#TaxmannPPT | Audit of Trusts and NGOs in Form 10B & 10BB – FY 2022-23 | AY 2023-24

Audit of Trusts and NGOs in Form 10B & 10BB

Adv. (Dr.) Manoj Fogla, CA. Suresh Kumar Kejriwal, CA. Tarun Kumar Madaan

TEAM PRESENTATION

SESSION AGENDA

Session Topic

Part 1 Introduction, Applicability of Audit and Key Issues

Part 2 Revised Form 10BB and Key Issues

Part 3 Revised Form 10B and Key Issues

Part 4 Question & Answer Session

PART 1: Introduction, Applicability of Audit and Key Issues

Adv. (Dr.) Manoj Fogla, CA. Suresh Kumar Kejriwal, CA. Tarun Kumar Madaan

Requirement of Audit under the Income-tax Act

REQUIREMENT OF AUDIT

Mandatory for a trust to get its books of accounts audited to avail the exemption under Section 11 and Section 12.

As per Section 12A(1) –

“(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year,—

(i) ……

(ii) the accounts of the trust or institution for that year have been audited by an accountant defined in the Explanation below sub-section (2) of section 288 before the specified date* referred to in section 44AB and the person in receipt of the income furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed;”

*Specified date ………. means date one month prior to the due date for furnishing the return of income u/s. 139(1)

IMPLICATIONS OF NOT FILING AUDIT REPORT

Implication upto AY 2022-23:

If the audit report is not submitted as prescribed, then the benefits of Sections 11 and 12 shall be withdrawn for that year.

▰ Implication after AY 2023-24:

From AY 2023-24, the income in such cases shall be computed as per Sections 13(10) and 13(11).

CBDT NOTIFIED NEW AUDIT REPORT FORMS

Rules 16CC and 17B of the Income-tax Rules, 1962 have been substituted w.e.f. 01-04-2023 vide Income-tax amendment (3rd Amendment) Rules, 2023

CBDT notified new audit reports Form 10B and 10BB to be furnished by charitable or religious trusts and other institutions.

Amended Rules : 16CC and 17B (w.e.f. 01/04/2023)

Change in Form in which Audit report is to be given

Change in the format of the Audit report

Comprehensive change in annexures forming part of the Audit Report

RATIONALE BEHIND NEW FORMS

Pre-amended Form 10B was in force w.e.f. 01-04-1973 & Form 10BB was in force w.e.f. 25-07-2006

▰ On 21st May 2019, CBDT released a draft notification with modified 8 pages of Form 10B, which was also put in the public domain for public comments but never made effective

Every year, a number of amendments were made for charitable institutions including bringing uniformity in two regimes [Section 12AB and 10(23C)] ▰ Present Form 10B/10BB does not include various data being used to fill ITR -7

▰ Hence, there seems to be a rationale for modifying Form 10B/10BB in the present context of charity taxation and the requirement of ITR 7 vis-à-vis the requirement of conditions for renewal of registration.

▰ The amended Form 10B is very comprehensive, and the key information is to be filled in (with code number) as mentioned in the notes, therefore, easy to analyse the data and capture the related information by the Income Tax department.

CHANGE IN FORM

Pre-Amended Position:

There were two types of Forms: Form 10B, which was applicable for 12AB registered trusts, and Form 10BB, which was applicable for 10(23C) approved entities.

▰ Amended Position:

Now there is no separate Form for 12AB registered or 10(23C) approved NGOs.

Common Forms are specified for both the regimes

Same names of form: Form 10B and Form 10BB

Form 10B is basically for a bigger size specified category of NGO, and Form 10BB is for other cases not covered in Form 10B.

Applicability of Form 10B/10BB

WHO HAS TO FILE FORM 10B/10BB

Who is required to file Form 10B?

If the total income of the trust or institution, without giving effect to the provisions of sections 11 and 12 or Section 10(23C) (iv), (v), (vi), (via) of the Act, exceeds rupees five crores during the previous year; or

If such trust or institution has received any foreign contribution during the previous year; or

If such trust or institution has applied any part of its income outside India during the previous year.

