Tax Audit Checklist on Clause 22 of Form 3CD under the Income Tax Act, 1961

Under clause 22 of Form 3CD the tax auditor is required to state the amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006. The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) is an Act which facilitates the promotion and development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto. This clause shall apply to all assessees who purchase goods or services or capital goods from Udyam-registered Micro or Small enterprises.

Clause 22 deals with reporting of two types of disallowances in relation to delayed payments to Udyam-registered Micro or Small enterprises:

• Disallowance of expenditure debited to the P&L account, under Section 43B(h) of the Act, in respect of purchases of goods or services from Udyam-registered MSE suppliers in respect of which payment is made to them beyond the time-limit stipulated by Section 15 of MSMED Act (delayed payments); and
• Disallowance under Section 23 of MSMED Act of interest payable in terms of Section 16 of MSMED Act in respect of delayed payments to Udyam-Registered MSE suppliers of goods or services or capital goods.

In this story we have discussed a detailed discussion of the tax audit checklist pertaining to clause 22 of Form 3CD.

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