The document discusses common mistakes in tax assessments and analyzing auditor reports. Section A covers common mistakes like selecting cases without guidelines, issuing vague questionnaires, not applying mind to facts, and not following legal precedents. It also discusses constitutional provisions for taxation. Section B analyzes various auditor reports like tax audit reports, notes, transfer pricing certificates, and other forms for key information like related party transactions, accounting changes, and qualifications. The document emphasizes strict compliance, giving assessees a fair hearing, and providing clear reasoning in assessment orders.

1. Common Mistakes in Assessments
&
Analysis of Various Reports and Notes of
Auditor
Shankar Bose, IIT
MSTU, Puri

2. Agenda
Section A – Common Mistakes in Assessments
Section B – Analysis of Various Reports and Notes of Auditors
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3. Agenda
Section A – Common Mistakes in Assessments
Section B – Analysis of Various Reports and Notes of Auditors
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4. Section A
• Meaning of Assessment
• Purpose of Assessment
• Common Mistakes in Assessments
• Constitutional Provisions with regard to taxation in India
• Key Points
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5. Section A
Meaning of Assessment
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6. Section A - Meaning of Assessment
As per Macmillan dictionary,
Assessment means -
“the process of making a
judgment or forming an
opinion, after considering
something or someone
carefully”
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7. Section A
Purpose of Assessment
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8. Section A - Purpose of Assessment
Tax Officers are revenue
administrators and revenue collectors
of the Govt.;
Purpose of Assessment is to assess the
correct income:
By analysing the facts ,
Applying correct accounting standards
Applying appropriate legal provisions
Passing speaking and legally sound
assessment orders.
To collect taxes due on assessed
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income;

9. Section A
Common
Mistakes in
Assessment
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10. Section A – Common Mistakes
in Assessment
Selection of Case for Scrutiny
• Violation of Internal guidelines and Instructions;
• Cases selected under CASS / AIR Information not dealt
properly
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11. Section A – Common
Mistakes in Assessment
Issuing Questionnaires
• Non – verification of return of income and non application
of mind while issuing questionnaires
• Stereo typed questionnaires are issued without any focused
approach
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12. Section A – Common
Mistakes in Assessment
• Assessments completed hastily and hurriedly without
appreciation of facts of the case and application of mind;
• Lack of in-depth inquiry carried out leading to increased
litigation like 263 etc.
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13. Section A – Common
Mistakes in Assessment
• Technical breaches in carrying out the assessment resulting
in High Court intervention and loss of revenue like not
seeking approval for 148 / 153A etc.
• Issuing summons / notices without jurisdiction leading to
tax leakages
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14. Section A – Common
Mistakes in Assessment
• Inconsistent approach is followed in completing the
assessments;
• Deviation from last years stands
• Not following the orders of appellate authority wherever
decided in earlier years
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15. Section A – Common
Mistakes in Assessment
• Non compliances of CBDT Circulars / Notifications
• Non compliance of directions issued like 144 A, 263 / 264
etc.
• Disregard to the settled legal position like not following the
Supreme Court decision resulting in unnecessary litigation
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16. Section A – Common
Mistakes in Assessment
• Timelines not adhered in several cases like 148 cases
• Allowing set off losses against the exempt income
• Incomes from other sources allowed deductions u/s 80 IB
etc.
• Items subject to depreciation allowed in full i.e. considered
as revenue in nature
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17. Section A – Common
Mistakes in Assessment
Common Mistakes in Survey Operations
• Conducting surveys without proper approvals;
•Delay in submitting the preliminary survey reports;
•Non verification of return filed subsequent to survey w.r.t.
income disclosed in survey
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18. Section A – Common
Mistakes in Assessment
Common Mistakes in Search Operations
• Disclosures not backed by seized material
•Delay in sending the appraisal reports
•Non appreciation and investigation of evidences seized
during the search proceedings
•Appraisal report not properly analysed and leads contained
therein not followed
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19. Section A
Constitutional
provisions with
regard to
Income Tax Act
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20. Section A – Constitutional
Provisions
• In India Cement Ltd. vs. State of Tamil Nadu [188
ITR 690] [SC], seven member bench of Apex Court held
that
“Constitution is the mechanism under which the laws are
to be made and not merely an act whish declares what the
law is to be”
• Article 265 of the Constitution – No tax shall be levied or
collected except by the authority of law
• Article 14 must be adhered to
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21. Section A – Constitutional
Provisions
• “audi alteram partem” rule must be followed in true spirit
– as held by Apex Court:
• a person against whom an order to his prejudice may be
passed should be informed of the charges against him;
• Such person should be given an opportunity of
submitting his explanation;
• Witnesses who are to give evidence against him be
examined in his persons with right to cross examine
them;
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22. Section A
Key
Points
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23. Section A – Key points
• Strict compliances of procedures laid down by Supreme
Court in GKN Driveshafts case in 148 matters;
• Give assessees reasonable opportunity of being heard;
• Evidences to be used against the assessees must be put for
cross examination;
• Give proper reasoning for each disallowances; PricewaterhouseCoopers

