Analysis of Tax Audit Clause 44 of 3CD Form for Reporting
In the current times, Clause 44 of 3CD become the ‘Buzz word’ for every professional. People are giving their views recognizing the aspect of reconciliation with indirect tax records.
Form 3CD of Tax Audit Report (TAR) was revised in July 2018 via Notification No. 33/2018 on 20.07.2018 to include Clause 44 on reporting of GST transactions as under.
Listed below are the expense breakdowns for entities enrolled or not enrolled under GST:
S.N.
The total amount of Expenditure incurred during the year
Expenditure in respect of entities registered under GST
Expenditure relating to entities not registered under GST
Relating to goods or services exempt from GST
Relating to entities falling under the composition scheme
Relating to other registered entities
Total payment to registered entities
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Brief Analysis of Clause 44 for Tax Audit Reporting
Irrespective of whether a taxpayer is enrolled under Goods and Service Tax or not the same clause would be needed to be reported by all the reporting taxpayers.
It needs to report the total amount of expenditure made in the former year i.e the revenue expenditure and the capital expenditure.
Depreciation under section 32, the deduction for bad debts u/s 36(1)(vii), etc. which are not expenses must not be reported beneath the same clause in any of the Columns from 3 to 7.
Schedule III to the CGST Act, 2017 has the list of activities or transactions that are treated neither as a supply of goods nor a supply of services, and hence the expenditure made for the activities is not required to be notified beneath the same clause in any of the columns from 3 to 7 For instance, Para (1) of the Schedule III covers “Services by an employee to the employer in the course of or in relation to his employment” and therefore there is no need to report the remuneration to employees.
The amount of expenditures is needed to be separated into distinct parts mentioned in columns (3) to column (7) of the table of clause 44.
Columns (3) to (6) need to report the total expenditure as reported in column (2) is attributed to GST-registered entities (i.e. procurement from registered vendors beneath GST precisely taken through GSTR-2A or GSTR 2B) and column (7) mandates to report the total expenditure as reported in column (2) is attributed for the entities unregistered with GST (i.e. procurements from unregistered vendors under GST).
The same report might be made for the entity as a whole that might get audited and as per the details in the same columns might need to get furnished via reducing the expenditure made beneath different GST registrations.
S.N.
Particulars
Analysis
1
Sr.No.
Column no.1 of the table specified the serial number, suggesting that expenditures are needed to be notified in the head-wise method.
More rows could get added but no place to furnish the heading of expenditure.
ICAI guidance note stated the guidance would opt via the heading of the table which begins with the words “Breakup of total expenditure” and therefore the total expenditure engaging the purchases according to the above format might be provided.
It emerges that head-wise / nature-wise expenditure information would not predict in this clause.
2
The total amount of Expenditure made in the year
The total expenditure along with the purchases, and imports to be provided. The capital expenditure must be declared. Segregate reporting of the capital expenditure would assist in simple reconciliation.
3
Expenditure for entities registered under GST concerning goods or services exempt from GST
The same column needed to notify the total expenditure as notified in column (2) is concerned with goods or services exempt from GST.
Additionally, the same column is needed to show the expenditure that is exempted beneath GST.
For instance following expenditures are to be reported- Alcoholic liquor, petroleum crude, high-speed diesel oil, motor spirit, natural gas and aviation turbine fuel.
4
Expenditure for entities enrolled beneath GST concerned the entities that come beneath the composition scheme.
The same column is needed to report the total expenditure as mentioned in column (2) would concern the entities that come beneath the GST composition scheme.
This column needs to show expenditures made with GST composition dealers.
Various assessees do not secure the same details available to them. But you could use the auto-populated GSTR-9 for acknowledging the number of purchases via composition dealers.
Moreover, the GSTIN of the supplier might be validated on the GST portal to find out the supplier’s status (Composition dealer or casual taxable person, etc.) but there shall be no bulk verification utility available on the GST portal or on the income tax portal.
5
Expenditure for the entities enrolled beneath GST concerning the additional enrolled entities.