Who is required to file Form 10BB:

Any other case not covered in Form 10B.

CASE STUDIES TO FOLLOW

KEY ISSUES

Which form should be used in the following scenarios?

If an FC-registered organization receives neither fresh foreign grant nor any bank interest or any other nature of FC and submit NIL FC return

If an FC-registered organization receives foreign contributions only in the form of bank interest

When the FCRA registration of an NGO has been cancelled or its renewal has not been granted, and the organization has received bank interest?

KEY ISSUES

Which audit report form should be used when the institution has incurred expenditures in foreign currency, or when the income has been applied outside of India?

KEY ISSUES

Form 10B is required to be submitted if total income before giving effect of Section 11 exceeds Rs. 5 Crore, whether this limit of Rs. 5 Cr shall be calculated:

On the basis of income computed on a commercial basis and available for application?

Whether voluntary contribution towards corpus shall be included.

Whether capital gain deemed to be utilised under section 11(1A) shall be included.

COMPARISON OF PREVIOUS FORM AND NEW FORM

Basis of Difference Pre-Amended Position Amended Position

Financial Statement to be examined the Balance Sheet and the Profit & Loss A/c The Balance Sheet and Income & Expenditure Account or Profit & Loss A/c.

Information on place of maintaining of books of account

proper books of account have been maintained by the head office and branches

The amended format requires Auditors to include the following:

“In * my/our opinion, proper books of account have been maintained at the registered office or at the address mentioned at row 11/14 of the Annexure”

Opinion by the Auditor on the Financial Statement

in the case of the profit and loss account, of the profit or loss of its accounting year ending on ………

in the case of the Income and Expenditure account or Profit and Loss account, of the income and application/ profit or loss of its accounting year ending on ……..

Certification of Annexure Not Required. True and Correct

True & Correct view of Annexure:

In *my/our opinion and to the best of *my/our information and according to explanations given to *me/us, the particulars given in the Annexure are true and correct subject to following observations or qualifications, if any—

(a) …………………….

(b)..…………………..

(c)..…………………..

True & Fair view of Amount of application:

In * my/our opinion and to the best of * my/our information, and according to information given to * me/us, the said accounts give a true and fair view—

i. in the case of the balance sheet, of the state of affairs of the above named * fund or trust or institution or university or other educational institution or hospital or other medical institution as on____________; and

ii. in the case of the Income and Expenditure account or Profit and Loss account, of the income and application/ profit or loss of its accounting year ending on …….. subject to the following observations/qualifications—

(a) …………………….

(b) ..…………………..

(c) ..…………………..

CASE STUDIES TO FOLLOW

KEY ISSUES

In * my/our opinion, proper books of account have been maintained at the registered office or at the address mentioned at row 11/14 of the Annexure  How the auditor shall satisfy himself that the books of accounts have been maintained at the address mentioned in Form 10B/10BB?

Whether the auditor also needs to report on the maintenance of specified documents as per Rule 17AA

How the Auditor should report: If books of accounts are maintained but specified documents are not maintained.

KEY ISSUES

The financial statement is named as Income & Expenditure A/c, but the auditor is required to report a True and fair view of Income and Application: Whether it is possible to report application from the normal Income & expenditure account.

Should the receipt and payment account also be included as a part of the financial statement?

PART 2: Form 10BB and Key Issues

Adv. (Dr.) Manoj Fogla, CA. Suresh Kumar Kejriwal, CA. Tarun Kumar Madaan

OVERVIEW OF FORM 10BB

Computation of Income

Total Clauses : 11

Total Clauses : 14

Income not subject to application

Total Clauses : 2

Other penal provisions

Other Compliances

Total Clauses : 3 Total Clauses : 2

Basic Details (Clause 1 to 6)

Legal (Clause 7 to 8)

General Information Management (Clause 9)

Voluntary contributions

(Clause 12 to 20)

Section 115BBI

(Clause 25)

