TAX AUDIT REPORT- CLAUSE 44 ABOUT EXPENDITURES UNDER VARIOUS CATAGORIES OF SUPPLIERS UNDER GST – seems un necessary report – this clause can be omitted to avoid u-necessary reporting which may lead to undesired results.

Clause 44 of form 3CD:

This clause relates to furnishing of information about total expenditure classified under different categories of suppliers of goods and services.
For this purpose ( besides some other purposes) Form No. 3CD was amended vide notification no. GSR 666(E) dated 20^th July, 2018 ( IT (Eights Amendment) Rules, 2018  with effect from 20th August, 2018. However, the reporting under this clause in  Tax Audit Report has been  kept in abeyance vide notifications issued from time to time and  such abeyance is now extended  till 31^st March, 2022 in view of COVID problems.

The recent notification is reproduced in this article with highlights added by author.

Information required under clause 44:

Clause 44 is reproduced below with highlights of relevant portions:

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

On reading of the above clause we find that it requires compilation and reporting of breakup of total expenditure which can be liability incurred and / or payments made for various expenses of supply of goods and services in totality and classified under five categories under GST.

Exempted or taxable:

 In exempted categories many expenses are such which have no bearing under GST like emoluments to employee’s contribution to employee welfare funds. Then there are categories of exempted as such and also exempted due to supplier having less than threshold turnover etc. It seems that all expenses which are directly or indirectly are exempt will have to  be  included in exempted category. Expenses which are taxed under GST under RCM method can also fall under any of category – registered or unregistered or exempted etc.  

Therefore, it will be difficult to reconcile data with return furnished to GST authorities and those furnished ( to be furnished in clause 44)

Information in clause 44 has no nearing on computation of income

As per knowledge of author, further enlightened by some of professional friends, we could not find any purpose of this report so far computation of income under IT Act, is concerned. Information relevant to computation are already collected/ furnished under other clauses of Form 3CD.

In the TAR in Form 3CD there are other clauses in which information having a bearing on computation of income are already covered in relation to capital expenditure, personal expenditure, expenditure not allowable etc.  and also about sums allowable and not allowable as per S.43B.

Tax audit report is accompanies with audited Balance sheet and  P & L account:

Tax audit report includes audited P & L account (or I / E account), therefore, total expenditure are reported in that account in so far they are charged to revenue account. However, expenses amortized or capitalised are not debited in P & L account as such. They are charged under method of amortization or writing off or depreciation policies.

Capital expenditure will find place in Fixed assets schedule, or Capital WIP and expenses amortized.

Whereas in clause 44 report will have to be given for all expenditure, including capital expenditure and amortized expenditure.

  Therefore it will pose a problem because tax authorities are likely to be confused and misguided by amounts found in P & L account and  reported in clause 44 and in returns under GST law.

Income Tax and GST authorities:

Income Tax and GST authorities plays their role under respective law. Income Tax authorities are not supposed to and  are also not competent to play surveillance over GST authority.

In clause 44 there seems no information which can have a bearing on computation of total income. The information sought in clause 44 will not be fully relatable to information furnished in P & L account and GST returns.

Therefore clause 44, if implemented is likely to be a source of un-necessary confusion causing enquiry, investigation, additions and litigation.

We experience similar problems about information gathered by tax department from customs department and making enquiry for differences found in amount of purchases in P & L account and those found in import & export data.

Therefore, the clause 44 deserve to be omitted from Form 3CD.

Circular keeping in abeyance reporting vide clause 44 is reproduced below with highlights added:

Circular - Income Tax

Circular No. 05/2021, F. No. 370142/9/2018-TPL

Government of India, Ministry of Finance

Department of Revenue, Central Board of Direct Taxes

TPL Division, New Delhi, dated 25^th March, 2021

Order under section 119 of the Income-tax Act, 1961

Section 44AB of the Income-tax Act, 1961 (`the Act') read with rule 6G of the Income-tax Rules, 1962 (`the Rules') requires specified persons to furnish the Tax Audit Report along with the prescribed particulars in Form No. 3CD. The existing Form No. 3CD was amended vide notification no. GSR 666(E) dated 20^th July, 2018with effect from 20th August, 2018. However, the reporting under clause 30C and clause 44 of the Tax Audit Report was kept in abeyance till 31^st March, 2019 vide Circular No. 6/2018 dated 17,08.2018, which was subsequently extended to 31^st March, 2020 vide Circular No. 9/2019. Vide circular no. 10/2020 dated 24.04.2020, it was further extended to 31^st March, 2021.

In view of the prevailing situation due to COVID-19 pandemic, across the country, it has been decided by the Board that the reporting under clause 30C and clause 44 of the Tax Audit Report shall be kept in abeyance till 31^st March, 2022.

(Ankit Jain)

Under Secretary (TPL)-III