Now a days, Clause 44 of 3CD become ‘Buzz word’ for every professional. Everyone is doing its interpretation considering the aspect of reconciliation with indirect tax records.

Form 3CD of Tax Audit Report (TAR) was amended in July 2018 by Notification No. 33/2018 dated 20.07.2018  to incorporate the Clause 44 on reporting of GST transactions as under;

1. Break-up of the total expenditure of entities registered or not registered under the GST:

Sl No The total amount of Expenditure incurred during the year Expenditure in respect of entities registered under GST Expenditure relating to entities not registered under GST
Relating to goods or services exempt from GST Relating to entities falling under the composition scheme Relating to other registered entities Total payment to registered entities
(1) (2) (3) (4) (5) (6) (7)

Analysis for the Clause 44

  • This clause is required to be reported by all the reporting assessees whether the assessee is registered under GST or not.
  • It requires reporting of the total amount of expenditure incurred during the previous year i.e. revenue expenditure as well as capital expenditure.
  • Depreciation under section 32, deduction for bad debts u/s 36(1)(vii) etc. which are not expenses should not be reported under this clause in any of the Columns from 3 to 7.
  • Schedule III to the CGST Act, 2017 lists out activities or transactions which are treated neither as a supply of goods nor a supply of services and thus expenditure incurred in respect of such activities need not be reported under this clause in any of the columns from 3 to 7. For example, Para (1) of the Schedule III covers “Services by an employee to the employer in the course of or in relation to his employment” and thus, remuneration to employees need not be reported.
  • The amount of expenditures is required to be segregated into different components as specified in columns (3) to column (7) of the table of clause 44.
  • Columns (3) to (6) require to report how much of the total expenditure as reported in column (2) is attributed to GST-registered entities (i.e. procurement from registered vendors under GST more specific can be taken from GSTR-2A/2B) and column (7) requires to report how much of the total expenditure as reported in column (2) is attributed towards entities unregistered with GST (i.e. procurements from unregistered vendors under GST).
  • This report may be prepared for an entity as a whole or for a branch thereof, as may be audited and accordingly the information in these columns may have to be filled up consolidating the expenditure incurred under various GST registrations.

Sr.No.

Particulars

Analysis

1 Sr.No.
  • Column no.1 of the table mention of the serial number, suggests that expenditures are required to be reported in a head-wise manner.
  • Additional rows can be added, however no place for filling the heading of expenditure.
  • Guidance note of ICAI says, here, guidance may be taken from the heading of the table which starts with the words “Breakup of total expenditure” and hence the total expenditure including purchases as per the above format may be given.
  • It appears that head-wise / nature wise expenditure details is not envisaged in this clause.
2 The total amount of Expenditure incurred during the year
  • Total expenditure including purchases, imports to be given. Capital expenditure should also be reported, separate reporting of capital expenditure will help in easy reconciliation.
3 Expenditure in respect of entities registered under GST Relating to goods or services exempt from GST
  • This column requires to report how much of total expenditure as reported in column (2) is related to goods or services exempt from GST.
  • In other words, this column requires to disclose expenditure exempt under GST.
  • For example following expenditures to be reported- Alcoholic liquor , petroleum crude, high speed diesel oil, motor spirit, natural gas and aviation turbine fuel.
4 Expenditure in respect of entities registered under GST Relating to entities falling under the composition scheme
  • This column requires to report how much of total expenditure as reported in column (2) is related to entities falling under the composition scheme of GST.
  • In other words, this column requires to disclose expenditure incurred with GST composition dealers.
  • Major taxpayers don’t have this information readily available with them. However, one can use autopoulated GSTR-9 for considering the amount of purchases from composition dealers.
  • Further, GSTIN of supplier may be verified on the GST portal to know the status of supplier (Composition dealer or casual taxable person etc.) However, no bulk verification facility available either on GST portal or on Income tax Portal for this.
5 Expenditure in respect of entities registered under GST Relating to other registered entities
  • This column requires to report how much of total expenditure as reported in column (2) is related to entities registered with GST.
  • In other words, this column requires to disclose expenditure incurred with GST registered dealers other than composition dealers.
  • Purchase register or GSTR 3B ITC register may be used to compile the information as required for this column.
  • Further, GSTR-2A/2B report and reconciliation thereof with ITC register to be consider for verification.
6 Expenditure in respect of entities registered under GST Total payment to registered entities
  • This column requires reporting how much payment was made to GST-registered entities in the previous year.
  • 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.
7 Expenditure relating to entities not registered under GST
  • This column requires to report how much of total expenditure as reported in column (2) is related to entities not registered with GST.
  • In other words, this column requires to the disclosure of expenditures incurred by unregistered persons.
  • The auditor may obtain/retain the reconciliation prepared by the assessee for verification.
  • Additional analysis for certain transactions;

Transaction

Analysis

Stock transfers, Cross Charge or Credit distributed through ISD
  • These amounts 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 purchase register or GSTR 3B ITC register.
  • This should not be consider as expenditure incurred under this clause.
Cost of material consumed mentioned in financials
  • Many of taxpayers mention cost of material consumed instead of showing purchases in the financials.
  • One has to calculate actual purchase amount considering opening stock and closing stock calculation to calculate expenditure w.r.t purchases.
Expenditures on which ITC not claimed as per GST Law or by the taxpayers
  • It may possible that assessee purchased materials from registered entities, however no ITC claimed.
  • In this cases also reporting under this clause is required. Further, one can take stand to mention suitable observation stating that “since No ITC claimed by the assessee, hence no reporting made under this clause.”
Details of Expenditure relating to goods/services falling under composition scheme
  • In most of the cases assessee did not maintain records of purchases from composite dealers.
  • In this situation 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.
Import of Goods on which IGST is paid
  • The same can be included in amount to be reported in Column (7) – expenditure relating to un-registered entities.
  • Further, suitable observation should be incorporated stating that amounts reported in clause 44 (7) includes Import of Goods on which Assessee paid IGST.
Import of Services on which recipient is required to pay GST under RCM
  • The same can be included in amount to be reported in Column (7) – expenditure relating to un-registered entities.
  • Further, suitable observation should be incorporated stating that amounts reported in clause 44 includes Import of services on which Assessee paid GST under RCM.
  • The reporting requirement in clause 44 requires the compilation and arrangement of huge data. Considering its introduction and no extension stand of CBDT cause hardships to tax auditors as well as the assessee, when the accounting systems of taxpayers were not designed in this manner.
  • Clause 44 is incorporated to ensure that the data can be used by the GST Department. Further, expenses cannot be disallowed on the basis of this reporting under income tax act.
  • Lastly, under the name of ease of doing business GST audit has been withdrawn and again by clause 44 (“Formula 44”) put additional responsibility on the Tax Auditor and taxpayer to think twice before putting the details under this clause considering the availability of the details, its reconciliation with external reports and future implications.

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