.
(a) If so, confirm that expenditure incurred Yes

on food and beverages in connection with
such in-house training have not been
included for computation of FBT (Ans. To
Q.50 of CBDT)
(b) Where training is in hired premises, check Yes
whether the expenditure incurred on food
and beverages has been included for
calculation of FBT
Check whether the reimbursement of food and Yes
beverage costs to employees has been
included for calculation of FBT
6 115WB(2)(C) - Conference (other than fee

for participation by the employees in any
conference)
Procedures: 20%
Check the classification of the nature of
conference expenses as:
a. Conference within the premises - for Yes
employees or for others
b. Conferences at outside premises Yes
c. Conferences by external agencies/event Yes
managers
d. Expenditure on Seminars, Workshops Yes
and Training Programs
Note: Also see Answer to Q.51 by CBDT
Check whether expenditure incurred for Yes
attending training programs organised by
trade bodies or institutions has been charged
to FBT
Check that the fees for participation in Yes
conferences by employees is not charged to
FBT, unless the fees includes any expenditure
referred to in Clause 115WB(2) (A), (B) and
(D)to (P), i.e. entertainment, hospitality etc.
Please also see Ans to Q.55 by CBDT
Check that all expenditure incurred for Yes
conferences is charged to FBT irrespective of
whether the conference is of agents or dealers
or development advisors or any other persons
7 115WB(2)(D) - Sales promotion including
publicity
Procedures: 20%
Check whether expenditure on sales promotion Yes
has been included for computation of Fringe
Benefit Tax
Check whether expenditure on Brand Yes
Ambassador or Celebrity endorsement is
charged to FBT
Check whether brokerage and selling Yes
commision paid for selling goods has not been
charged to FBT
Check whether expenditure relating to Yes
salesmen appointed and employed by the
Distributors, reimbursed through credit notes
has not been charged to FBT
Check whether Sales discount or rebates Yes
allowed to wholesalers/customers, bonus
points given to credit card customers etc are
not charged to FBT
Check whether expenditure on incentives Yes
given to distributors for meeting quantity
targets (including free goods), being a
performance based commission, has not been
charged to FBT
Check whether product marketing research Yes
expenses (where the research has been
conducted through a separate marketing
agency) are not charged to FBT
Check whether the product marketing research Yes
expenses when incurred by the employer's
research through its own employees has been
charged to FBT for the expenditure covered
under Section 115WB(2)(A) to (P)
Check whether the expenditure in the nature Yes
of call centre charges for canvassing sales or
carrying out post-sales activities has not been
charged to FBT
Ensure that expenditure on distribution of free Yes
medical or other product samples has not
been charged to FBT
Please refer Note 5(vii) and Ans. To Q.64
Check whether expenditure on making of ad- Yes
film is not charged to FBT
Check whether the following expenditure has Yes
been included for charging of FBT:
(i) Expenditure on free offers (with products)
such as freebies like tattoos, cricket cards or
similar products, to trade or consumers
(excluding employers)
(ii) Expenditure incurred on the artwork or for
payment of royalty charges in respect of such
freebies
Check whether the expenditure incurred for Yes
the purposes of lodging and boarding or travel
of customer/clients is charged to FBT
8 115WB(2)(E) - Employees’ Welfare
Procedures: 20%
Check that contribution to approved Gratuity Yes
Fund or Provident Fund is not charged to FBT
(See Ans. To Q.38 by CBDT)
Cross-refer with Clauses 16(b), 17(j) and 21(1) Yes

