[Analysis] Clause 44 of Tax Audit Report with Illustrations
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Table of Contents
1. Clause 44: Break-up of total expenditure of entities registered or not registered under GST
2. Other Clarifications provided by the Guidance Note
1. Clause 44: Break-up of total expenditure of entities registered or not registered under GST
|
SI. No. |
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 Composition Scheme | Relating to other registered entities | Total payment to registered entities | |||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 |
Section 44AB of the Income tax Act, 1961, requires certain classes of taxpayers to get their accounts audited. It is mandatory for them to provide statement of particulars or specific information on various subjects as prescribed under Form 3CD.The audit aims to ascertain the compliance of various provisions of the Income-tax Law and the fulfilment of other requirements of the Incometax Law.
The findings and observations from the tax audit have to be reported in Form Nos. 3CA/3CB and 3CD. One of such items in form 3CD relates to the furnishing of details of total expenditure i.e. in clause 44 of Form 3CD requiring the break up of total expenditure both for entities registered and not registered under GST.
The reporting under clause 44 of Form 3CD was kept in abeyance till 31.03. 2022. It has now become mandatory for all the reports submitted after 31.03.2022. The manner for reporting under this clause has been discussed in detail below:
1. Column No. 1 : SI. No.
The serial number for respective expenses has to be mentioned in this column.
2. Column No. 2 : Total amount of expenditure incurred during the year
It seeks detail related to the total amount of expenditure incurred during the year. Now, to answer the question of whether the total amount of expenditure is to be given or the breakup of total expenditure (as mentioned in the heading) shall be given.
On this, the guidance note issued by ICAI provides that head-wise / nature-wise expenditure details are not envisaged in this clause.
Further, the guidance material states that the amount which is not in the nature of expenses shall not be quoted in Column 3 to 7. For Example: depreciation, provision for expenses, etc.
Schedule III to the CGST Act, 2017 lists out activities or transactions which are treated neither as a supply of goods nor a supply of services and thus expenditure incurred in respect of such activities need not be reported under this clause in any of the columns from 3 to 7.For Example : Services by an employee to the employer in the course of or in relation to his employment” i.e. Salary expense.
3. Column No. 3 : Expenditure Relating to goods or services exempt from GST (in respect of entities registered under GST)
Exempt supply means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under the Integrated Goods and Services Tax Act, and includes non-taxable supply.
Non-taxable supply means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act.
4. Column No. 4: Expenditure relating to entities falling under the composition scheme (in respect of entities registered under GST)
Levy of tax under the composition scheme is governed by section 10 of the CGST Act, 2017. In this column, value ofpurchases from persons registered under composition levy has to be reported.
5. Column No. 5: Expenditure relating to other registered entities (in respect of entities registered under GST)
Under this column, the value of all inward supplies from registered dealers, other than supplies from composition dealers and exempt supply from registered dealers, are to be mentioned.
6. Column No. 6: Total payment to registered entities (in respect of entities registered under GST)
Here, the total expenditure in respect of registered entities i.e., sum total of values reported in columns (3), (4) and (5) should be mentioned and the word ‘payment’ should harmoniously be interpreted as ‘expenditure’.
7. Column No. 7: Expenditure relating to entities not registered under GST
Here, the value of the inward supply of goods and/or services received from unregistered persons should be reported.
2. Other Clarifications provided by the Guidance Note
1. It is necessary that the capital expenditure should also be reported in the format prescribed as the word used is ‘expenditure’ in the clause.
2. It should be ensured that the total of columns 6 and 7, tallies with the amount mentioned in column (2).
Illustration:
Details of expenditures appearing in the Trading and Profit & Loss A/C of X Limited
|
SN |
Nature of Expense |
Amount |
| Purchase of Material 1 | 2,00,000 | |
| Purchase of Finished Goods | 4,00,000 | |
| Salary to Staff | 1,50,000 | |
| Vehicle Running Expense (Petrol) | 80,000 | |
| Repair and Maintenance | 30,000 | |
| Advertisement | 60,000 | |
| Office Expenses | 70,000 | |
| Rent | 1,20,000 | |
| Telephone Expenses | 45,000 | |
| Auditor’s Fee | 40,000 | |
| Provision for bad and doubtful debts | 35,000 | |
| Depreciation | 20,000 | |
| Total Expenditure | 12,50,000 |
It also purchased a machinery of Rs. 3,00,000 during the year
Break up of the above expenditures in Clause 44 shall be done in the following manner:
|
SI. No. |
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 Composition Scheme | Relating to other registered entities |
Total payment to registered entities |
|||
| Purchase of Material 1 | 2,00,000 | 0 | 50,000 | 1,50,000 | 2,00,000 | 0 |
| Purchase of Finished Goods | 4,00,000 | 0 | 66,000 | 3,34,000 | 4,00,000 | 0 |
| Repair and Maintenance | 30,000 | 0 | 0 | 0 | 0 | 30,000 |
| Advertisement | 60,000 | 0 | 0 | 0 | 0 | 60,000 |
| Office Expenses | 70,000 | 0 | 0 | 0 | 0 | 70,000 |
| Rent | 1,20,000 | 0 | 0 | 1,20,000 | 1,20,000 | 0 |
| Telephone Expenses | 45,000 | 0 | 0 | 45,000 | 45,000 | 0 |
| Auditor’s Fee | 40,000 | 0 | 0 | 40,000 | 40,000 | 0 |
| Machinery- Capital expenditure | 3,00,000 | 0 | 0 | 3,00,000 | 3,00,000 | 0 |
| 12,65,000 | 11,05,000 | 1,60,000 | ||||
Reference:
This document has been prepared in accordance with the “Guidance Note on the Tax Audit under section 44AB of the Income Tax Act, 1961- AY 2022-23″ provided by ICAI.
Dive Deeper:
Detailed Analysis of Clause 9 to 12
Detailed Analysis of Clause 13 and Clause 14
Detailed Analysis of Clause 15 and Clause 16
Detailed Analysis of Clause 17 to Clause 19
Detailed Analysis of Clause 20 and Clause 21
Detailed Analysis of Clause 22 to Clause 25
Detailed Analysis of Clause 26 to Clause 29
Detailed Analysis of Clause 31
Detailed Analysis of Clause 32 to Clause 34
Detailed analysis of Clause 35 to Clause 38
Detailed Analysis of Clause 39 to Clause 41
Detailed Analysis of Clause 42 to Clause 44
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4 thoughts on “[Analysis] Clause 44 of Tax Audit Report with Illustrations”
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You have wronged in considering the total expenditure. As it is clearly mentioned in the Guidance note and can be plainly interpreted that total expenditure is to include all the expenditure including Salary, provision for doubtful debts and depreciation and then the same should not be included in any column from 3 to 7. Also you have not considered petrol expenditure in total expenditure which needs to be considered and then to be classified under Relating to goods or services exempt from GST. Thank You.
But what about inter branch purchase transactions.
and where we put following amounts
1) Amount of Prepaid expenses,
2) GST Paid During the year.
3) Expenditure which is shown in Financial Statement provisions.
Kindly Reply,
Hi Dhiraj, the purchases from the branch per-se are not an expenditure in P&L for an entity as a whole. Hence, the same shall not be reported if you are doing a tax audit of the entity as a whole. Pre-paid expenses shall be reported in the year to which it belongs. GST paid if not claimed as input-tax credit shall form part of the expenditure. Provisions are not in the nature of supply or expenditure per-se but it is a liability which can be measured using a substantial degree of estimation. Hence, they shall not be reported under clause 44.
Mr. Dhiraj Please Change your name first.
and yes same question also we also required clarification.