Q.1 If an assessee is not registered in GST (exclusively engaged in making exempt supply) and its tax audit is being done, does clause 44 of Form 3CD Report apply or not?

Answer-Yes, irrespective of the fact whether the assessee whose tax audit is being conducted is registered under GST or not, reporting under clause 44 would be mandatorily required.

Q.2 Whether only payments made are to be reported under this clause or the total amount of expenditure booked under books of accounts?

Answer-Table Below gives the details of information required by the clause.

Decoding of clause 44 of Tax

Further, if we go into details as that column-wise. Column no. 2 would require the total expenditure incurred by the auditee. Now, this value in column no.2 would be further divided into expenditures made to registered and unregistered entities.

Column no.6 is the total of 3+4+5. And the aggregate value in column no.2 is a total of 6 and 7.

Q.3 Whether only payments made to be reported under this clause or the total amount of expenditure booked under books of accounts?

Answer– As per the revised guidance note issued by ICAI, it is the total expenditure including purchases booked in books of accounts to be reported under this clause.

Q.4 Whether only revenue expenditure is to be reported under this clause or would also require capital expenditures?

Answer– As per the revised guidance note issued by ICAI the language used is “expenditure in respect of”. Since the word used is ‘expenditure’, it is necessary that the capital expenditure should also be reported in the format prescribed. Separate reporting of capital expenditure will provide ease in reconciliation.

Q.5 Whether the information as per clause 44 is to be given in respect of every head of expenditure or only the total expenditure is to be given. (Just one-line item in the clause)

Answer– As per the revised guidance note issued by ICAI, it can be viewed 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 are not envisaged in this clause.

Q.6 Whether all debits in the trading and profit and loss account are to be reported under clause 44?

Answer– Following Debits are not considered as expenditures and should not be included in the reporting matrix-:

1. Salaries debited- No GST on this. (schedule III {Neither good nor services} items should not be considered)

2. Depreciation debited (Not expenditure but an allowance)

3. Bad debts (Not expenditure but an allowance)

4. Short and Excess

5. Rounding Off

All of these expenses/debits (and others of similar nature) should not be included in reporting.

Q.7 Table 14 under Part-A of Form 9C also requires similar details to be given. Whether that table is mandatory for FY 21-22? Whether calculations made for reporting under clause 44 would help to fill that table 14?

Answer– Table 14 is not mandatory for FY 21-22, but considering the applicability of clause 44, this may become mandatory in succeeding financial years. Certainly, if calculations are done by the taxpayer for reporting under clause 44 keeping in view the reporting requirements of table 14 then filling that table 14 would be significantly easier.

Q.8 Whether a guidance note issued by ICAI is mandatory for the members to be followed?

Answer– Guidance notes, as the name suggests, are issued for the guidance of the members to execute their professional services. However, the council of ICAI expects members to adhere to these guidance notes issued. It is always better to follow the guidance of the parent body to substantiate every action made by the members.

Q.9 What is the objective of bringing reporting through clause 44?

Answer– Government is interested to identify the quantum of the unorganized sector in the economy. By this, the government can design various policies to cater to the need of the fact to bring the unorganized sector into mainstream economics. Also, there was a provision under GST law regarding tax to be paid by the recipient when goods or services were procured from an unregistered person, which was later on suspended. But that exercise was also aimed to bring an unorganized economy to the organized sector.

There could be one more reason for the compilation of data for this clause, as the department may also come to know the proportion of inward supplies from unregistered persons by the assesses. This in turn may lead to some suspicious activities in the business like booking of bogus expenditures. This would serve one more purpose, when expenditures made to unregistered persons are reported, therefore, it is also expected from the taxpayer to pay GST in cash as there are major procurements from unregistered persons. This may unearth major tax frauds under both Income Tax and GST Laws.

The author can be reached at [email protected], His Mobile no. is +91-9891112120

DISCLAIMER: This publication is merely a general guide meant for knowledge purposes only. All the references or content are for educational purposes only and do not constitute legal advice. We do not accept any liabilities whatsoever for any losses caused directly or indirectly by the use/reliance of any information or conclusion contained in this publication. Prior to acting upon this publication, you’re suggested to seek advice. This work is entirely in the interest of the profession and to contribute to my beloved subject of GST.

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7 Comments

  1. CA Geetaa Guwalanii says:

    Very nice article.. but I wonder if motive is to tap unorganised sector then what about those entities which are not covered by Audit

    1. CA Rajender Arora says:

      Whatever is reported in column no 2 is to bifurcated and reported in succeeding columns in the form of inward supplies from registered persons and unregistered persons.

  2. VIVEK JAIN says:

    As per the guidance note total expenditure including depreciation salaries etc has to be mentioned in the total expenditure under column 2. however the breakup of these need not be given . hence there will be a difference in breakup of expenditures and total to that extent. but you have mentioned the contrary.please check

    1. CA Rajender Arora says:

      As per guidance note only, depreciation and salaries are specifically outside the reporting under this clause. So if these not to be given then break up of only those expenses which are reported in 2 and then bifurcated in 6 and 7.

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