History of Clause 44 of Form 3CD (Tax Audit Report)
Income Tax notification No. 33/2018 dated 20th July 2018 came into force on 20th August 2018
Any tax audit report which was required to be filed on or after 20.08.2018 requires reporting of total expenditure as per clause 44 of the Form 3CD.
Deferred the Implementation of clause 44 of the Form 3CD
1. On 17th August 2018, CBDT issued an Order under section 119 of the Act vide Circular No. 06/2018 Dated 17th of August, 2018 to keep in abeyance till 31st March 2019.
2. In May 2019, the CBDT again deferred till March 31, 2020, vide CBDT Circular No. 09/2019 dated 14.05.2019.
3. In March 2020, CBDT again extended the applicability vide Circular No. 10/2020 dated 24.04.2020 till March 2021.
4. Again, CBDT vide an Order dated 25th March 2021 deferred till 31st March 2022.
Thereafter, no Order of the Board extending the applicability of Clause 44 of Form 3CD from 31.03.2022 was issued.
So any tax audit report with Form 3CD is furnished on or after 1st April 2022 even for any fiscal year prior to FY 2021-22 needs to have complied with the requirements of clause 44 of Form 3CD.
OBJECTIVE
Modifications in the Tax Audit Report (Form 3CD) are generally not introduced in the Budget but directly through a notification during the year, so no Memorandum is available that explains the need/relevance/importance of this clause.
There is no clarification from the Income Tax Department regarding the purpose or the end use of information sought.
Reconciliation of expense-wise break up of ITC in Table 14 of GSTR 9C is kept optional for FY 2021-22. (GST Law is deferring the requirement but it is being sought by Income Tax Law)
Is reporting under clause 44 required to unregister under GST?
Disclosure in Clause 44 will be applicable to all the assessee who are subjected to tax audit u/s 44AB irrespective of the fact whether they are registered under GST or not.
Is head wise expenditure reporting required?
The guidance note issued by ICAI on Tax Audit provides that head-wise / nature-wise expenditure details are not envisaged in this clause.
One can give consolidate figures for all the expenditure under this clause or one can give Revenue and Capital Expenditure under the serial Number 1 and 2 but it should be noted there is no place in the utility to mention the expenditure under the head Revenue and Capital Expenditure with name. Hence consolidate figure can also serve the purpose.
REQUIRED DETAILS UNDER CLAUSE 44
| Break-up of the total expenditure of entities registered or not registered under the GST | ||||||
| Sr. No. | Total Amount of expenditure incurred during the year | Expenditure in respect of entities registered under the GST | Expenditure relating to entities not registered under GST | |||
| Relating to the goods or services exempt from GST | Relating to the entities falling under composition | Relating to the other registered entities | Total Payment to Registered entities | |||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 |
Break-up of the total expenditure of entities registered or not registered under the GST
Columns (2) require total revenue & capital expenditures (as per clarification given by ICAI in Guidance Note.
Column (3) requires disclosing expenditure exempt under GST.
Column (4) requires disclosing expenditure incurred with GST composition dealers.
Column (5) requires disclosing expenditure incurred with GST registered dealers other than column 3 & 4.
Column (6) of the table disabled in 3CD utility
Column (7) requires reporting expenditures incurred by unregistered persons.
Based on the ICAI Guidance Note dated 14.08.2022
ICAI has recently issued new guidance notes effective from AY 2022-23 onwards. In that guidance notes, an explanation has been provided regarding reporting under clause 44 and related points. But there are still a few points regarding which we do not have any direct clarification.
Few such points have been listed out and treatment of the same under clause 44 has been provided as per my understanding: –
| Expenditure | Column of Clause 44 | Reporting and Reason |
| Remuneration and Interest paid to Partners
Depreciation, Bad Debts, Salary, Wages |
NA
C2 |
Interest and remuneration to partners are nothing but just distribution of profit of a partnership firm to the partners, hence not to be reported in any column of clause 44.
As Per Guidance Note |
| Provisions (Provisions for Audit Fees, Power, etc.) | C2 and
C3/C4/C5/C7 |
Provisions that are in nature of Outstanding Liability are to be reported in Total Expenditure.
Column for reporting shall be decided based on the nature of the entity (Registered/Unregistered) to which payment will be made. |
| Power & Electricity Expenses | C2 and C3 | Electricity is exempt from GST vide CGST(Rate) Notification no. 02/2017 |
| GST Composition Tax, PF/ESI Exp. And all other Taxes paid to Govt. | C2 | In the line of issued Guidance note, it shall be included in Total Expenditure i.e., column 2, and then not to be reported in any column from 3 to 7.
Total Expenditure will include every expense of P&L (Considering the clarification given regarding Depreciation and Salary in the Guidance note). |
| Interest on Bank Loan/Unsecured Loans etc. | C2 and C3/C7 | Interest on Loans is exempt under GST vide CGST(Rate) Notification no. 02/2017 |
| Expenses liable for payment of GST under RCM | C2 and C5/C7 | The same has to be reported. If payment is to a registered person, then in C5 if to an unregistered person then in C7.
(For e.g., Registered GTA then in C5). (For e.g., Unregistered GTA then in C7) |
| Petrol, Diesel & fuel | C2 and C3 |
Exempt supply includes non-taxable supply Non-taxable supply means a supply which is not leviable to tax |
Author Bio
clause 44 of tax audit report applicability for AY 2023-24 or not. Please confirm