## CARO 2020 – Clause (viii): Unrecorded Income

### What the Auditor Must Check

Whether any unrecorded income has come to light during the year through:

1. Income Tax Assessments — income disclosed/surrendered during assessment proceedings under the Income Tax Act, 1961

2. Search and seizure operations under the IT Act

If yes:

Whether such unrecorded income has been properly recorded in the Books of Accounts of the company.

### Purpose of This Clause

This clause is intended to ensure that any undisclosed income that surfaces during IT proceedings is brought into the books. It prevents companies from settling with the Income Tax department while keeping the income hidden in accounts.

### Key Points

Scenario	Auditor's Action
Unrecorded income disclosed in IT assessment AND properly recorded in books	Report: Complied
Unrecorded income disclosed in IT assessment BUT NOT recorded in books	Report: Non-compliant, with details
No IT assessment / no unrecorded income	Clause not applicable

Worked example

### Example 1

Unrecorded Income Not Booked [Clause viii]:

During income tax assessment for FY 2023-24, ABC Ltd surrendered undisclosed income of ₹30 lakh. However, the company made no entry in its books of accounts for this surrendered income.

Answer: The auditor must report under Clause 3(viii) that the company has surrendered ₹30 lakh of unrecorded income during IT assessment proceedings, but such income has NOT been properly recorded in the books of accounts. The auditor should also consider whether this impacts the truth and fairness of the financial statements.

⚠️ Common exam mistakes

Confusing 'surrendered income during assessment' with 'income voluntarily disclosed under IDS/VDIS' — CARO covers income disclosed/surrendered in the context of IT Act proceedings.
Assuming this clause is irrelevant if the company has no pending IT assessment — if there were any assessments completed during the year, the auditor must check.
Forgetting the second part: checking whether properly recorded in books — students often only check if surrender happened but forget to verify the books entry.

Bare-Act text Clause 3(viii) · Companies (Auditor's Report) Order, 2020 (CARO 2020) · click to expand

3(viii): whether any transactions not recorded in the books of account have been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961, if so, whether the previously unrecorded income has been properly recorded in the books of account during the year.

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