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Advanced Auditing

Notes
5. The proposed DTC says that if 50 per cent of the value of the shares being transferred
is derived from assets situated in India, it is deemed to be taxable in India.
6. Countries like India have been following resident-based taxation mechanism,
wherein whoever is the resident of India is taxed. Source-based taxation provides
for a taxation regime which goes into the source of the asset which is liable for tax.
Question:
Discuss the facts of the case study.

Source: http://www.mindtext.org/view/89/
Vodafone_Tax_case__A_Case_Study_for_Investments_in_India/
13.3 Summary

 For ensuring compliance sometimes audit become a necessity. Therefore, various statutes,
including legislations governing direct and indirect tax provisions have incorporated
audit provisions in some or the other form.
 The Explanation to Section 288(2) defines ‘accountant’ as a Chartered Accountant within
the meaning of the Chartered Accountants Act, 1949 and any other person who is entitled
to be appointed as an auditor of a company under Section 226(2) of the Companies Act,
1956.
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 It may be noted that by the virtue of a resolution of the Council, with effect from 1 April
2005, a member in part-time practice (namely holding a certificate of practice and also
engaging himself in any other business/ and or occupation) is not entitled to perform
attest functions including tax audit.
 The audit report is required to be furnished to the relevant year. Failure to furnish the
report will disentitle the trust or institution to the benefit of Sections 11 and 12.
 The conditions under which certain specified preliminary expenditure incurred before the
commencement of business and once the business is commenced on expanding an industrial
undertaking or in connection with setting up a new industrial unit can be amortised are
stated in Section 35D of the Act.
 The manner in which deductions are allowed in respect of expenditure on any prospecting
operations relating to certain specified minerals listed in the Seventh Schedule to the Act
are stated in Section 35E of the Act.

 In respect of assessees other than a company or a co-operative society, these deductions
are admissible only if the accounts for, the year or years in which the above specified
expenditure is incurred are audited by an “accountant” as defined in explanation below
sub-section (2) of section 288 of the Income-tax Act, 1961 and the report of such audit is
furnished by the assessee along with the return of income. Rule 6AB of the Income-tax
Rules 1962 provides that the report of audit required to be furnished by the above-
mentioned assessees under sections 35D and 35E should be in Form No.3B.

 Under the provisions of sections 44AD and 44AF, an assessee can opt to be assessed on
presumptive basis, so long as the gross receipts/total turnover from any of the business(es)
do not exceed 40 lakhs. Once the total turnover/gross receipts from any such business(es)
exceed 40 lakhs, a tax audit will be required under clause (a) of Section 44AB.

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