Clause 44 of Form 3CD of Tax Audit Report

Clause 44 of Form 3CD of Tax Audit Report

The Tax Audit report generally includes form 3CA/3CB and form 3CD. Where “Form 3CA/CB is a audit report” and “Form 3CD is a disclosure statement”. The Form 3CD of Tax Audit report has 44 clauses. The clause 44 was first notified in financial year 2018 and made applicable for all 3CD to be filed on or after 18 August 2018. However, considering the difficulties faced by taxpayer such this clause has been kept in abeyance till 31st March, 2022 vide circular no. 05/2021. It means reports filed till 31 March 2022 does not required reporting under clause 44 of Form 3CD.

Now let’s understand what kinds of disclosures are required by Clause 44 of Form 3CD of Tax Audit Report.

Below given is the format of Clause 44 of Tax Audit Report as prescribed by the Income Tax Department: Click here to download form 3CD utility

S.noTotal Amount of Expenditure incurred during the year
(1)
Expenditure Relating to Goods or Services “exempt form GST”

(2)

 

Expenditure Relating to the entities falling under composition scheme

(3)

Expenditure Relating to the other registered entities

(4)

Total Payment to Registered entities

(5)

Expenditure relating to entities not registered under GST

(6)

44

 

On the basis of reading of above Table of clause 44 of Form 3CD, it is clear that it requires compilation of data  related to expenses. Such expenses can be against goods or services or both.

Let’s understand meaning of each column of clause 44 of form 3CD.

  • Total Amount of Expenditure incurred during the year:

This means entire expenditure is required to report here whether it’s of capital nature or of revenue nature. Such expenses can be debited to profit and loss accounts, Manufacturing account and trading account and can be classified under any head of balance sheet.

The Point here to be noted that following will also be included in the definition of Expenditure incurred during the year:

  • Purchase of Stock
  • Employee Cost (Salary, Perquisites, ESOP)
  • Capital Expenditure charged to Profit and Loss account or Not
  • Fixed Assets or CWIP

In author’s personal opinion following expenditure are not required to be disclosed under clause 44 of form 3CD of Tax audit Report:

  • Depreciation
  • Written off of any non-cash expenses
  • Expenditure Relating to Goods or Services “exempt from GST

Under this category the value of all inward supply of goods or services which are exempt from GST is to be given.  Point here to be noted that the definition of exempt supply also includes non-taxable supply. Means Exempt as well as Non GST Supplies needs to be reported here. Following items are examples of Non GST Supply:

  • Petroleum crude,
  • High speed diesel oil,
  • Motor spirit,
  • Natural gas
  • Aviation turbine fuel
  • Alcoholic Liquor for human consumption
  • Electricity

Example of Exempt Supplies:

  • Unpacked and Unbranded Food Items to be packed less than 25KG packets
  • Vegetables and Fruits
  • Inwards supplies from healthcare Establishments

While scrutinising each ledger it must be in mind that whether such expenses become taxable during the year or such expenditure got exemption during the year. In both cases we have to segregate such expenses into exempt expenses and expenditure which are not exempt, accordingly reporting to be done in column 3 or 5 as the case may be.

  • Expenditure relating to entities falling under composition scheme:

Under this clause combined value of all inward supply of goods or services which was procured from composition dealer is to be given. Point here to be noted that only supply received from composition dealer is to be entered here, if certain invoice doesn’t have GSTIN of recipient then it cannot be presumed supply from composition dealer.

You may read Comparison of old tax regime vs new tax regime here

  • Expenditure relating to other registered entities:

Here all inward supplies from registered person except “exempt supply and supply from composition dealers” are required to be mentioned. Point here to be noted that certain supplier may be supplying exempt as well as taxable supplies hence reporting has to be done accordingly in column no 2 or 5. To fill this clause GSTR 2A/2B is going to play crucial role.

  • Total payment to registered entities

Under this clause total of column (3) (4) and (5) is to be reported. Point here to be noted the value of expenditure as per books of account shall be reported instead of actual payment.

Expenditure relating to entities not registered under GST

The value of inward supply of goods and services received from unregistered persons should be reported here. It must be ensured that the total of columns 6 and 7, tallies with the amount mentioned in column 2. In other words expenditure on which GST not paid will be covered here. The reason for non-registration under GST may be that the suppliers have turnover below the threshold limit of INR 20 Lakh/40 Lakh as the prescribed under section 22.

You may read comparison of CARO 2016 Vs CARO 2020 here

Let’s understand this clause with the help of example.

A taxpayer has sales of INR 1,20,000 for FY 2021-22 and he has reported 25,000 as profit hence 95000 is total revenue expenditure. Further such taxpayer also acquired machinery of INR 11800.  During the year taxpayer purchased exempts food items of INR 4,000 for further distribution to poor people and undertaken inward supplies from composition dealer of INR 6,000. Further during the year taxpayer gave salary of INR 40,000 to their employees.

Let’s fill the figure from above example in clause 44 of tax audit report:

S.noTotal Amount of Expenditure incurred during the year
(1)
Expenditure Relating to Goods or Services “exempt form GST”

(2)

 

Expenditure Relating to the entities falling under composition scheme

(3)

Expenditure Relating to the other registered entities

(4)

Total Payment to Registered entities

(5)

Expenditure relating to entities not registered under GST

(6)

44106800 (95000+11800)40006000568006680040000

FAQ on clause 44 of Tax Audit Report:

Whether disclosure under this clause have impact on tax computation.

Disclosure under this clause has no bearing on tax calculations.

Whether nature of expenses also to be reported or consolidated figure can be given.

Under this clause head-wise / nature wise expenditure details is not envisaged.

Whether invoice value to be reported or taxable value

Expenditure debited into the profit and loss account to be reported here. It May be invoice value or taxable value depending upon availability of ITC and recording of transaction in books. However, a suitable disclosure can be given for same.

If an Assessee has multiple GSTIN then how to report.

This clauses has to be filled up by consolidating the expenditure incurred under various GSTIN taken on assessee’s PAN.

In several cases there may be possible that Assessee would not be able to provide details disclosure required under this clause hence in absence of unavailability of information to complete this clause, following disclosure/disclaimer can be given by auditor inform 3CA/3CB.

As informed by Assessee that information sought under clause has not maintained by them as there was no specific requirement under GST Acts to bifurcate expenditure into various parts relating to exempt, non GST and composition etc. Further information provided by GSTN through their GSTR 2B does not contain such kind of classification. In view of the above we are unable to report required information under this clause.

However this clause cannot be used in each case, this is to be used where client is really unavailable to provide requisite information.

 

 

The contents of this article are solely for informational purpose and for the reader’s personal non-commercial use. It does not constitute professional advice or recommendation  Neither the author nor website and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

 

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