(A) of Form 3CD
Check that contributions to Group Personal Yes
Accident/Workman Compensation Insurance
(i.e. Statutory obligations) are not charged to
FBT.
(Note: Non statutory employee obligations are
charged to FBT)
Check whether the Company's Medical Yes
reimbursement to its employees, upto Rs.
15000/- during the year, in an unapproved
hospital (exempted under Section 17(1) is
charged to FBT
Check that Medical reimbursement to Yes
employees, exceeding Rs. 15000/- during the
year, in an unapproved hospital (which is taxed
in the hands of employees) is not charged to
FBT
Check that expenditure on Group Health Yes
Insurance or Group Medical Insurance or Group
Life Insurance, is charged to FBT, where it is
not a statutory obligation. In the case it is a
stutuory obligation the same should not be
taken for FBT.
Check whether expenditure incurred or Yes
payment made towards treating employees for
injuries incurred during the course of
employment at a hospital/dispensary not
maintained by the employer is charged to FBT
Check, in the above instance, where the Yes
expenditure is in pursuance of a Statutory
obligation or if the hospital/dispensary is
run by the employer then the expenditure
is not charged to FBT
Check whether subsidy provided to a school Yes
not meant exclusively for employees' children
is charged to FBT
Check whether expenditure incurred on Yes
provision and maintenance of facilities like
garden, site cleaning, light decoration, school,
library, mess, television, cable connection etc.
in employees colonies is charged to FBT
Check that expenditure incurred on provision Yes
of safety shoes or uniforms or equipments to
the employees (including reimbursement of
washing charges), has not been levied to FBT
to the extent such expenditure is incurred to
meet any statutory obligation (e.g.
Employment Standing Orders Act, 1948)
Check whether reimbursement of expenditure Yes
on books and periodicals to employees is
charged to FBT
prizes/rewards to employees for achievements
is charged to FBT
transportation facility provided to children of
employees is charged to FBT
festivals (eg. Navratri, Diwali, Id, Christmas or
New Year) is charged to FBT under Section
115W(B)(L)
Check whether expenditure incurred on non- Yes
festive employee get-togethers (eg. Annual
Day etc) is charged to FBT under Section
115WB(2)(E)
Check that expenditure on celebration of Yes
Independence day or Republic Day is not
charged to FBT
Notes:
Expenditure incurred on premium for Keyman
Insurance Policies is not Employee Welfare
expense. If the policy is assigned after
payment of certain premium and the policy
vests in the employee, there is no expenditure
at the time of assignment , and the difference
between the Sum Assurred on the assigned
value cannot be treated as an expense for
employee welfare.
Contributions to unapproved
Superannuation Funds are included under
Section 115WB(2)(E) as Employee Welfare
Any expenditure incurred for employees, which

is covered specifically under any other clause,
cannot be considered here again
9 115WB(2)(F) - Conveyance, tour and

travel (including foreign travel)
Procedures: 20%
(Please refer Note
8)
Check whether FBT has been charged by an Yes
employer company on its expenditure incurred
on travelling, hotel etc. wholly and exclusively
for executing an assignment for its client which
reimburses the company for such 'out of
pocket' expenses
(Note: The Employer Company, not the
client, is chargeable to FBT)
Check that expenditure incurred by a Yes

professional (eg. Lawyer or Tax Auditor) on
conveyance, tour and travel and reimbursed by
the client company is not charged to FBT in
the hands of the client company
Note: The professional i.e. lawyer, auditor
etc will be liable to FBT
Check that expenditure incurred by way of Yes
allowance to the employees (referred to in
Section 10(14)(ii) and specified in Rule 2BB(2)
-eg. Childrens' education allowance, transport
allowance granted to employees) which are
exempt in the hands of the employees are not
charged to FBT
Check whether payment of leave travel Yes
concession or assistance to employees is
charged to FBT to the extent it is not included
in salary as defined in Section 17
Check whether rent paid or payable for hiring Yes
or leasing of motor cars has been charged to
FBT as follows:
(i) if under an operating lease,under Section
115WB(F).
(ii)
Checkif under a finance
that any lease
benefit and under Section
amenity in the Yes
nature of free or subsidized transport or any
such allowance provided by the employers to
his employees for journeys by the employees
to and fro from their residence to the place of
work has not been charged to FBT
(Refer Section 115WB(3) and also Ans. To
Q.104 by CBDT)
Notes:
Only fare and travelling expenses are to be
considered under Travelling expenses.
Local conveyance at place visited is to be
considered as conveyance.
Hotel and lodging expenses are covered under
Section 115WB(2)(G)
10 115WB(2)(G) - Use of hotel, boarding and
lodging facilities
Procedures: 20%
(Please refer Note
9)
Check whether the per-diem allowances given Yes
to employees has been charged to FBT.
(Note: However, employees will not be liable to
pay income tax on any surplus accruing on
such allowance.)
Check whether expenditure incurred for hotel Yes
stay, air ticket charges etc. in relation to
customer/clients is charged to FBT (Section
115WB(2)(D) or (G))
Note: Expenditure incurred under Section is
applicable for both employees and outsiders.
Where hotels are booked on a continuous basis
(i.e. for use during the year as and when the
employees or representatives visit the hotel ) it
is treated as a guest house
11 115WB(2)(H) - Repair, running (including
fuel), maintenance of motor cars and the
amount of depreciation thereon
Procedures: 20%
(Please refer Note
10)
Check whether the tax depreciation is taken on Yes
a prorata basis for estimating advance tax
payable on fringe benefits
Check that expenditure on running and Yes
maintenance of motor cars is charged to FBT
(Note: Employees will not be liable to income
tax on the perquisite value of motor car
provided by the employer (Rule 3(7)(vii) of the
Income Tax Rules)
Check whether rent paid or payable for hiring Yes

