[Opinion] Decoding Clause 44 of Form 3CD following 2023 Guidance note on Tax Audit

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  • Last Updated on 22 September, 2023

Clause 44 of Form 3CD

CA V. Sudharsan – [2023] 154 taxmann.com 409 (Article)

Clause 44 made its debut as a new addition to Form 3CD of the Tax Audit Report (TAR) starting from the Assessment Year 2022-23. It is worth noting that although this clause was initially introduced through a notification dated July 20, 2018, its enforcement was consistently postponed each year through a series of circulars. The final circular addressing this matter was Circular No. 05/2021, dated March 25, 2021, which extended the deadline for its implementation until March 31, 2022. Consequently, any Tax Audit Report in Form 3CD submitted after March 31, 2022, must adhere to the requirements outlined in clause 44.

Since the introduction of this clause in the Tax Audit Report, tax professionals have expressed significant concerns and challenges related to gathering the necessary information from the assessees’ accounting records. Additionally, there has been ongoing uncertainty surrounding the interpretation of the information presented in this clause, particularly from the perspective of tax authorities.

This article endeavors to offer valuable insights into Clause 44, taking into consideration the latest Revised Guidance Note issued by the Institute of Chartered Accountants of India (ICAI) [Please see: “Guidance Note on Tax Audit under Section 44AB of the Income-tax Act, 1961 (Revised 2023) – Ninth Edition 2023″]. Additionally, the author delves into a discussion about the risks associated with and potential mitigating strategies for providing information within this clause.

Consolidated or Expenditure-wise information

The primary question that arises is whether to provide the figures in a consolidated manner or furnish expenditure-wise details. In this context, Para 82.1 of the Guidance Note provides clarity by stating that the information required under this clause should be presented in a consolidated fashion, and there is no requirement to provide figures on an expenditure head-wise or nature-wise basis.

However, the Guidance Note suggests having a reconciliation statement in the following manner:

Description Amount (Rs)
Total value of expenditure in P&L for the year xxxx
Add: Total value capital expenditure not included in P&L for the year xxxx
Less: Total value of non-cash charges considered as expenditure xxxx
Less: Total value of expenditure excluded for being transactions in securities and transaction in money xxxx
Less: Total value of expenditure excluded by virtue of Schedule III to the CGST Act 2017. xxxx
Balance being value of expenditure for clause 44 xxxx

[Details of all deductions and additions must be maintained for each sub-entity (GSTIN wise) of the legal entity]

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