Income to be applied

(Clause 21 to 22)

Anonymous Donation (Clause 26)

Application of Income

(Clause 23)

Commencement of Activities (Clause 10)

Taxable Income

(Clause 24)

Details of place where books of accounts and other documents have been maintained

(Clause-11)

Application out of different sources other than income (Clause 27)

Person referred to in 13(3) & details of transaction

13(2) (Clause

28 to 29)

Claim of Depreciation

(Clause 31)

Specified violation for cancellation

12AB(4)

(Clause 30)

TDS compliances

(Clause 32)

OVERVIEW OF GENERAL INFORMATION

Note No. (Total : 4)

Schedule (Total: 0)

Key points

Basic Details (Clause 1 to 6)

01 and 03

Legal (Clause 7 to 8)

Management (Clause 9)

04 and 05

Commencement of Activities

(Clause 10)

Details of place where books of accounts and other documents have been maintained (Clause-11)

The word `auditee’ refers to the trust/institution subject to section 11 & 12 or section 10(23C)

The other address in basic details should be the addresses intimated to Assessing Officer as per Rule 17AA(3) [Note 3]

The relationship under Management like Author/Founder/Settlor/Trustee should be by selecting the code as per (Note 4) and Unique identification number in the Form of PAN/Aadhaar or any other like TIN, Passport Number, Elector’s Photo Identity, Driving License and Ration Card Number should be selected as per (Note 5)

We understand the details of commencement of activities is to be given only in case where the auditee is holding provisional registration/approval at any time during the previous year

CASE STUDIES TO FOLLOW

KEY ISSUES

Which date is to be mentioned as the commencement date of activities, and what is the auditor's relevance of mentioning this date?

KEY ISSUES

Clause 9 required the details of Management, which includes settlor, trustee, General Body Member as well as Governing Body Members:

Whether a list of only governing Body Members/Trustee can be given or all the required information should be given?

OVERVIEW OF COMPUTATION OF INCOME

Note No. (Total : 0) Schedule (Total:0)

Key points

Voluntary contributions (Clause 12 to 20)

Income to be applied (Clause 21 to 22)

Application out of income (Clause 23)

Taxable Income (Clause 24)

Application out of different sources (Clause 27)

We shall discuss in separate slides –

• Voluntary contributions

• Income subject to application

• Application & taxable income

• Disclosures required for application of income

VOLUNTARY CONTRIBUTIONS (CLAUSE 12 TO 20)

12. Whether auditee has filed form No. 10BD for the previous year < if No then skip to row 14>

13. Total sum of donations reported in Form No. 10BD

14. Donations not to be reported in Form No. 10BD

15. Total Voluntary Contributions received by the auditee during the previous year [13+14]

16. Total Foreign Contribution out of total Voluntary Contribution stated in 15

17. Voluntary Contributions forming part of corpus (which are included in 15)

18. Anonymous donations taxable @ 30% u/s. 115BBC

19. Application outside India for which approval u/s. 11(1)(c) has been obtained

20. Voluntary contributions required to be applied by the auditee during the previous year [Total VC(15) – { 17(VC forming part of corpus)+18 (Anonymous Donation)+19 (Application outside India}]

INCOME TO BE APPLIED (CLAUSE 21 TO 22)

20. Voluntary Contribution required to be applied

21. Income other than Voluntary Contribution

22. Total income subject to Application (20+21)

Income other than voluntary contribution has no detailed schedule. Hence it should include all other income, including:

 Income from Trust Property

 Business income u/s. 11(4)

 Incidental income u/s. 11(4A)

AI schedule of the ITR-7 should be referred

CASE STUDIES TO FOLLOW

KEY ISSUES

Whether income other than voluntary contribution should be on a commercial or on a gross basis?

Whether capital gain deemed utilized u/s 11(1A) to be included as a part of income other than voluntary contribution?

