Widening of the scope of the Tax Audit Report by Cause No. 44 of the Form No. 3CD: The Terrible Time Consuming Exercise ahead

 14,267 total views

Widening of the scope of the Tax Audit Report by Cause No. 44 of the Form No. 3CD: The Terrible Time Consuming Exercise ahead

 

Under Section 44AB of the Income-tax Act, Assessee has to get his books of accounts audited if the turnover exceeds a certain threshold limit or if the profit offered for taxation is lower than the prescribed percentage.

The Income Tax Act, 1961 authorises the Chartered Accountant conducting the tax audit is required to give his reports & observation in the form of a tax audit report at the e-filing portal of Income-tax in Form No. 3CA/3CB and 3CD.

Year after year, the reporting requirements are increasing and there are numerous new reporting clauses which have been incorporated in the last few years.

Now. w.e.f. 01.04.2022, the tax auditor would be required to give the break-up of total expenditure of entities registered or not registered under the GST. The reporting in clause 44 of the tax audit report has been made mandatory w.e.f. 01.04.2022. Earlier, it was made applicable from 2020.  Further, during covid, its implementation was again deferred till 01.04.2022. It was kept in abeyance till 31st March 2022 vide CBDT Circular No. 5/2021 dated 25.03.2021.

Now, it has been effective and the tax auditor would be required to ensure the reporting in clause 44 of Tax Audit Report in Form No. 3CD.

 

Let us know about clause 44 which is reproduced hereunder:

 

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 the composition scheme Relating to the other registered entities Total Payment to Registered entities

 

The clause is requiring the reporting of the total expenditure of assessee whether registered or not registered under the GST.

The reporting will be a terrible exercise and would involve heavy time and energy in reporting of this. Rather, every item of the Profit & Loss account would be required to be reported in clause No. 44.

Technically speaking, even the expenses capitalised in the fixed assets will also be required to be reported in Clause No. 44.

For all the expenses in the P & L A/c the bifurcation into the GST related and non GST related expenditure would be required to be reported by the Tax Auditor. It would mean that the Tax Auditor would be required to change the audit practice and the test check basis may not be relevant as each and every bill/ voucher would be required to be verified for making proper reporting in Clause No. 44.

 

Income Tax Law is planned to be used to ensure the compliance with the GST law.  Though the authorities are independent, it is now expected that the Income Tax will be used as a tool to ensure the GST revenue flow. The present clause appears to be in line with the intention of the Government to merge both departments in future.  One may recall that the issues were also faced earlier where the income tax department was using the data procured from the custom department to verify the reporting of purchases in the P & L A/c.

 

The compliance would result in heavy time consumption as well for finalising the audit. With less than 3 months to go, the compliance would be highly tough for the tax auditor.

No matter what, Auditors have to prepare themselves for the new reporting requirements.

 

 

1 Comment

  1. June 20, 2022
    CA Payal Agrawal

    dear sir there is a query in reporting under clause 44 of form 3CD.
    by circular it was kept in abeyance till 31.03.2022.
    So is it applicable for Audit of FY 2021-22 i.e. any 3CD filed after 31.03.2022 or it is applicable from FY 2022-23 whose audit report will be filed next year ?

    Reply

Leave a Comment

Your email address will not be published.

the taxtalk

online portal for tax news, update, judgment, article, circular, income tax, gst, notification Simplifying the tax and tax laws is the main motto of the team tax talk, solving