or leasing of motor cars has been charged to
FBT as follows:
(i) if under an operating lease,under Section
115WB(F).
(ii)
Checkif under a finance
whether lease, under
the depreciation onSection
motor car Yes
for the purposes of FBT is computed under the
provisions of Section 32.
Check whether the amount of depreciation Yes

considered is the whole of the amount of
depreciation in the relevant block of assets.
(eg, for motor car, the amount of depreciation
relating to the block should be included )
Check whether the expenditure by way of Yes
interest on loans taken for purchase of cars is
charged to FBT
Check that expenditure on repair, running and Yes
maintenance of delivery/display vans,
trucks/lorries, ambulances and tractors are not
Check whether salary paid to a driver of a Yes
charged to FBT.
motorcar or a pilot of an aircraft is charged to
FBT
Check whether rent paid for garages or parking Yes
slots or airport tarmac or hangar charges is
charged to FBT
Notes:
Depreciation on assets attract FBT only in
case of Motor Cars and Aircrafts.
Companies giving their vehicles on hire are
covered under employers engaged in business
of carriage of passengers or goods by motor
cars.
Hotels maintaining motor cars for Airport
transfer incur expenses on motor cars as an
operational expense.
12 115WB(2)(I) - Repair, running (including
fuel) and maintenance of aircrafts and
the amount of depreciation thereon
Procedures: 20% (Please refer

Note 11)
Check whether salary paid to a driver of a Yes
motorcar or a pilot of an aircraft is charged to
FBT
Check whether rent paid for garages or parking Yes
slots or airport tarmac or hangar charges is
charged to FBT
Note: The value of Fringe Benefit is nil for
employers engaged in the business of
carriage of passengers or goods by
aircrafts.
13 115WB(2)(J) - Use of telephone (including
mobile phone) other than expenditure on
leased telephone lines
Procedures: 20%
Check whether expenditure incurred or Yes
payment made for use of telephone (including
mobile phone) other than expenditure on
leased telephone lines is charged to FBT.
Check whether expenditure on use of Yes
telephones (including mobile phones) installed
in the office is charged to FBT.
Note: This charging to FBT is irrespective of
whether the telephone is in the name of the
company or not and whether payment for its
use is made directly or indirectly by the
Company
14 115WB(2)(K) - Maintenance of any
accommodation in the nature of guest
house other than accommodation used
for training purposes
Procedures: 20%
Check that expenditure on capital items (eg. Yes
Fridge, TV) in a guest house is not charged to
FBT, either by way or cost or depreciation
Check whether rent paid for maintenance of a Yes

guest house is charged to FBT
Check whether expenditure on all guest Yes
houses, irrespective of whether they are used
as holiday homes are charged to FBT
Check whether the following expenditure has Yes

