Discussion on Deferment of Clause 30C and 44 of Tax Audit Report

Discussion on Circular No. 6/2018 on Tax Audit Report for deferment of Clause 30C and 44

CBDT have issued a circular no. 6/2018 dated 17 August 2018 in relation to the Tax Audit Report to be furnished under section 44AB of the Income Tax Act, 1961 (‘the Act’) read with Rule 6G of the Income Tax Rules, 1962 (‘the Rules’).

As per the Circular, Clause No. 30C and Clause no. 44 of the Tax Audit Report have been kept in abeyance till 31 March 2019. Accordingly, all the tax auditors should take a note of the same. We have discussed the above clauses in brief as under:

1. Clause 30C: (a) Whether the assessee has entered into an impermissible avoidance arrangement, as referred to in section 96, during the previuos year? (Yes/No.)

The said clause is in relation to the arrangements which have been specifically categorized as impermissible under section 96 of the Act. To brief, impermissible arrangements are the one whose main objective is to obtain tax benefit, and it;

a. creates rights / obligations which are not created ordinarily, if the persons have transacted at Arm’s length;

b. results to misuse or abuse of tax provisions;

c. lacks or deemed lacks commercial substance as mentioned under section 97 of the Act; or

d. results to a transaction which is not carried out for bona-fide purposes.

In simpler terms, the said clause is in the context of General Anti-Avoidance Rules (‘GAAR’) provisions.

If the answer to the above question is Yes, then the tax auditor have to report the nature of impermissible avoidance arrangement and amount of tax benefit obtained by all the parties involved.

2. Clause 44: Break-up of total expenditure of entities registered or not registered under the GST:

With insertion of this clause, the intention of the Government to use the data collected for data analytics is clear. With this, the Income Tax department will be in a position to co-relate the data with the records of Indirect Tax department and the same will help in curbing the tax evasion.

In the said clause, total expenditure incurred by the assessee should be bifurcated in two baskets i.e. (a) entities registered under GST; and (b) entities not registered under GST.

Further, expenditure in respect of (a) should be further bifurcated to goods / services exempt from GST, expenses in relation to entities registered under composition scheme and expenses relating to other registered entities.

CBDT vide the above circular have granted much needed relief to the assesses as well as to the tax auditors.