Issuing an incorrect audit report under Section 44AB of the Income Tax Act, 1961 can have serious implications for tax auditors. Section 271J of the Act prescribes a penalty of ₹10,000 for every inaccurate report or certificate issued. Clauses 34 to 44 of Form 3CD are particularly sensitive as they involve disclosures related to tax deductions, interest liabilities, quantitative inventories, deemed dividends, and other regulatory compliance matters.
The tax auditor’s approach to these clauses must be thorough and methodical, especially while certifying corporate assesses. We focus on the key precautions that tax auditors need to adopt while verifying Clauses 34(a), 34(c), and Clauses 35(a) and 35(b).
Understanding Clause 34(a): Verification of TDS/TCS Deduction and Compliance
Clause 34(a) requires the auditor to certify whether the assessee was required to deduct or collect tax at source under the provisions of Chapter XVII-B or Chapter XVII-BB. The clause further requires detailed furnishing of information where such obligations exist.
The auditor’s verification process should start with examining the statutory auditor’s report. If the statutory auditor has modified their opinion regarding non-provisioning of liabilities, the tax auditor must investigate whether these amounts attract TDS obligations. If TDS is applicable, these details should be clearly reported in Para 3 of Form No. 3CA. The tax auditor must ensure that TDS defaults, whether in deduction or payment, are accurately captured in Clause 34(a).
Another critical area is reviewing the CARO report of the statutory auditor. The tax auditor should examine whether the CARO report highlights undisputed or disputed TDS dues that remain unpaid as of the balance sheet date. This cross-referencing helps in identifying TDS defaults that may have been overlooked.
For industries such as pharmaceuticals, a deeper scrutiny is required for expenses involving freebies to doctors. The auditor should verify whether these transactions have been considered for TDS deduction under Section 194R. The fact that these expenses may be disallowed under Section 37(1) for income tax computation does not exempt them from TDS obligations. Therefore, tax auditors should ensure reporting under Clause 34(a) wherever applicable.
Additionally, auditors should reconcile the reporting in Clause 21(b) regarding amounts disallowed due to TDS defaults with the disclosures under Clause 34(a). Any inconsistencies between these clauses can lead to reporting discrepancies.
In situations where the assessee claims deductions under Section 35D as reported in Clause 19, auditors should verify whether TDS is applicable on such amounts and if the assessee has complied with the deduction and deposit requirements.
An important procedural point is that the tax auditor may rely on the status of TDS demands as per the records of the TDS CPC portal, popularly known as TRACES, for reporting in Clause 34(a). However, reliance on TRACES data should be supplemented with adequate verification of the assessee’s books of accounts and financial records.
If the assessee has obtained a certificate in Form 26A from the deductee where there is a default in deduction or payment of TDS, the auditor must perform additional verification procedures. This includes evaluating the adequacy of the Form 26A certificate in accordance with the audit guidelines, especially when the work of another Chartered Accountant is being relied upon. The tax auditor should assess whether the procedures adopted by the issuing CA of Form 26A are sufficient for their audit purposes.
Clause 34(c): Reporting of Interest Liability under Sections 201(1A) and 206C(7)
Clause 34(c) mandates the auditor to report whether the assessee is liable to pay interest under Section 201(1A) for TDS defaults or under Section 206C(7) for TCS defaults. The reporting under this clause must align with the information furnished in Clause 34(a). If defaults in deduction or payment are reported in Clause 34(a), corresponding interest liabilities must be disclosed under Clause 34(c).
The auditor should reconcile the interest liabilities from the company’s books of accounts as on 31st March of the relevant previous year. This reconciliation must be supplemented by examining the Form 26AS, AIS, or TIS statements. These official records provide a comprehensive summary of TDS and TCS obligations and payments.
In cases where there are disputes regarding the interest amount indicated in TRACES or Form 26AS, the tax auditor should perform an independent calculation of the interest liability up to the date of the audit report. Such recalculations should consider the exact period of default and applicable interest rates. If any discrepancies are found between the department’s records and the auditor’s computation, these should be disclosed in Para 3 of Form 3CA with a detailed note.
It is important to ensure that the figures reported in Clause 34(a) regarding defaults in deduction or payment are in sync with the interest liabilities disclosed under Clause 34(c). Any inconsistencies could be viewed as an audit oversight.
Clause 35(a): Reporting Quantitative Details for Trading Activities
Clause 35(a) applies to companies engaged in trading activities. The clause mandates reporting of quantitative details of principal goods traded, which include opening stock, purchases during the year, sales, closing stock, and any shortages or excesses.