24. Section A – Key points
• In case a ruling is relied by the assessee and the same is
not followed, give proper reasoning for same;
• Be specific in drafting the assessment orders – avoid
vague language
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25. Section B – Analysis of Various
Reports and Notes of Auditors
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26. Section B - Reports filed with the return
of income
• Tax Audit Report u/s 44
AB
• Auditor’s Report
• Schedules forming part of
Accounts
• 3CEB Report - TP Report
• Other Forms / Certificates
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27. Section B - Key points in Tax Audit Report
u/s 44 AB
• Whether there is any change in the nature of business;
• Books of accounts maintained by the assessee;
• Any change in method of accounting during the year;
• Method of valuation of closing stock;
• Duty drawbacks claimed etc. PricewaterhouseCoopers

28. Section B - Key points in Tax Audit Report
u/s 44 AB
• Amounts debited to PL account being capital in nature;
• Expenditure of personal nature;
• Sum paid by way of penalty / infraction in law;
• Other penalties / fines (if any)
• Disallowances u/s 40(a) PricewaterhouseCoopers

29. Section B - Key points in Tax Audit Report
u/s 44 AB
• Disallowances under section 40 A (3);
• Sum not allowable under section 40 A (7) / (9);
• 14A expenditure if any paid;
• Sum paid and claimed u/s 43B disallowances
• Ratio Analysis – GP / NP / Stock / FG PricewaterhouseCoopers

30. Section B - Key points in Tax Audit Report
u/s 44 AB
• Whether there is any change in the nature of business;
• Books of accounts maintained by the assessee;
• Any change in method of accounting during the year;
• Method of valuation of closing stock;
• Duty drawbacks claimed etc. PricewaterhouseCoopers

31. Section B - Key points in Tax Audit Report
u/s 44 AB
• Whether there is any change in the nature of business;
• Books of accounts maintained by the assessee;
• Any change in method of accounting during the year;
• Method of valuation of closing stock;
• Duty drawbacks claimed etc. PricewaterhouseCoopers

32. Section B - Key points in Auditors
Report / Schedules
• Compliances of Accounting Standards and Guidance Notes;
• Check if any qualifications made by the Auditor – Its
impact and analysis on financial accounts;
• Provisions and Contingencies note
• Revenue recognition
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33. Section B - Key points in Auditors
Report / Schedules
• Transactions with Related parties – whether domestic /
international;
• Any subsequent event having bearing on financials
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34. Section B - Key points in 3CEB – T P
Certificate
• Certificate contains list of all related party transactions;
• Check all transactions are also captured in Auditor’s
Report;
• In case where the transaction limit exceeds the statutory
limit, refer to Transfer Pricing Officer
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35. Section B - Other Forms / Certificates
Form No. Description
Form 3 CE Applicable for foreign companies receiving income from
royalty of FTS
Form 10CCAD Audit Report in respect of assesses engaged in business
of hotel / travel agents / tour operators
Form 10 CCB/BB For assessees claiming deduction u/s 80 IA / 80 IB of
the Act
Form 10 CCBBA For assessees claiming deduction u/s 80 ID of the Act
Form 15 CA / CB For assessees remitting money outside India u/s 195 of
the Act
Form 15 G Declaration u/s 197A of the Act
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36. Thank You
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