been charged to FBT:
(i)expenditure on provision of food at the guest
house maintained by the employer,
(ii) contract charges paid to guest house staff
and
(iii) rent of a guest house building
Check that depreciation on a guest house is Yes
not charged to FBT
15 115WB(2)(L) - Festival celebrations
Procedures: 50%
festivals (eg. Navratri, Diwali, Id, Christmas or
New Year) is charged to FBT under Section
115W(B)(L)
Check whether expenditure incurred on non- Yes
festive employee get-togethers (eg. Annual
Day etc) is charged to FBT under Section
115WB(2)(E)
Check that expenditure on celebration of Yes
Independence day or Republic Day is not
charged to FBT
16 115WB(2)(M) - Use of health club and
similar facilities
Procedures: 50%
Check whether expenditure incurred for Yes
subscription to or for payment made for Health
Club or Fitness Centre is charged to FBT
17 115WB(2)(N) - Use of any other club
facilities
Procedures: 50%
Check whether payments made to clubs Yes
(entrance fee, membership, subscription or
other services) are charged to FBT to the
extent they are not treated as perquisites in
the hands of the employees
Check that depreciation on a club building is Yes
not charged to FBT
Check whether the payment of entrance or Yes
membership fee of a club or health club or
similar facility is charged to FBT
Note: Residing in a club or hotel should be

considered in 115WB(2)(G) and not under
payment to clubs
18 115WB(2)(O) - Gifts
Procedures: 50%
Check whether the following categories of Gifts Yes
have been charged to FBT:
(i) gifts under trade schemes also for
promotion of Company's products including
gifts to customers and employees; and
(ii) gifts to employees on the occasion of their
marriage.
Note: Gifts in kind are valued at the cost to
19 the employer - Scholarships
115WB(2)(P)
Procedures: 50%
Check whether all expenditure pertaining to Yes
scholarships including expenditure on
(i) employees or their relatives' education and
(ii) scholarships incurred irrespective of
whether the recipient is an employee or his
relative or any other person
has been charged to FBT
20 115WB(2)(Q) - Tour and Travel (including
foreign travel)
Procedures: 5%
Note: Expenditure under this head has been
charged to FBT under Section 115WB(2)(F)
upto Asst Year 2007-08
Important Definitions & Notes
Definition of Employer [Section 115W(a)]:
- Company (including a foreign company which has employees based in India), a Firm, an AOP,
a BOI, any Local Authority and Artificial juridical person
Applicability of FBT [Section 115WB):

The provisions of the charging Section are laid out under Item Nos 1 to 20 in the
Checklist
Notes: given below.
A. The particulars to be given under each Item given below include:
(i) expenditure/payment as recorded in the books of account and debited to :
(a) P & L Account
(b) Assets Other than Advances
Eg pre-operative expenses, Capital Work in Progress, Deferred Revenue Expenditure, Any
other Head (where expenses have been incurred and account is squared up because of
reimbursement by others)
(c) Advances (Note: Payment of advance for expenses is not subject to FBT)
(d) Any other Head
(ii) Deduction/recoveries (for each type of expenditure/payment)
(iii) Perquisites paid or payable by the employer
(iv) Percentage of expenditure/payment being fringe benefits
(v) Value of Fringe benefits (Derived from the above figures)
B. These expenses, whether provided by the employer or deemed to be provided by the employer
are liable to FBT
C. The Heads of Account in the General Ledger as referred to in the Sections given below are to
be scruitnised & test checks applied to ascertain whether such expenditure are incurred in this
regard.
D. These expenses are also to be cross-verified with the workings for TDS on Salary and the
Return of Salary filed (Annexure II under the Income Tax Rules, 1962) to confirm that no expense
which falls under "Salary" as defined under Section 17(1) is charged to FBT
Notes to Annexure II:
1 For assessment year 2007-08 and subsequent assessment years, the value of fringe
benefits in respect of contribution by the employer to an approved superannuation fund
shall be the amount of contribution which exceeds one lakh rupees in respect of each
employee
2 Expenditure on hospitality does not include the following:-
(i) any expenditure on, or payment for, food or beverage provided by the employer to his
employees in office or factory;
(ii) any expenditure on, or payment through paid vouchers which are not transferable and
usable only at eating joints or outlets.
3 In the case of an employer engaged in the business of hotel 5% shall be substituted for
20%. In addition to this, in the case of an employer engaged in the business of carriage
of passengers or goods by aircraft or by ship 5% shall be substituted for 20% for
assessment year 2007-08 and subsequent assessment years.
4 For the purposes of this clause, any expenditure on conveyance, tour and travel
(including foreign travel), on hotel or boarding and lodging in connection with any
conference shall be deemed to be expenditure incurred for the purposes of conference.
5 The following expenditure on advertisement shall not be considered as expenditure on