The same column needs to report the total expenditure as mentioned in column (2) concerned with the entities enrolled with GST.
The same column needs to show the expenditure made with the GST-enrolled dealers excluding the composition dealers.
The purchase register or GSTR 3B ITC register might be used to compile the data needed for this column.
Additionally, the GSTR-2A/2B report and reconciliation thereof with the ITC register are to be regarded for verification.
6
Expenditure for entities registered under GST Total payment to registered entities
The same column needs to report the payment incurred to the GST-enrolled entities in the former year.
The same column shall not get edited in the tax audit report and it is the sum of amounts established in columns (3), (4), and (5);
A person can say that the amount mentioned must be the amount actually furnished via the taxpayer, but its does not the case. The paid here comprises the amount liable to pay.
7
Expenditure concerned entities not registered under GST
The same column needed to report the sum of expenditure notified in column (2) corresponding to entities not registered with GST.
The same column needs for the disclosure of expenditures made via unregistered individuals.
The auditor might take/retain the reconciliation organized via taxpayer for verification.
More Analysis for Specific Transactions
S.N.
Transactions
Analysis
1
Stock transfers, Cross Charge or Credit distributed through ISD
The same amounts could not be engaged in the amount to be notified in Column (5) – expenditure concerned to registered entities as tax audit is taken on the grounds of PAN and not GSTIN wise.
That must not be included in the purchase register or GSTR 3B ITC register.
The same must not be acknowledged as the expenditure made beneath the same clause.
2
Material cost consumed specified in financials
Various assessees specify the material cost consumed rather than specifying the purchases in the financials.
A person is obligated to compute the actual purchase amount acknowledging the opening stock and closing stock computation to compute the expenditure corresponding to buying.
3
The expenditure upon which the ITC would not get claimed under GST law or through the assessees
The same might happened when the taxpayer brought the materials through the enrolled entities but no ITC was claimed.
For the cases indeed reporting beneath the same clause is needed. Moreover one could uphold to specify the suitable observation specifying “since No ITC claimed by the assessee, hence no reporting made under this clause.”
4
Information of expenditure concerned the goods or services which come beneath the composition scheme
In the majority of cases, the taxpayer does not maintain the records of the buying via composite dealers.
In the same condition, relevant observation must be started specifying that the taxpayer does not maintain the buying records through the composite dealers, therefore the same information does not furnish in column (4) of clause 44.
5
Import of Goods on which IGST is chargeable
It could be engaged in the amount to be reported in column (7)- expenditure concerned for the unregistered entities.
Relevant observation must be started specifying the amounts notified in clause 44(7) which consists of the goods imported on which the taxpayer has filed IGST.
6
Import of Services on which recipient is needed to file GST beneath RCM
It could be engaged in the amount to be notified in column (7)- expenditure concerned with the un-registered entities.
Moreover, the relevant observation must be started specifying that the amounts notified in clause 44 consist of the services import where the taxpayer is mandated to file GST beneath RCM.
A reporting need in clause 44 needed the compilation along with the arrangement of the bigger information. Acknowledging its introduction and no extension stand of CBDT directed to higher efforts to the tax auditors and the taxpayers, if the accounting systems of the assessee were not made in this way.
Clause 44 has started to ensure that the information could be used via the GST Department. On the grounds of the reporting beneath the income tax act, the expenses could not be disallowed.
Beneath the name of mitigation of accomplishing business, GST audit has been removed and again by clause 44 (“Formula 44”) imposes other obligations on the tax auditor and assessee to think prior to placing the information beneath the same clause acknowledging the information availability, its reconciliation with the outer reports, and its importance in the future.
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Published by Arpit Kulshrestha
Arpit Kulshrestha seeks higher interests in financial services, taxation, GST, I-T, etc. Writes articles with depth knowledge and is extensive for the same. The resources provide effective articles for the products of SAG infotech which provides taxation and IT software. Writing from observations and researching makes his articles virtuous.
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