Format of Form 3CD, being tax audit report as required to be filed under section 44AB of Income tax Act, 1961 (Act) was amended vide Notification No. 33-2018 dated 20th July, 2018. Among other new clauses introduced one of the clauses was clause 44 which requires tax auditor to verify and certify the breakup of total expenditure of entities registered or not registered under the GST duly provided by the Assessee. Clause 44 along with clause 30C was deferred till 31st March, 2022. However, as no further extension provided and from reading of Circular No. 05/2021 dated 25th March, 2021 both of these clauses become applicable for the FY 2021-22 (AY 2022-23).

Many professionals are refraining from asking information as required under this clause from client and qualifying the report to that extent. I as a practicing professional feel that this clause is more or less similar to existing clause 34 of Tax Audit Report. Further Table 14 of GSTR 9C [Reconciliation of ITC declared in Annual Return (GSTR9) with ITC availed on expenses as per audited Annual Financial Statement or books of account] led to introduction of clause 44 in Tax Audit Report. Let us go through all the aspects relating to clause 44:

Requirement under clause 44:

Below tabulated information is required to be provided by the assessee to the Tax Auditor for verification and certification:

SI. 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 scheme Relating to the other registered entities Total Payment to Registered entities
(1) (2) (3) (4) (5) (6)* (7)

* Column (6) is total of column (3), (4) and (5).

Source for above information:

> Audited financial statements / Books of Accounts / Trial Balance;

> GSTR 3B ITC claim register;

> GSTR 2A / GSTR 2B;

> Confirmation from Assessee on the above.

Column (1): SI. No.

> Additional rows can be added in this clause, however no place provided for filling the heading of expenditure. The same could have helped in reconciling the amounts either with Table 6 of GSTR 9 or with financial statements.

Column (2): Total Amount of expenditure incurred during the year:

> Total of expenditure incurred by the assessee either on account of capital or revenue needs to be provided in this column;

> The same might be relating to Goods or Services either procured locally or imported from outside Country;

> It is pertinent to note that total of column (3), (4) (5) and (7) should be equal to column (2) or column (6) and (7) should be equal to column (2);

> Various expenditure as per financial statement may be categorized in “GST” and “Non-GST” and accordingly information may be compiled for this column;

> Alternatively, ITC register may be used to compile the total amount of expenditure incurred by the assessee during the previous year (suitable observation/qualification may be required for the same);

> ITC register may also include the purchase of goods or services from registered entities which is either blocked credit or ineligible credit under GST Law, the same should also be included for the purpose of reporting under this column;

> GSTIN of supplier may be verified on the GST portal to know the status of supplier (Composition dealer or casual taxable person etc.), no bulk verification facility available either on GST portal or on Income tax Portal;

Analysis of Clause 44 of Tax Audit Report

Column (3): Expenditure in respect of entities registered under the GST (Relating to the goods or services exempt from GST):

> Out of total amount specified in column (2), amount of expenditure relating to exempt goods or service which are exempt from GST needs to be provided in this column;

> Inward exempt supplies need to be reported and not the expenditure incurred for outward exempt supplies;

> GSTR 2A may be used to identify such supplies in case goods and services are purchased from registered entity and reported by such entity while filing their GSTR 1;

> Alternatively, Purchase register or GSTR 3B ITC register may be used to compile the information as required for this column;

Column (4): Expenditure in respect of entities registered under the GST (Relating to the entities falling under composition scheme):

> Out of total amount specified in column (2), amount of expenditure relating to goods or service procured from entities registered under composition scheme need to be reported;

> GSTR 3B filed copy may be analysed to check any such reporting made by the Assessee;

> Alternatively, Purchase register or GSTR 3B ITC register may be used to compile the information as required for this column;

Column (5): Expenditure in respect of entities registered under the GST (Relating to the other registered entities):

> Out of total amount specified in column (2), amount of expenditure relating to goods or service procured from registered entities need to be reported;

> One may arrive at this amount by reducing amount specified in column (3) (4) and (7) from amount specified in column (2);

> Alternatively, Purchase register or GSTR 3B ITC register may be used to compile the information as required for this column;

> Following is the list of registration to be considered under “other registered entities”:

    • Regular registered Taxable Person;
    • Casual Taxable Person;
    • E-Com Operators;
    • Non-Resident Taxable Person obtained UIN;

> Amount to be reported in this column should be total purchase of goods and services from registered entities including on which is ITC is ineligible either as per provision or otherwise;

 

Column (6): Expenditure in respect of entities registered under the GST (Total Payment to Registered entities):

> This column is non-editable column in Tax Audit Report;

> And it is total of amounts specified in column (3), (4) and (5);

> One may interpret that amount specified here should be the amount actually paid by the Assessee, however same is not the case. Here paid includes amount payable also.

Column (7): Expenditure relating to entities not registered under GST:

  • Purchase of goods or services from un-registered entities is required to be reported in this column;
  • Purchase register or GSTR 3B ITC register may be used to compile the information as required for this column;
  • One should ensure that amount specified in column (2) should be equal to column (6) and column (7);
  • Un-registered entities should be interpreted as per literal meaning of the word “Un-registered” and should include only those entities who are not required to obtain registration as per provision of GST Law i.e. turnover below the threshold limit applicable for respective states;

Difficulties arising while reporting amounts for this clause and probable solution for such difficulties:

Sr. No.

