Tax Audit: Detailed Analysis of Clause 42 to Clause 44 | As per ICAI’s Guidance Note

Income-tax law requires the assessee to get his books of accounts audited in pursuance of the requirement under Section 44AB of The Income Tax Act, 1961. The Chartered Accountant conducting the tax audit is required to give his findings, observations, etc., in the form of an audit report at the e-filing portal of Income-tax in Form No. 3CA/3CB and 3CD. In this story, we would discuss the reporting requirement of clauses 42 to 44, which are contained in Part B of Form 3CD.

1. Clause 42

• • Whether the assessee is required to furnish statement in Form No.61 or Form No. 61A or Form No. 61B? (Yes/No)
  • If yes, please furnish: 

For reporting under this clause, an auditor shall:

• • Verify the books of account to identify the transaction required to be reported under rules 114B, 114E, 114F, 114G and 114H of Income Tax Rules.
  • Check the Form 61/61A/61B and match them with the information available at the portal
  • Reconcile the transactions reported in such forms with the books of account and accordingly, provide the detail of transactions that are not reported in the prescribed form.

1.1 Form 61

When the assessee undertakes any of the below-mentioned transactions (as specified under Rule 114B of the Income-tax Rules) without obtaining the PAN of the person (not being a company or firm), then, the assesse  is required to collect a declaration in Form 60 from that person and file Form 61 which contain particulars of declaration received in Form No. 60.

The provisions of Rule 114B does not apply to the following class or classes of persons:

• 1. The Central Government, the State Governments and the Consular Offices.
  2. the non-residents referred to in clause (30) of section 2 of the Act in respect of the following transactions referred in the table above:

• • • Point 3- All transactions of application for a credit card or debit card
    • Point 5- Payment to Hotel/restaurant is required if audited u/s 44AB is required
    • Point 6- Payment for foreign country travel or payment for foreign currency purchase, if audited u/s 44AB is required
    • Point 9- Payment for purchase of RBI issued Bonds
    • Point 11- Purchase of bank drafts or pay orders or banker’s cheques from a banking company or a cooperative bank
    • Point 13- Payment in cash or by way of a bank draft or pay order or banker’s cheque for one or more pre-paid payment instruments
    • Point 18-Sale/purchase of goods/services, by any person, of goods or services of any nature other than those specified at Sl. Nos. 1 to 17 of this Table, to be filed only by the assessee who is required to get his accounts audited u/s 44AB

 1.2 Form 61A

This form contains details of below mentioned specified financial transactions (SFT) (as mentioned in Rule 114E) undertaken during a particular financial.

1.3 Form 61B

Reporting entity or person is required to furnish a statement of reportable account in accordance with FATCA (Foreign Account Tax Compliance Act) and CRS (Common Reporting Standard) for a calendar year (in Form 61B) with the Income tax Department as per the provisions of section 285BA of the Income-tax Act 1961. The auditor should be aware of provisions of Rule 114F to 114H for the same.

2. Clause 43

• • Whether the assessee or its parent entity or alternate reporting entity is liable to furnish the report as referred to in sub section 2 of section 286? (Yes/No)
  • If yes, please furnish the following details:
  • Whether report has been furnished by the assessee or its parent entity or an alternate reporting entity
  • Name of parent entity
  • Name of the alternate reporting entity(if Applicable)
  • Date of Furnishing the Report

For reporting under this clause, the auditor should check the applicability of section 286 and related notifications and circulars and where the same is applicable then, reports are to be furnished in Forms 3CEAC to Form 3CEAE.

Also, obtain a necessary certificate from the assessee in respect of the constitution of the international group, entities that are resident in India and not resident in India and entity if appointed as the alternate reporting entity.

Here, the auditor is not required to comment upon the completeness or correctness of the report filed under section 286(2).

This clause requires reporting of the following details regarding sub-section 2 of section 286 where the same is applicable.

2.1 Sub-section 2 of section 286

Furnishing of the report in respect of international group

Every parent entity or the alternate reporting entity, resident in India, shall, for every reporting accounting year, in respect of the international group of which it is a constituent, furnish a report, to the prescribed authority [within a period of twelve months from the end of the said reporting accounting year], in the form and manner as may be prescribed.  

3. Clause 44

Break-up of total expenditure of entities registered or not registered under the GST (This Clause is kept in abeyance till 31st March, 2022).

This clause requires reporting of the following details regarding Break-up of total expenditure of entities registered or not registered under the GST (This Clause is kept in abeyance till 31st March 2022 vide CBDT Circular No. 5/2021 dated 25.03.2021).

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 30 to Clause 30C
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