Threadbare

Discussion on
Clause 44

Taxmann.com
12th September 2022

CA. Deepak Bhholusaria

This presentation is only for knowledge sharing
About presenter

• Mr. Deepak Bhholusaria is a

commerce graduate and fellow
member of the Institute of Chartered
Accountants of India.
• He has also completed various
certificate courses of ICAI on Indirect
taxes, Blockchain, Information
Systems Audit and Valuation.
• A seasoned professional, author,
speaker, public figure and YouTuber
with 23+ years of experience.
Webinar coverage

1 Applicability of Clause 44

2 Overview of information to be furnished in 3CD-Clause 44

3 Meaning of Total Expenditure for reporting

4 Reporting of capital expenditure in clause 44

5 Inclusions and exclusions from reporting

6 Reporting of Provisions and Accrued Expenses in Clause 44

7 Consolidated details or account head wise to be furnished?

8 Clause 44 vis-à-vis line Items of Profit & Loss Account

9 Insight into ICAI Guidance Note on Tax Audit, 2022 edition

10 Insight into section 35 of CGST Act and Rule 56 of CGST Rules

Clause 44 – Applicability

1. Clause 44 is applicable for all 3CD reports

issued after 31st March 2022.
2. Para 82.16 of GN: Reporting is qua PAN,
not GSTIN
3. Para 82.4 of GN: Applicable even if auditee
is not registered under GST (e.g., Doctors,
Lawyers, GTAs)
4. Applicable even if auditee is registered and
his entire/part income is exempt.
Clause 44: Overview
Clause 44: Break-up of total expenditure of entities registered
or not registered under the GST -
1. Col. 2: Total amount of Expenditure
incurred during the year
2. Expenditure in respect of entities registered
under GST
1. Col. 3: to goods or services exempt from
GST
2. Col. 4: Relating to entities falling under
composition scheme
3. Col. 5: Relating to other registered
entities
4. Col. 6: Total payment to registered
entities (sum total of 1, 2 and 3
3. Col. 7: Expenditure relating to entities not
registered under GST
Section 35 – GST Act

35. Accounts and other records.—

(1) Every registered person shall keep and maintain, at his principal
place of business, as mentioned in the certificate of registration, a
true and correct account of—
a) ***

b) inward and outward supply of goods or services or both;

c) ***

d) input tax credit availed;

e) ***

f) such other particulars as may be prescribed:

Rule 56 – GST Rules

56. Maintenance of accounts by registered persons.-

(1) Every registered person shall keep and maintain, in addition to the particulars mentioned in sub-
section (1) of section 35, a true and correct account of the goods or services imported or exported
or of supplies attracting payment of tax on reverse charge along with the relevant documents, ***

(2) Every registered person, other than a person paying tax under section 10, shall maintain the
accounts of stock in respect of goods received and supplied by him ***

***

(4) Every registered person, other than a person paying tax under section 10, shall keep and maintain
an account, containing the details of tax payable ***, input tax, input tax credit claimed, together
with a register of tax invoice, credit notes, debit notes, delivery challan issued or received during
any tax period.

(5) Every registered person shall keep the particulars of –

(a) names and complete addresses of suppliers from whom he has received the goods or
services chargeable to tax under the Act;

(b) ***

***
GN: Inclusions and exclusions
Para Recommendations
82.2 Depreciation under section 32, deduction for bad debts u/s
36(1)(vii) etc. which are not expenses should not be reported
under this clause in any of the Columns from 3 to 7*. These are in
nature of allowances

82.3 Schedule III to the CGST Act, 2017 lists out activities or
transactions which are treated neither as a supply of goods nor a
supply of services and thus expenditure incurred in respect of
such activities need not be reported under this clause in any of
the columns from 3 to 7*.

 Remuneration to employees need not be reported.

82.15 Both Revenue & Capital expenditure is covered.

Separate reporting of capital expenditure will provide ease in

reconciliation.

*GN is silent on column 2 in respect of items covered by para 82.2 and 82.4
Schedule III: GST
1. Services by an employee to the employer in the course of or in relation to his
employment.
2. **
3. **
4. Services of funeral, burial, crematorium or mortuary including transportation of the
deceased.
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of
building.
6. Supply of goods from a place in the non-taxable territory to another place in the
non-taxable territory without such goods entering into India. {aka High Sea Sales}
7. Actionable claims, other than lottery, betting and gambling.
8. (a) Supply of warehoused goods to any person before clearance for home
consumption;
(b) Supply of goods by the consignee to any other person, by endorsement of
documents of title to the goods, after the goods have been dispatched from the port
of origin located outside India but before clearance for home consumption
GN: Inclusions and exclusions

Principally these are to be excluded from

column 3 to 7:

A. Items of which are in the nature of

allowances.
B. Items of which are not in the nature of
expenses
C. Items which are not “supplies” as per GST
law.
Clause 44 – Consolidated?