APPLICATION OF INCOME AND TAXABLE INCOME

23. Application of income (excluding app. Not eligible and reported in S.No. 27)

(i). Amount applied for Charitable & religious purpose during the year

(ii). Amount not actually paid during the previous year [if included in (i)]

(iii). Amount actually paid during the previous year which accrued during any earlier previous year but not claimed as application if income in earlier previous year

(iv). Total amount applied in India on payment basis

(v). Amount invested or deposited back to corpus fund

(vi). Repayment of loan or borrowing

(vii to xv). Amount to be disallowed from application

(xvi). Total allowable application [{23(iv)+23(v)+23(vi)} – {23(vii) to 23(xv)}]

Add: (xvii). Accumulation under section 11(2) - Form 10

(xviii). Deemed application - Form 9A

(xix). Statutory Accumulation up to 15%

vii) Disallowance due to TDS violation (Sch- TDS Disallowable)

viii) Cash payment exceeding Rs. 10,000/- [Sch-40A(3) and 40A(3A)]

ix) Inter Charity donation towards corpus

x) Inter Charity donations not having the same objects

xi) Donation to any person other than registered /approved institution

xii) Application outside India for which no approval has been taken

xiii) Application outside India for which approval u/s. 11(1)(c) has been taken

24. Taxable Income [22(income applied during the year)-{23(xvi)+23(xvii)+23(xviii)+23(xix)}]

xiv) Applying for any purpose beyond the object

xv) Any other disallowance (Please specify)

APPLICATION OF INCOME OUT OF DIFFERENT SOURCES (CLAUSE 27)

Application of income out of the following sources during the previous year:

(A). Income accumulated under third proviso to clause 10(23C) or Section 11(2) - (Form 10)

(B). Income deemed to be applied under clause (2) of Explanation 1 under section 11(1) – (Form 9A)

(C). Statutory Accumulation u/s. 15%

(D). Corpus

(E). Borrowed Fund

(F). Any Other (Please Specify)

CASE STUDIES TO FOLLOW

KEY ISSUES

The income only by way of accrued interest from Fixed deposit amounting to Rs 11 lakhs, and the amount spent is Rs 10 lakhs out of the opening bank balance:

What shall be the amount of application out of income?

Whether application out of 11(2) can be reported if the amount is applied out of the opening bank balance and without liquidating the tied-up fixed deposit.

In case excess of expenditure over income: How to identify and determine the amount of application with the nature of expenditure out of Income?

KEY ISSUES

Whether donations to any person other than registered/approved institutions are to be disallowed while calculating the amount of application?

Whether Donation to any person shall also include donation/financial assistance to an individual for self-consumption?

KEY ISSUES

What shall be the implications of the following:

Donations to other organization not having the same objects

Donations applied beyond the object and applied beyond section 2(15)

OVERVIEW

OVERVIEW OF INCOME NOT SUBJECT TO APPLICATION ( 2 CLAUSES )

Section 115BBI (Clause 25)

 Section 115BBI effective from AY 2023-24 & includes –

• Income u/s.

11(1B)

• Income u/s.

11(1C)

• Income u/s. 11(3)

• Accumulation in excess of 15%

OVERVIEW OF OTHER PENAL PROVISIOSN ( 5 CLAUSES )

Person referred to in 13(3) (Clause 28 ) & (Note 2 and 6) Details of transactions as per Sec. 13(2) (Clause 29)

Note 2 and Note 6

INFORMATION AS REGARDS OTHER COMPLIANCES ( TOTAL 2 CLAUSES )

Specified violation u/s. 12AB (4) (Clause 30)

Claim of Depreciation if acquisition of asset has been claimed as application(Claus e 31) TDS compliances (Clause 32)

Schedule :

:TDS/TCS

:statement of TDS/TCS

:Interest on TDS/TCS

Anonymous Donation (Clause 26)

CASE STUDIES TO FOLLOW

KEY ISSUES

Reporting of persons specified under Section 13(3):

List of the person making a substantial contribution

List of other specified person

How to determine and certify the amount of benefit  What audit evidence should be kept If the benefit is certified to be Nil?

