We are already past the due date of filing Income Tax Returns of unaudited assesses. Now it’s time to pull up our socks and immerse ourselves in tax and statutory audits. Many of us were hoping for an extension of the due date for filing Income Tax Returns. But the government did not budge, which in my opinion is in our fraternity’s best interest. On similar lines, I am of the belief that barring unforeseen circumstances the due dates for audits may not increase. With that lets come to the burning topic at hand that is Clause 44 of Form 3CD Tax Audit Report which required information regarding expenses on the basis of applicability of GST.

Clause 44 of Form 3CD

Applicability of Clause 44 of Form 3CD Tax Audit Report

1. Reporting under this clause is mandatory in all cases for reporting done 31st March 2022.

2. Reporting needs to be done for both GST registered and unregistered assesses. Irrespective of whether registered as composition dealer or as a regular dealer.

3. This clause shall also be applicable in case assesses get their accounts audited under presumptive scheme of taxation.

4. This clause shall apply to all kind of expenses whether revenue or capital.

Serious challenges associated with reporting under Clause 44 of Form 3CD Tax Audit Report

1. This is the first time reporting is being made under Clause 44 of Form 3CD Tax Audit Report.

2. Commonly used accounting software do not really make available Such information.

3. Records maintained do not contain adequate information so as to allow us to extract relevant information for the purpose of this clause.

Column wise analysis of Clause 44 of Form 3CD Tax Audit Report

Column 2 of Clause 44 of Form 3CD Tax Audit Report

Column 2 of Clause 44 of Form 3CD Tax Audit Report should incorporate total expenses incurred by the assessee during the relevant financial year including capital expenditure. This should include all sorts of expenses including purchases but to my opinion should exclude depreciation.

Even though there is an option to make entries serial wise, there does no exist any column to mention the nature of expenses or the name thereof, like purchases, Commission, electricity expenses or capital expenses. So in my opinion we should consolidate all the expenses and make a single entry against serial number 1.

Column 3, 4 & 5 of Clause 44 of Form 3CD Tax Audit Report

These columns require expenditures incurred towards registered persons-

Even if certain expenses are exempt from GST still the same has to be reported under column 3 if such transactions have been entered into with a GST registered person example interest paid to a GST registered person.

Further Column 4 & 5 are self explanatory from the name itself.

Column 6 of Clause 44 of Form 3CD Tax Audit Report

This appears to be one of the most trickiest Column from reporting perspective, as we need to incorporate payment made to a GST registered person irrespective of whether the payment relates to current year expenses or expenses relating to previous financial year, further this shall also include payment made for expenses in advance. The only possible way to extract such information from voluminous books of accounts is by following this stupidly easy formula

Sundry Creditors (GST registered) as on 31.03.2021 xx

Add: Total amount of Expenditure incurred during the year towards GST Registered entities y

Less: Sundry Creditors (GST registered) as on 31.03.2022 x

So, Total payment to registered entities xy

Column 7 of Clause 44 of Form 3CD Tax Audit Report

Column 7 of Clause 44 of Form 3CD Tax Audit Report is in fact a residuary column i.e. total expenses less expenses incurred with GST registered persons.

Now all being said and done, what if the books of accounts of the assessee are not prepared in a manner allowing such information to be extracted, in my opinion this warrants a disclaimer which to my mind should be as under-

“Details as required by Clause 44 are not maintained by the assessee hence I/we am/are unable to comment.”

Invite your professional views on the matter.

#taxaudit #clause44 #GST

 

Author Bio

Qualification: CA in Practice
Company: Susheel Jain & Associates, CA
Location: Durg, Chhattisgarh, India
Member Since: 11 Jun 2019 | Total Posts: 2
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9 Comments

  1. D Lakshmipathy says:

    In clause 44, there are three columns, In column1 Total Amount of Expenditure incurred during the year. Whether this should be as per P&L or including capital expenditure too. If it is both, whether it should be net of ITC or with GST. Since, In column 2 last column states total payment to registered entities, which is including GST naturally.

  2. C S GOVINDARAM says:

    One practical problem I foresee is gathering of information/data particularly from small and medium enterprises and more so in case of assesses who come under tax audit net merely because their cash income/ expenses exceed 5%

    1. PRANAY JAIN says:

      To my understanding, it talks about payments actually made. I reserve my right to be wrong. I would like to hear your opinion on the matter

      1. CA. Jigishu says:

        Dear Pranay,
        Column 6 is total of 3,4 & 5 there is no doubt about it, you may please refer to recent ICAI guideline of clause 44. I agree the wordings of the column saying “Payment” confuses you, but that appears to be adminstrative error while drafting rules. There is no relevance of entering total payment details here

  3. Darshan Mishra says:

    Thank you for sharing information through your article. I want to confirm that whether this clause is applicable from FY 22-23 onwards?

    1. PRANAY JAIN says:

      Hi hope you are doing great
      Clause 44 shall apply to all audits conducted after 31.03.2022. Since audits for the FY 2021-2022 shall be conducted after this date, it will apply for the FY 2021-2022 and subsequent FYs

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