The auditor must begin by cross-checking the business activity disclosures made under Clause 10(a) of Form 3CD. If trading is reported as one of the company’s business activities, omission of quantitative details in Clause 35(a) constitutes an audit lapse. In cases where the assessee does not maintain inventory records or is unable to provide quantitative details, the tax auditor should issue a disclaimer in Para 3 of Form 3CA, clearly stating the non-availability of such records.
The quantitative details reported under this clause should be cross-verified with disclosures made in the company’s annual report and audited financial statements. The figures for purchases, sales, and closing stock should reconcile with the values reflected in the profit and loss account and balance sheet. Additionally, the auditor should ensure that any variations or anomalies in stock movements are duly investigated and documented.
An essential aspect of verifying Clause 35(a) is ensuring that the turnover reported aligns with the figures disclosed in Clause 40 regarding turnover ratios. Inconsistencies in reporting turnover figures across different clauses can be viewed as an audit deficiency. Therefore, cross-referencing and thorough reconciliation are necessary.
Clause 35(b): Reporting Quantitative Details for Manufacturing Activities
Clause 35(b) pertains to companies engaged in manufacturing activities. The reporting requirements under this clause are more detailed compared to trading activities. The tax auditor must provide quantitative details for raw materials and finished products, which include opening stock, purchases, consumption, sales, closing stock, production yield, yield percentages, and shortages or excesses.
The auditor must verify the nature of business activities reported under Clause 10(a) to determine whether manufacturing activities have been disclosed. If manufacturing is one of the company’s declared business activities, reporting quantitative details in Clause 35(b) becomes mandatory. Failure to provide this information without a proper disclaimer could be construed as an audit lapse.
In scenarios where the company is unable to furnish quantitative details due to the non-maintenance of records, the auditor should include a disclaimer in Para 3 of Form 3CA. Alternatively, if partial information is available, auditors should provide the details to the extent possible, accompanied by explanatory notes. Auditors should also ensure that the quantitative details reported in Clause 35(b) are consistent with disclosures in the company’s cost audit report, wherever applicable. Cross-verification with inventory schedules and production records is crucial to validate the figures reported.
For companies engaged in both trading and manufacturing activities, auditors must ensure that quantitative details are reported under both Clause 35(a) and Clause 35(b). Omitting details under either clause despite disclosure of relevant business activities in Clause 10(a) would be a significant reporting lapse.
Ensuring Data Consistency and Cross-Referencing
An essential aspect of certifying Clauses 34 and 35 is maintaining consistency across various disclosures within Form 3CD. For instance, defaults reported under Clause 34(a) must be aligned with disallowances under Clause 21(b). Similarly, quantitative details under Clause 35(a) and Clause 35(b) must reconcile with turnover figures disclosed in Clause 40 and inventory valuations in the financial statements.
Cross-referencing is not limited to Form 3CD alone. Auditors must also ensure that disclosures in Form 3CD are in sync with the statutory auditor’s reports, CARO reports, cost audit reports, and the notes to accounts in the annual financial statements. Any mismatch between these records should either be adequately explained or qualified in Para 3 of Form 3CA.
Importance of Documentation and Audit Working Papers
Given the complexities involved in certifying Clauses 34 and 35, it is critical for tax auditors to maintain comprehensive documentation. Working papers should include detailed reconciliations of TDS defaults with TRACES data, independent computations of interest liabilities, and inventory reconciliations with the financial statements. Maintaining such records not only ensures audit quality but also provides a robust defense in case of scrutiny by tax authorities.
Audit working papers should also include records of communications with the assessee regarding non-availability of data, disclaimers issued, and any qualifications made in Para 3 of Form 3CA. Proper documentation serves as evidence of due diligence performed by the auditor.
Clause 36: Deemed Dividend under Section 2(22)(e)
Clause 36 requires the tax auditor to report whether the assessee has received any amount in the nature of deemed dividend as defined under sub-clause (e) of clause (22) of section 2 of the Income Tax Act. If applicable, the auditor must furnish details such as the amount received and the date of receipt.
A key consideration for auditors is determining whether loans or advances received by the assessee fall within the ambit of deemed dividends. This involves evaluating the relationship between the assessee and the lending company, particularly whether the assessee is a substantial shareholder or a concern in which a substantial shareholder has an interest.