KEY ISSUES

Specified Violation under Section 12AB(4):

How to asses and certify the specified violation

 What audit evidence should be kept if the specified violation is certified to be NO?

PART 3: Form 10B and Key Issues

16 September 2023

Adv. (Dr.) Manoj Fogla, CA. Suresh Kumar Kejriwal, CA. Tarun Kumar Madaan

OVERVIEW OF FORM 10B

General Information

Total Clauses : 14

GPU and BUSINESS

Computation of Income Income not subject to application

Total Clauses : 4 Total Clauses : 15

Other penal provisions

Total Clauses : 3

OTHER Compliances

Total Clauses : 5 Total Clauses : 8

Basic Details (Clause 1 to 6)

Legal (Clause 7 to 8)

Registration Details (Clause 9)

Management (Clause 10)

Objects (Clause 11 to 12)

Commencement of Activities (Clause 13)

Details of place where books of accounts and other documents have been maintained (Clause-14) - Modified

Advancement of General Public Utility (Clause 15 to 16)

Business Undertakings (Clause – 17)

Business

Incidental to objects (Clause18)

Voluntary contributions (Clause 21 to 27) –modified Income to be applied (Clause 28,29 & 30) -

Application of Income (Clause 31) Modified

Taxable Income (Clause 32)

Capital Asset u/s

11(1A) (Clause 36)

Application out of different sources other than income (Clause 37)

Payment or credit in excess of Rs. 50 lakhs (Clause-38)

Section 115BBI (Clause 33) -

Modified Anonymous Donation (Clause 34)

Other Income not subject to application (Clause 35)

13(10) and 22nd proviso to sec

10(23C)

(Clause 20 & 39)

Person referred to in 13(3) & details of transaction

13(2) (Clause 41 to 42)

Specified violation for cancellation

12AB(4)

(Clause 43) -

Modified

TDS on receipts (Clause 19)

Expenditure incurred for religious purposes (Clause 40)

Claim of Depreciation (Clause 44)

Claim of deduction u/s. 10 other than under 10(1), 10(23C) and 10(46) (Clause 45)

Loan taken/accepted exceeding limit u/s. 269SS (Clause 46)

Received an amount u/s. 269ST (Clause 47)

Loan repaid exceeding limit u/s. 269T (Clause 48)

TDS compliances (Clause 49)

CONTENTS OF FORM 10B

Clauses

Registration Details (Clause 9)

Objects (Clause 11 to 12)

Details of place where books of accounts and other documents have been maintained (Clause-14)

Key points

 Details of registration should be by selecting the code as mentioned in Note 4

 The object as per Sec. 2(15) should be selected the code as per Note 7

 Rule 17AA requires 8 books of accounts & 10 documents to be maintained & clause 14 requires details of these 18 books of accounts & other documents with code No. from 01 to 18:

 Whether maintained or not

 Whether maintained at registered office or at other place et..

 Whether these books of accounts have been audited

Other Income not subject to application (Clause 35)

 Other Income includes-

 Income chargeable u/s. 12(2)

 Income as per Explanation 3(b) [80G(2)(b) cases]

 Income chargeable u/s. 11(4)

13(10) and 22nd proviso to sec 10(23C) (Clause 20 & 39)

Person referred to in 13(3) & details of transactions as per Sec. 13(2) (Clause 41 to 42)

 Section 13(10) effective from AY 2023-24 provides for a different method of computation of income for violation of Sec. 2(15), condition to registration, SP-a,b,c,d,e1/e2, f1/f2, g, h

CASE STUDIES TO FOLLOW

FOR CLAUSE 15 , 16 , 17 & 18

GPU, BUSINESS (11(4) & BUSINESS (11(4A)

KEY ISSUES – Clause 15 : GPU

15. Whether any activity is being carried on by the auditee which is in the nature of trade, commerce or business referred to in proviso to clause (15) of section 2?

When an activity shall be deemed to be in the nature of trade, commerce & business?