sales promotion including publicity -
(i) the expenditure (including rental) on advertisement of any form in any print (including
journals, catalogues or price lists) or electronic media or transport system,
(ii) the expenditure on the holding of, or the participation in any press conference or
business convention, fair or exhibition,
(iii) the expenditure on sponsorship of any sport event or any other event organized by any
Government agency or trade association or body,
(iv) the expenditure on the publication in any print or electronic media of any notice required
to be published by or under any law or by an order of a court or Tribunal,
(v) the expenditure on advertisement by way of signs, art work, painting, banners, awnings,
direct mail, electric spectaculars, kiosks, hoardings, bill boards, display of products(with
effect from Assessment Year 2008-09), or by way of such other medium of
advertisement,
(vi) the expenditure by way of payment of any advertising agency for the purposes of
clauses (i) to (v) above.
(vii) being the expenditure on distribution of samples either free of cost or at concessional
rate (with effect from A/Y 2008-09);and
(viii) the expenditure by way of payment to any person of repute for promoting the sale of
goods or services of the business of the employer (not to be considered as expenditure
on sales promotion, including publicity for assessment year 2007-08 and subsequent
assessment years).
6 For the purposes of this clause, any expenditure incurred or payment made to fulfil any
statutory obligation or mitigate occupational hazards or provide first aid facilities in the
hospital or dispensary run by the employer shall not be considered as expenditure for
employees’ welfare
7 For assessment year 2007-08 and subsequent assessment years, clause (F) of sub-
section (2) of section 115WB refers to expense on ‘conveyance’.
8 In the case of an employer engaged in the business of construction, or in the business of

manufacture or production of pharmaceuticals or computer software, 5% shall be
substituted for 20%.
9 In the case of an employer engaged in the business of manufacture or production of
pharmaceuticals or computer software, 5% shall be substituted for 20%. Besides, in the
case of an employer engaged in the business of carriage of passengers or goods by
aircraft or by ship 5% shall be substituted for assessment year 2007-08 and subsequent
assessment years.
10 In the case of an employer engaged in the business of carriage of passengers or goods
by motor car, 5% shall be substituted for 20%.
11 In the case of an employer engaged in the business of carriage of passengers or goods

by aircraft, ‘Nil’ shall be substituted for 20%.
12 This clause is applicable for assessment year 2007-08 and subsequent assessment years.
Definitions:
Hotel:
Building or part of building where residential accomodation is, by way of business,
provided for a monetary consideration
Member's Club:
Residential accomodation provided at a Club can be contended as a hotel by the
employer and taxed accordingly
Restaurant:
Any premises in which business of sale of food or drink to the public is carried on. A
restaurant in a hotel would be covered under the definiton of hotel.
Guest House:
A place maintained to entertain the guests of the assessee gratuitously
Business of Construction:
Continuous and systematic exercise of activity (usually alteration or repairs or erection
of roads, bridges, dams, canals, etc) with a motive to profit, transacted between two
persons involving a twin activity
Manufacture:
A process where the commodity changes its substantial identity during such processing
Production:
Process involving bringing into existence new goods by a process which may or may not
amount to manufacture, including all by-products, intermediate products and residual
products which emerge in the course of manufacture of goods.
Pharmaceuticals:
Science or study of drugs including their preparation and properties and uses (or)
relating to pharmacy.
Computer software:
As defined in Clause (b) to Explanation to Section 80HHE and explanation 2 to Section
10A of the Act as given below:
Any computer programe recorded on an information storage device or any customised

electronic data or any product or service of similar nature transmitted or exported from
India to a place outside India by any means
In addition, Notification No. SO 890 (E) dated 26.09.2000 also defines the IT enabled
products or services which are included in this regard. (Eg Back office operations, Call
Centres, Animation, Data Processing etc)
Other Notes
1 For dates of payment of advance tax reference should be made to section
115WJ of the Income Tax Act, 1961.
Appendix A
Extracts from the Income Tax Act, 1961:
Applicable from Assessment Year 2008-09:

Section 115WB(1)(d) :
Any specified security or sweat equity shares allotted or transferred, directly or
indirectly, by the employer free of cost or at concessional rate to his employees
(including former employee or employees).
Explanation- For the purpose of this clause,-
i) "Specified security" means the securities as defined in clause (h) of section 2 of the
Securities Contracts (Regulation)Act, 1956(42 of 1956) [and , where employee's stock
option has been granted under any plan or scheme therefor, includes the securities
offered under such plan or scheme];
ii) "Sweat equity shares" means equity shares issued by a company to its employees
or directors at a discount or for consideration other than cash for providing know-how
or making available rights in the nature of intellectual property rights or value
additions,by whatever name called.
Section 115WC(1)(ba):
For the purposes of this Chapter, the value of fringe benefits shall be the aggregate of
the following, namely:—
............
(ba) the fair market value of the specified security or sweat equity shares referred to
in clause (d) of sub-section (1) of section 115WB, on the date on which the option
vests with the employee as reduced by the amount actually paid by, or recovered
from, the employee in respect of such security or shares.
Explanation.—For the purposes of this clause,—
(i) “fair market value” means the value determined in accordance with the method
as may be prescribed by the Board(CBDT); (see Rules 40C and 40D of the Income Tax
Rules reproduced below)
(ii) “option” means a right but not an obligation granted to an employee to apply for
the specified security or sweat equity shares at a predetermined price
Recovery of fringe benefit tax by the employer from the employee.
Section 115WKA:
Notwithstanding anything contained in any agreement or scheme under which any
specified security or sweat equity shares referred to in clause (d) of sub-section (1) of
section 115WB has been allotted or transferred, directly or indirectly, by the employer
on or after the 1st day of April, 2007, it shall be lawful for the employer to vary the
agreement or scheme under which such specified security or sweat equity shares has
been allotted or transferred so as to recover from the employee the fringe benefit tax
to the extent to which such employer is liable to pay the fringe benefit tax in relation
to the value of fringe benefits provided to the employee and determined under clause
(ba) of sub-section (1) of section 115WC.
Section 115WKB:
(1) Where an employer has paid any fringe benefit tax with respect to allotment or
transfer of specified security or sweat equity shares referred to in clause (d) of sub-
section (1) of section 115WB, and has recovered such tax subsequently from an
employee, it shall be deemed that the fringe benefit tax so recovered is the tax paid
by such employee in relation to the value of the fringe benefit provided to him only to
the extent to which the amount thereof relates to the value of the fringe benefit
provided to such employee, as determined under clause (ba) of sub-section (1) of
section 115WC.
(2) Notwithstanding anything contained in any other provisions of this Act, where the
fringe benefit tax recovered from such employee is deemed to be the tax paid by
such employee under sub-section (1), such employee shall, under this Act, not be
entitled to claim-
i) any refund out of such payment of tax; or
ii) any credit of such payment of tax against tax liability on other income or against
any other liability.
Extracts from the Income Tax Rules, 1962:

PART VIIC - Fringe benefit tax - Valuation of specified security or sweat
equity share being a share in the company
Rule 40C:
(1) For the purposes of clause (ba) of sub-section (1) of section 115WC, the fair
market value of any specified security or sweat equity share, being an equity share in
a company, on the date on which the option vests with the employee, shall be
determined in accordance with the provisions of sub-rule (2) or sub-rule (3).
(2) In a case where, on the date of the vesting of the option, the share in the company
is listed on a recognized stock exchange, the fair market value shall be the average of
the opening price and closing price of the share on that date on the said stock
exchange :
Provided that where, on the date of vesting of the option, the share is listed on more
than one recognized stock exchanges, the fair market value shall be the average of
opening price and closing price of the share on the recognised stock exchange which
records the highest volume of trading in the share :
Provided further that where, on the date of vesting of the option, there is no trading
in the share on any recognized stock exchange, the fair market value shall be—
(a) the closing price of the share on any recognised stock exchange on a date
closest to the date of vesting of the option and immediately preceding such date; or
(b) the closing price of the share on a recognised stock exchange, which
records the highest volume of trading in such share, if the closing price, as on the
date closest to the date of vesting of the option and immediately preceding such
date, is recorded on more than one recognized stock exchange.
(3) In a case where, on the date of vesting of the option, the share in the company is
not listed on a recognized stock exchange, the fair market value shall be such value
of the share in the company as determined by a merchant banker on the specified
date.
(4) For the purpose of this rule,—
(a) “closing price” of a share on a recognised stock exchange on a date shall

