Practically, it may not be possible to verify each receipt or repayment, reflected in the bank statement, as to whether the deposits or loans or specified advance has been received or repaid through cheque, bank draft, which is not an account payee cheque or account payee bank draft.
The tax auditor should obtain a suitable certificate from the assessee to the effect that the receipts or repayment referred to in Clause 31 were by the account payee cheque or account payee bank draft. If the reporting has been done based on the certificate of the assessee, the same shall be reported as an observation in clause 3 of Form No. 3CA and clause 5 of Form No.3CB, and the tax auditor should make a suggested comment in his report.
The ICAI Guidance Note on tax audit suggests the following comments in such case:
“It is not possible for me/us to verify whether loans or deposits or specified advance repaid have been taken or accepted otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, as the necessary evidence is not in the possession of the assessee”.