Auditors should carefully examine inter-corporate deposits and loans received during the year. Judicial precedents, such as the Delhi High Court judgment in CIT v. Ankitech (P.) Ltd. and its affirmation by the Supreme Court, provide guidance on situations where deemed dividend provisions apply. Similarly, decisions like CIT v. Universal Medicare Pvt. Ltd. clarify that short-term loans or deposits may attract deemed dividend provisions, even if repaid within the same financial year.
The tax auditor must ensure that trade advances received as part of ordinary business transactions are not mistakenly classified as deemed dividends. If the assessee has received trade advances from subsidiaries or associated enterprises in the ordinary course of business, these should not be reported under Clause 36.
Where amounts qualify as deemed dividends, the auditor should verify that the same are also reported under Clause 31(a) or Clause 31(b) as required. Additionally, if such income is not credited to the profit and loss account, it should be disclosed under Clause 16(d). Any amounts not directly reported under other clauses should be referred to in Para 3 of Form 3CA to maintain consistency.
Clause 37: Cost Audit Observations and Disqualifications
Clause 37 mandates reporting whether any cost audit was carried out during the financial year. If so, the auditor must provide details of any disqualification or disagreement reported by the cost auditor regarding matters such as item values, quantities, or other relevant issues.
The tax auditor should obtain a copy of the cost audit report directly from the company. Relying solely on a Management Representation Letter (MRL) without reviewing the actual cost audit report would not be sufficient for the purpose of this clause.
Auditors should cross-examine the cost audit report to identify any qualifications, reservations, or disagreements raised by the cost auditor. These observations, if material, must be duly reported under Clause 37. The auditor should also ensure that any significant discrepancies in quantities or valuations highlighted by the cost auditor are aligned with the disclosures in Form 3CD and the company’s financial statements.
In the absence of a cost audit requirement, the auditor should indicate that Clause 37 is not applicable to the assessee for the relevant financial year. However, documentation evidencing the non-applicability of cost audit, such as statutory exemptions or thresholds, should be retained in audit working papers.
Clause 38: Central Excise Audit
Clause 38 pertains to audits conducted under the Central Excise Act, 1944. Given the introduction of the Goods and Services Tax (GST), the applicability of this clause has become limited.
Currently, this clause is relevant only to sectors where excise duties continue to be applicable, such as petroleum products, tobacco, and certain alcoholic beverages. For most other companies, Clause 38 would be non-applicable post-GST implementation.
Where applicable, the tax auditor should obtain a copy of the excise audit report and review it for any disqualifications, disagreements, or discrepancies highlighted by the excise authorities. These should be reported under Clause 38 with detailed particulars.
In cases where the assessee is not subject to central excise audit, the auditor should mention that this clause is not applicable. Adequate documentation, including confirmations from the company regarding the nature of its products and its excise duty applicability, should be retained for audit records.
Clause 39: Service Tax Valuation Audit
Clause 39 requires reporting whether any audit was conducted under Section 72A of the Finance Act, 1994, concerning the valuation of taxable services. With the introduction of GST, service tax provisions have been subsumed, rendering this clause generally non-applicable.
However, for companies that may have pending legacy audits or assessments under service tax for prior periods, the auditor should verify if any audit proceedings were initiated or concluded during the financial year.
If applicable, the auditor should obtain relevant audit reports or orders from the service tax authorities and examine them for disqualifications or disagreements. Such observations must be reported under Clause 39 with adequate details.
For companies where no service tax audit was conducted during the year, the auditor should mark Clause 39 as not applicable. Proper documentation supporting the non-applicability, including confirmations from the assessee, should be maintained.
Clause 40: Turnover and Profitability Ratios
Clause 40 requires the auditor to furnish details regarding turnover, gross profit ratio, net profit ratio, stock-in-trade to turnover ratio, and material consumption to finished goods production ratio for the current and preceding financial year.
For service sector companies, where such ratios may not be relevant, the auditor should report “Not Applicable” against these ratios. However, the clause should not be left blank under any circumstances.
Auditors should ensure that the methodology used for computing these ratios is clearly defined and based on figures from the books of accounts. Adjustments made under Section 145A, such as including excise duties in inventory valuation, should not be factored into these ratios since they are intended for computation of total income, not for book reporting. It is important to include scrap sales in the turnover figures while calculating the ratios. Omitting scrap sales may distort turnover figures and result in inaccurate profitability ratios.
Auditors must also verify that the numerator and denominator used in ratio calculations are consistent and correctly classified. For example, gross profit should be computed after adjusting for all direct costs, and turnover should be as per the revenue recognized in books.