be the price of the last settlement on such date on such stock exchange:
Provided that where the stock exchange quotes both “buy” and “sell”
prices, the closing price shall be the “sell” price of the last settlement.
(b) “merchant banker” means Category I merchant banker registered with
Security and Exchange Board of India established under section 3 of the Securities
and Exchange Board of India Act, 1992 (15 of 1992);
(c) “opening price” of a share on a recognised stock exchange on a date shall
be the price of the first settlement on such date on such stock exchange:
Provided that where the stock exchange quotes both “buy” and “sell”
prices, the opening price shall be the “sell” price of the first settlement.
(d) “recognised stock exchange” shall have the same meaning assigned to it in
clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(e) “specified date” means,—

(i) the date of vesting of the option; or
(ii) any date earlier than the date of the vesting of the option, not being a
date
which is more than 180 days earlier than the date of the vesting;
(f) “equity share” shall have the meaning assigned to it in section 85 of the
Companies Act, 1956 (1 of 1956).
Valuation of specified security not being an equity share in the company.

Rule 40D:
For the purposes of clause (ba) of sub-section (1) of section 115WC, the fair market
value of any specified security, not being an equity share in a company, on the date
on which the option vests with the employee, shall be such value as determined by a
merchant banker on the specified date.
Explanation. - For the purposes of this rule, "merchant banker" and "specified date"
shall have the meanings assigned to them in clause (b) and clause (e) respectively of
sub-rule (4) of rule 40C.
Price Waterhouse
Assessment Year:
Completed by:
Date: Home
Reviewed by:
Date:
Clause Ref.Area/Requirement Brief Description of the
How
Issue
addressed in the Audit
Annexure I
Part A
Clause 1
Clause 2
Clause 3
Clause 4
Clause 5
Clause 6
Part B
Clause 1
Clause 2
Clause 3
Clause 4
Clause 5
Clause 6
Clause 7
Clause 8
Clause 9
Clause 10
Clause 11
Clause 12
Clause 14
Clause 15
Clause 16
Annexure II
Section
115WB(1) (b)
115WB(1) (c)
115WB(1) (d)
115WB(2) (A)
115WB(2) (B)
115WB(2) (C)
115WB(2) (D)
115WB(2) (E)
115WB(2) (F)
115WB(2) (G)
115WB(2) (H)
115WB(2) (I)
115WB(2) (J)
115WB(2) (K)
115WB(2) (L)
115WB(2) (M)
115WB(2) (N)
115WB(2) (O)
115WB(2) (P)
115WB(2) (Q)

34 Checklist Tax Audit Annexure I and II To Form No 3cd Revised 2008

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

34 Checklist Tax Audit Annexure I and II To Form No 3cd Revised 2008

Uploaded by

Copyright:

Available Formats

Private & Confidential

Tax Audit Year (Assessment Year) :

Conclusions: Issue Sheet

Preparer's Signature and Date:

3. Critical matters and matters for reporting to management and other

4. Please complete the details as to prepared/reviewed by etc., on the individual checklist

Note: For the full text of the Section and

(a) If so, confirm that expenditure incurred Yes

6 115WB(2)(C) - Conference (other than fee

Cross-refer with Clauses 16(b), 17(j) and 21(1) Yes

Any expenditure incurred for employees, which

9 115WB(2)(F) - Conveyance, tour and

Check that expenditure incurred by a Yes

Check whether rent paid or payable for hiring Yes

Check whether the amount of depreciation Yes

Procedures: 20% (Please refer

Check whether rent paid for maintenance of a Yes

Check whether the following expenditure has Yes

Note: Residing in a club or hotel should be

Applicability of FBT [Section 115WB):

Notes to Annexure II:

5 The following expenditure on advertisement shall not be considered as expenditure on

8 In the case of an employer engaged in the business of construction, or in the business of

11 In the case of an employer engaged in the business of carriage of passengers or goods

Any computer programe recorded on an information storage device or any customised

Applicable from Assessment Year 2008-09:

Explanation.—For the purposes of this clause,—

Extracts from the Income Tax Rules, 1962:

(a) “closing price” of a share on a recognised stock exchange on a date shall

(e) “specified date” means,—

Valuation of specified security not being an equity share in the company.

You might also like