Nature of Difficulty Probable Solution
1 Import of Goods on which IGST is paid The same cannot be included in amount to be reported in Column (7) – expenditure relating to un-registered entities, as the same may give rise to selection of case for scrutiny under Income tax. Suitable observation should be incorporated stating that amounts reported in clause 44 excludes Import of Goods on which Assessee paid IGST.
2 Import of Services or purchase of goods or services on which recipient is required to pay GST under RCM The same cannot be included in amount to be reported in Column (7) – expenditure relating to un-registered entities, as the same may give rise to selection of case for scrutiny under Income tax. Suitable observation should be incorporated stating that amounts reported in clause 44 excludes Import of services and/or purchase of goods or services on which Assessee paid GST under RCM.
3 Stock transfer, Cross Charge or credit distributed through ISDN The same cannot be included in amount to be reported in Column (5) – expenditure relating to registered entities as tax audit is carried out of based on PAN and not GSTIN wise, the same should be excluded from Consolidated Purchase register or GSTR 3B ITC register.
4 Purchase of exempt and taxable supplies from one person If bifurcation is not available with the assessee, suitable observation should be incorporated stating that such bifurcation is not available with the assessee.
5 Purchases on which ITC not claimed as per GST Law (Builders etc) It may possible that assessee purchased materials from registered entities, however no ITC claimed then suitable observation should be incorporated stating that since No ITC claimed by the assessee, hence no reporting made under this clause.
6 Assessee engaged in providing export of service and not claiming ITC It may possible that assessee purchased goods or services from registered entities, however no ITC claimed then suitable observation should be incorporated stating that since No ITC claimed by the assessee, hence no reporting made under this clause.
7 Details of purchases from composite dealers It may possible that assessee did not maintain records of purchases from composite dealers then suitable observation should be incorporated stating that Assessee did not maintain records of purchases from composite dealers, hence such details are not provided in column (4) of clause 44.

Followings are the sample observations or qualifications to be incorporated for reporting or non-reporting details in clause 44:

Observation 1 – Details are not available or no reporting made in clause 44:

As represented by the Assessee the information required under this clause is not mandatorily required to be maintained either under Income tax Act or Goods and Services Tax Law, further in view of the voluminous nature of transactions (or further the standard accounting software used by the assessee is not configured to generate such report) it is not feasible for the assessee to compile such information. Accordingly in view of the above, we are unable to verify and report the desired information in this clause.

Observation 2 – Details are reported as per GSTR 3B in clause 44:

As represented by the Assessee the information required under this clause is not mandatorily required to be maintained either under Income tax Act or Goods and Services Tax Law, further in view of the voluminous nature of transactions (or further the standard accounting software used by the assessee is not configured to generate such report) it is not feasible for the assessee to compile such information. Accordingly, the disclosure in clause 44 is solely based on the monthly returns filed by the assessee in Form GSTR-3B under Goods and Services Tax Law. Import of goods on which IGST is paid, import of services or purchases of goods or services either from registered entities or un-registered entities on which GST is paid under RCM are not included under any of the column of clause 44.

Observation 3 – Details are reported as per financial statements in clause 44:

The Assessee has reported the information required under this clause as per audited financial statements drawn for the previous year under consideration. There are no cases of material noncompliance as revealed during such audit procedures, except as set out in Clause 44, as provided by the Assessee and as found in the course of examination carried out as mentioned against clause 11(c) above.

Practical and possible approach:

> GSTR 3B data should be used to compile and reporting of information required under this clause;

> In case GST annual return in Form GSTR-9 and reconciliation statement in Form GSTR-9C are filed, the same may also be used as a basis for compiling and reporting of information under this clause;

> Base file used for compiling and reporting under clause 27 may also be used for compiling and reporting of information under this clause;

> Link to Draft Exposure issued by ICAI – https://resource.cdn.icai.org/70897dtc56864ed.pdf

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11 Comments

  1. dinesh says:

    Sir,
    1) What about expenses where goods/services are received from a registered dealer but he issued a bill/receipt without mentioning GST breakup (like courier receipts, hand made bills from small shops, etc.). Should we mention them in Col. 5 or Col. 7, or should we give suitable observation?
    2) Also, how to treat the differences between GSTR-3B and Audited Financials due to Year-End provisions and reversals of last-year provisions made in the beginning?

    1. Hitesh Kothari says:

      Regarding your query:

      1. If they are registered under GST Law and GSTIN not cancelled then they are supposed to issue tax invoice as per GST Law, nevertheless they will still be qualified as registered dealer for the purpose of clause 44 and accordingly expenditure relating to them will have to be reported in Column 5. In case such information is not available with the Assessee suitable observation should be given.

      2. You need bifurcate the expenses as per P&L account into GST and Non GST, where Non GST will include Depreciation, employee expenses, provision for expenses etc) and total of GST and Non GST should match with Profit and loss account and accordingly only GST marked item should be further analysed as per requirement of clause 44. and suitable observation should be provided.

  2. CA MABEL LOBO says:

    Want to know in case of dealer registered under composition scheme who need to do Tax Audit, Whether reporting under clause 44 is applicable to them as no ITC used being composition dealer

    1. Hitesh Kothari says:

      In that case you need to check whether purchases made by such composition dealer is from registered or unregistered entity and accordingly the same is required to be reported in Clause 44 of Tax Audit Report.

  3. CA RAHUL J JAJU says:

    Nice elaboration. But could not understand the logic of not reporting the expenditure liable for RCM. How is risk of IT scrutiny. Please explain sir.

    1. Hitesh Kothari says:

      In many cases (or in MNCs) it is possible that import of goods, import of services or purchases of goods or services liable to RCM is higher than the purchases from registered entities which will give an impression to officer that the dealer is engaged in Hawala/Bogus purchase transactions and may issue notice for scrutiny assessment.

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