A critical audit procedure is to cross-check these ratios with the disclosures in the company’s notes to accounts under Schedule III of the Companies Act, 2013. Any significant deviations or anomalies must be examined and, if necessary, appropriately disclosed in Para 3 of Form 3CA. Consistency in reporting these ratios across successive years is equally important. Any major fluctuations in ratios between the current and preceding year should be analyzed and documented, with clarifications obtained from the management.
Clause 41: Demands and Refunds under Other Tax Laws
Clause 41 requires the auditor to furnish details of any demand raised or refund issued during the financial year under any tax laws other than the Income Tax Act and the Wealth Tax Act. The 2023 Guidance Note has broadened the scope of this clause by omitting the previous exclusion of levies like Marketing Cess, Entry Tax, Octroi Duty, etc.
Auditors should begin by obtaining a Management Representation Letter (MRL) from the assessee, listing all demands and refunds issued during the year under other tax laws. However, reliance on the MRL alone is insufficient. The auditor must independently verify these details through supporting documents, such as demand notices, refund orders, and assessment proceedings.
Accessing the assessee’s credentials for government tax portals like the GST portal is critical for verifying the accuracy of demands and refunds. If the assessee is unwilling to provide such access, the auditor should disclose this limitation through an appropriate disclaimer in Para 3 of Form 3CA.
Cross-referencing with disclosures in the company’s financial statements is essential. Auditors should verify contingent liabilities disclosed in the notes to accounts, outstanding statutory dues in the statutory auditor’s CARO report, and any penalties or liabilities reported under Clause 21(a) and Clause 21(g).
Additionally, demands or refunds that have been adjusted against other dues should be reported with detailed particulars. It is important to report demands even if they are stayed or under appeal. The existence of a stay does not nullify the demand. Conversely, if a demand has been annulled or set aside by an appellate authority or court, it ceases to be a demand and should not be reported. Show Cause Notices (SCNs) should not be treated as demands unless they culminate into a formal demand order. The auditor should exercise judgment and verify the final status of SCNs before determining whether they fall under the reporting ambit of Clause 41.
Clause 41 requires granular reporting of each demand and refund transaction. Lumpsum disclosure of aggregate amounts is inadequate. The details to be furnished include the name of the tax law under which the demand or refund arises, assessment or order reference numbers, dates, financial year to which it pertains, the amount involved, and the current status of proceedings. Ensuring that Clause 41 reporting is in sync with other disclosures in Form 3CD and the company’s financials is critical to maintaining the accuracy and completeness of the tax audit report.
Clause 42: Furnishing of Statements in Form 61, 61A, or 61B
Clause 42 requires the tax auditor to confirm whether the assessee is required to furnish statements in Form No. 61, 61A, or 61B. If yes, the auditor must provide specific details in a tabular format.
Form No. 61 is related to declarations received in Form 60 from individuals not holding a PAN for specified transactions. Form No. 61A pertains to the Statement of Financial Transactions (SFT), which involves reporting high-value transactions such as large cash deposits, immovable property purchases, and high-value share transactions. Form No. 61B is relevant for reporting by financial institutions and concerns information exchange under international agreements on financial accounts.
The auditor must begin by assessing whether the nature of the assessee’s business activities mandates the furnishing of these forms. This involves verifying whether the assessee has accepted any transactions requiring declarations in Form 60, whether any SFT reportable transactions exceeding prescribed thresholds were executed during the year, or whether the assessee falls within the ambit of Form 61B reporting obligations.
A critical cross-check is needed with Clause 31(ba), where details of cash receipts exceeding the threshold of ₹2,00,000 for the sale of goods or services are reported. If any such transactions are disclosed under Clause 31(ba), the auditor must verify whether a corresponding SFT filing has been made in Form No. 61A.
Additionally, if the auditor has reported under Clause 29 that shares have been issued and receipts from a person aggregate to ₹10,00,000 or more during the year, it is imperative to ensure that the assessee has filed Form No. 61A in compliance with SFT requirements.
Even if the assessee has duly filed Form 61A, the auditor must still report the relevant cash receipt details under Clause 31(ba). However, the auditor may disclose in Para 3 of Form No. 3CA that the assessee has filed Form 61A, providing context to the reporting.
Auditors should obtain copies of the filed Forms 61, 61A, and 61B, or acknowledgement receipts, as documentary evidence. If the assessee has not filed these forms despite being obligated, the auditor must report such non-compliance under Clause 42. If the assessee is not required to furnish these forms, the auditor should explicitly state “Not Applicable” against the clause.