Yes/No

How the 20% limit is to be calculated:

a. On the basis of total organizational receipt (or) receipt of the GPU section

b. The receipt: whether net sales or net profit to be compared with net income from trust property

KEY ISSUES – Clause 17 : Business Undertaking

When a business shall be held to be a business undertaking for the purpose of Section 11(4)?

 Whether separate set of books of account for Sec. 11(4) business to be maintained or it can be merge with separate set of books of accounts maintained for Sec.11(4A)?

 Tax Audit Report is required by the Rule is to be only for business undertaking u/s. 11(4) or combine report with Sec. 11(4) & 11(4A) or for the organisation as a whole?

KEY ISSUES – Clause 18 : Business Incidental to Objects

When shall business be classified as incidental to the attainment of the main object?

Whether independent business to feed charity can be incidental business? If not, then what are auditors responsibility while certifying 10B/10BB

VOLUNTARY CONTRIBUTIONS (CLAUSE 21 TO 27)

21. Whether auditee has filed form No. 10BD for the previous year < if No then skip to row 23>

(i) and (ii) Donations recd. in terms of Section 80G (2)(b)

22. Total sum of donations reported in Form No. 10BD

23. Donations not to be reported in Form No. 10BD

(iii)Donation not subject to 80G benefit -

(a). Cash donations exceeding Rs. 2000/-

(b). Donations recd. From other charitable institutions

(iv) Donations where identification of donors is not available

24. Total Voluntary Contributions received by the auditee during the previous year [22+23(viii)]

25. Total foreign contribution out of the total voluntary contribution stated in 24

(v) Donation received in Kind

(vi) Anonymous Donation - Taxable -

Exempt portion subject to application

(vii) Any other reason

26. Exempt amount of Corpus donations

(viii) Total donations not reported in Form No. 10BD

27. Voluntary contributions required to be applied by the auditee during the previous year [Total VC(24) – { taxable donation of anonymous donation u/s. 115BBC(23(vi)(d))+Corpus Donation}]

APPLICATION OF INCOME (CLAUSE 31)

Total amount applied for charitable purposes in India during the previous year Electronic (In Rs) Other than Electronic (InRs) Amount (In Rs)

(a) Contribution or donation to any other person during the Previous Year

Object Wise Application other than the application provided in (a)

(b)

(I) Religious

(II) Relief of Poor ………………..

(VIII) Advancement of any other objects of GPU

(IX) App. which cannot be specifically categorized under (I) to (VII)

(X) Total

(c) Total Application [(a) + (b)(X)]

 Application which cannot be specifically categorized under purpose wise application

 Details of application in excess of Rs. 50 lakhs to a person [Clause 31(ii)]

 Application to be bifurcated between revenue and capital [Clause 31(vi)]

 Capital Asset u/s 11(1A) [Clause 36]

CASE STUDIES TO FOLLOW

KEY ISSUES

How do we certify the purpose-wise expenditure when the purpose is not defined in the Income Tax Act?

KEY ISSUES

How do we treat the administrative cost, which may be in relation to the project and may be in relation to General Administration while filling the purpose-wise application?

KEY ISSUES

How to classify capital expenses while summarizing purpose-wise applications?

For example, Ambulance /Vehicle for common use/Program use.

KEY ISSUES

Whether there will be reporting u/s 13(10) and 13(11) in the following cases:

 The audit report is yet to be uploaded at the time of signing the audit report

 Income Tax return to be submitted once audit report is signed and uploaded

 If there is substantive compliance to the Books of Accounts maintained : when there is general and substantive compliance with the provisions of a rule, it is sufficient. [CIT v. Leroy Somer and Controls India (P.) Ltd., [2013] 37 taxmann.com 407 /218 Taxman 216/[2014] 360 ITR 532 (Delhi), cited in Worlds Window Impex (India) (P.) Ltd. vs. Asstt. CIT, [2016] 69 taxmann.com 406 (Delhi - Trib.)]

PART 4: Question & Answer Session

Adv. (Dr.) Manoj Fogla, CA. Suresh Kumar Kejriwal, CA. Tarun Kumar Madaan