income tax
The complexities surrounding Clause 44 of Form No. 3CD (Tax Audit Report) can create significant difficulties in reporting accurate and reliable details. While the relevance of this clause may seem questionable when viewed through the lens of Income Tax law, there are several concrete reasons that contribute to the challenges faced by assessors in fulfilling this requirement.
Inaccurate Classification at Account Opening: Dealers may not have been accurately classified as 'regular,' 'composition,' or 'unregistered' when accounts were initially set up in accounting software.
Lack of Reliable Reporting Tools: The accounting software employed by the assessee may not provide reliable, ready-made reports necessary for accurate reporting under this clause.
Frequent Changes in Scheme Participation: Dealers might have switched in and out of the composition scheme during the audit period, and the assessee may lack the pertinent information regarding these changes.
Variability in GST Registration Status: There may be instances where dealers obtained GST registration or opted for deregistration during the audit period, with the assessee having no knowledge of such transactions.
Confusion Between Terms: The terms 'expenditure' and 'supply' are occasionally conflated by some professionals. This misunderstanding can create unnecessary confusion for accountants and tax professionals, as 'expenditure'—the act of spending money—has no direct relation to the 'supply' as defined under GST law.
In light of the factors above, as well as other relevant considerations, several questions may arise among prudent professionals:
Should Reporting on this Clause be Mandatory?
Is Providing a Misleading Bifurcation Justifiable? When it is impossible to achieve 90% to 100% accuracy in the bifurcation, what is the utility of submitting an inaccurate report merely for the sake of reporting?
What Are the Authorities' Intentions? What is the actual purpose behind requiring GST-related details in the Income Tax audit report?
Is Scrapping the Clause Justified? Should Clause 44 be abolished altogether to free up valuable time for businesses and professionals, enabling them to focus on accurately reporting other pertinent points in Form No. 3CD?
Advocating for the elimination of this clause is a matter that requires attention not just from the Central Board of Direct Taxes (CBDT), but also from trade associations, which should communicate these concerns to the Finance Ministry. If necessary, escalation to the Prime Minister's Office (PMO) may be warranted to seek timely resolution.