Any discrepancies between the SFT obligations and the actual filing status of the assessee should be thoroughly documented and reported. The auditor must exercise professional judgment, particularly when the assessee claims that certain transactions are exempt from SFT reporting. Adequate supporting documentation should be obtained to corroborate such claims.
Clause 44: Break-up of Total Expenditure in Relation to GST Registration Status of Suppliers
Clause 44 requires the auditor to furnish a detailed break-up of the total expenditure incurred by the assessee, categorizing it based on the GST registration status of the suppliers. The prescribed format includes columns for reporting expenditure relating to entities registered under GST (further divided based on whether the expenditure is attributable to registered entities with valid GST numbers, composition dealers, exempted suppliers, etc.) and entities not registered under GST.
Unlike earlier clauses, Clause 44 does not demand head-wise or nature-wise expenditure details. The primary objective is to classify the total expenditure into GST-related buckets, ensuring clarity on the extent of business dealings with registered and unregistered entities.
The term “total expenditure” includes both revenue and capital expenditures. Therefore, capital purchases of assets, in addition to revenue expenditures, must be factored into the reporting. However, depreciation under Section 32, bad debts written off under Section 36(1)(vii), and similar allowances, being non-cash charges, are not considered expenditures for this clause and should be excluded from the tabular reporting. Similarly, personal expenses, if any, incurred by the assessee should not be included in Clause 44 disclosures, as the clause specifically pertains to business expenditures.
A critical step in complying with Clause 44 is reconciling the total expenditure figure reported in the profit and loss account with the expenditure figure to be disclosed in this clause. The auditor must prepare a reconciliation statement adjusting for capital expenditures not routed through the profit and loss account, deducting non-cash charges, and excluding transactions that fall outside the ambit of “supply” under GST.
For example, salaries and wages paid to employees are covered under Para 1 of Schedule III to the CGST Act, which classifies such services as neither a supply of goods nor a supply of services. Therefore, remuneration to employees need not be reported in Clause 44.
The reconciliation working paper should cover the following structure:
- Total expenditure as per the Profit and Loss Account.
- Add: Capital expenditure not included in the Profit and Loss Account.
- Less: Non-cash expenditures like depreciation and bad debts.
- Less: Expenditure on transactions in securities and money.
- Less: Expenditures excluded by virtue of Schedule III to the CGST Act.
- Resulting balance being the total expenditure to be reported under Clause 44.
It is essential to retain detailed reconciliation workings in the audit documentation, including GSTIN-wise details where the assessee has multiple registrations.
Classification of Suppliers Based on GST Registration
Clause 44 requires categorizing expenditure based on the supplier’s GST registration status at the time of supply. It is not sufficient to consider the supplier’s registration status as on the date of reporting or audit.
There may be instances where a supplier’s registration was subsequently cancelled retrospectively. In such cases, the auditor must determine whether the cancellation affects the nature of the expenditure. If the expenditure was incurred at a time when the supplier was a registered entity, it should be classified as expenditure related to a registered supplier, even if the registration was subsequently annulled.
Auditors may choose to extend their review up to a specific cut-off date to factor in such retrospective cancellations. However, this review extension must be disclosed in the tax audit report, highlighting the position adopted and noting any known cancellations and their treatment in the Clause 44 disclosures.
If the auditor decides not to extend the review beyond the balance sheet date, this limitation must be adequately disclosed in Para 3 of Form 3CA. Transparency in the approach adopted enhances the credibility of the audit report.
Treatment of Mixed Supplies and Composite Expenditures
Certain expenses may involve mixed supplies, wherein the supply of goods and services are bundled together. The auditor should assess whether such bundled expenditures should be bifurcated across relevant columns in Clause 44 based on the nature of supply and the supplier’s GST registration status.
For example, a contract involving both material supply and services should be evaluated to determine the portion of expenditure attributable to registered and unregistered entities. Proper allocation methodologies should be documented, and assumptions used in such allocations should be reasonable and consistent. Additionally, expenditures like freight and logistics costs, security services, and repairs, which often involve composite supply structures, need to be carefully assessed to ensure accurate classification.
Expenditures Not Constituting Supplies Under GST
The auditor must also exclude certain categories of expenditures from Clause 44 reporting. These include transactions not regarded as supplies under GST, such as:
- Employee remuneration.
- Court fees, registration fees paid to government authorities.
- Interest on loans and financial instruments.
- Statutory levies such as Stamp Duty.
While these are genuine business expenses, they fall outside the scope of Clause 44 and should not be reflected in the expenditure break-up.
However, it is advisable to maintain a comprehensive list of all excluded expenses in the working papers, along with the rationale for their exclusion, to aid in audit documentation and future references.
Internal Controls and Information Gathering
Given the extensive data requirements of Clause 44, the auditor must evaluate the internal controls maintained by the assessee over procurement and expenditure tracking. A structured chart of accounts, with clear classification codes for registered and unregistered vendors, facilitates easier compliance.
In many cases, auditors may have to rely on information provided by the assessee’s ERP systems, accounting software, or GST compliance software. Therefore, it is important to review the system’s capabilities in segmenting expenditures and ensure that data integrity checks are performed.
Auditors should also engage with the management early in the audit process to communicate the data requirements for Clause 44 and address any gaps in information availability. Where data gaps exist, auditors may apply alternate procedures or make suitable disclaimers in the audit report.
Disclosure of Assumptions and Limitations
Due to the complex nature of Clause 44 disclosures, auditors should document and disclose any assumptions adopted in the process, such as treatment of retrospective registration cancellations, estimation techniques used for allocating composite expenditures, or data cut-off dates for reporting.
These disclosures should be made in Para 3 of Form 3CA to provide transparency and context to the figures reported under Clause 44. Such disclosures mitigate the auditor’s risk of being held accountable for reporting inaccuracies arising from factors beyond their control.
Maintaining a clear audit trail, comprehensive working papers, and transparent disclosures ensures that the auditor fulfills their obligations under the Income Tax Act while safeguarding professional responsibilities.
Conclusion
Certifying Clauses 34 to 44 of Form 3CD is a meticulous exercise that demands a tax auditor’s thorough understanding of legal provisions, updated guidance notes, and practical nuances of corporate compliance. These clauses encompass a wide array of disclosures ranging from TDS compliance, quantitative details of inventories, deemed dividend reporting, to intricate classifications of expenditures under the GST framework.
For Clause 34, the auditor’s diligence is paramount in verifying TDS/TCS deductions, interest liabilities, and reconciling data with TRACES and Form 26AS. Auditors must perform cross-referencing across various clauses to ensure the completeness and accuracy of reporting, especially for defaults in deduction, non-compliance in deposit of taxes, or disputes regarding interest computations. Reliance on certificates like Form 26A requires careful evaluation and due procedures, ensuring reliance on another practitioner’s work is justified and adequately documented.
Clauses 35 and 36 mandate precise quantitative disclosures of stock movements and vigilance in identifying transactions that may trigger deemed dividend implications under Section 2(22)(e). Auditors must align their reporting with judicial precedents, business practices, and cross-verify these disclosures with statutory filings and financial statements to avoid inconsistencies.
Clauses 37 to 41 extend the scope of audit into cost audits, indirect tax audits, and reporting of demands and refunds under various laws. Auditors must not solely depend on management representations but should substantiate their reporting with audit evidence like cost audit reports, demand notices, and online verification through tax portals. Even though some clauses like Central Excise and Service Tax audits are now obsolete post-GST, auditors need to evaluate their applicability depending on the assessee’s industry, especially for petroleum entities.
Clause 42 emphasizes the importance of reporting obligations under Statements of Financial Transactions (SFT) and ensuring compliance with filings like Forms 61, 61A, and 61B. Auditors must exercise cross-referencing with cash receipt disclosures and verify whether high-value transactions have been adequately reported in compliance with SFT regulations.
Clause 44 is notably complex, requiring a meticulous classification of total expenditure based on the GST registration status of suppliers. Auditors must maintain reconciliation statements aligning profit and loss figures with the Clause 44 tabular disclosures, exclude non-supply-based expenditures, and document any assumptions made during classification. Particular attention must be given to supplier registration statuses at the time of supply and any retrospective cancellations impacting reporting obligations.
Throughout the audit process, robust documentation, transparent disclosures, and a methodical audit approach are critical. Auditors must ensure that all reporting under Form 3CD is consistent with statutory audit reports, CARO disclosures, and financial statement notes. Any limitations encountered during the audit, such as data unavailability, must be adequately explained through disclaimers in Para 3 of Form 3CA, safeguarding the auditor’s professional standing.
Given the enhanced scrutiny on tax audit reports and the associated penalties for erroneous certifications under Section 271J, auditors must approach the reporting of Clauses 34 to 44 with utmost diligence, professional skepticism, and a comprehensive audit strategy. Only through rigorous verification, cross-referencing, and clear documentation can auditors mitigate risks and ensure compliance with the ever-evolving regulatory landscape.