Para 82.1 of GN, 2022 edition:

Heading of the table starts with the words

“Breakup of total expenditure”

➢ hence the total expenditure including

purchases as per the notified format may
be given.
➢ Head wise/nature wise expenditure is not
envisaged
Provisions & accrued expenses
Head Explanations
Definition Ind-AS 37: A provision is a liability of uncertain timing or amount.

AS-29: A provision is a liability which can be measured only by using a

substantial degree of estimation.
Accruals Ind-AS 37: Provisions can be distinguished from other liabilities such as
v/s
provisions trade payables and accruals because there is uncertainty about the
timing or amount of the future expenditure required in settlement.
AS-29: Provisions can be distinguished from other liabilities such as
trade payables and accruals because in the measurement of provisions
substantial degree of estimation is involved with regard to the future
expenditure required in settlement.
Summary • Accrued expenses and provisions are separated by their respective
degrees of certainty.
• All accrued expenses have already been incurred but are not yet
paid.
• By contrast, provisions are allocated toward probable, but not
certain, future obligations. They act like a rainy-day fund, based on
educated guesses about future expenses.
Provisions & accrued expenses
Provisions example Accrued expenses examples
• Provisions for warranties or • Audit fee payable
post-sales client support • Electricity expenses payable
• Provisions for gratuity • Telephone expenses payable
• Provisions for lease encashment • Salary payable
• Provisions for long term service
award
Exempt v/s non-taxable supplies
CGST Section Provisions
reference
Levy 1) Subject to the provisions of sub-section (2), there shall be levied a tax
Sec. 9 called the central goods and services tax on all intra-State supplies of goods
or services or both, except on the supply of alcoholic liquor for human
consumption,***
2) The central tax on the supply of petroleum crude, high speed diesel, motor
spirit (commonly known as petrol), natural gas and aviation turbine fuel
shall be levied with effect from such date as may be notified by the
Government on the recommendations of the Council
Exempt Supply means supply of any goods or services or both
Sec. 2(47) • which attracts nil rate of tax or
• which may be wholly exempt from tax under section 11, or under section 6
of the Integrated Goods and Services Tax Act, and
• includes non-taxable supply;
Non -taxable means a supply of goods or services or both
supply
• which is not leviable to tax
Sec. 2(78) • under this Act {read CGST/SGST} or
• under the Integrated Goods and Services Tax Act
Clause 44 vis-à-vis line Items of
Profit & Loss Account
PL line head Clause 44 treatment
High sea purchases (used for high sea sales) Sch. III - “No supply”, hence excluded from col. 3 ~ 7
Remuneration to employees Sch. III - “No supply”, hence excluded from col. 3 ~ 7
Depreciation Allowance, hence excluded from col. 3 ~ 7
Petroleum crude, high speed diesel oil, motor Exempt supplies. Petrol/HSD vendors are usually registered
spirit etc. under GST, hence should be reported in Col. 3
Electricity expenses Exempt supplies. Power distribution companies are usually
registered under GST, hence should be reported in Col. 3
Cash discount or early payment discount for Not a supply
sales, Sundry balances of AR w/off
Inward returns of goods sold Not an expenditure, should be reduced from revenue
Interest paid on loan to banks/NBFCs Exempt supplies. Should be reported in col 3
Interest paid on loan to individuals Exempt supplies. Either Col. 3 or Col. 7 depending upon
registration status of lender
Foreign exchange loss Not a supply. Excluded from col. 3 ~ 7
ESI, EPF expenses Not a supply. Excluded from col. 3 ~ 7
Fee for trade license > Rs. 5000 Taxable supply of services. Col. 7
Import of goods or services Supply from unregistered suppliers. Col. 7
Royalty payment to Government Taxable supply of services. RCM. Col. 7
Reconciliation between various
columns of table

Para 82.14 –
It should be ensured that the total of columns
6 and 7, tallies with the amount mentioned in
column (2) except to the extent of
expenditure/ allowance mentioned in para
82.2. and 82.3**.

The auditor may retain the reconciliation

prepared by the assessee for verification.

** Misprinted as 8.2. and 8.3 in GN

 Col 6

Total
Allowances, No Expenditure
Supplies etc as per
Column 2

Para 82.14 of Guidance note

2022 edition
Col 7

Can an item be “expenditure”

for Column 2 and not for
column 3 to 7?
Clause 44
Expenses as per Profit Statement +
Capital Expenditure Para 82.14
= of GN
Total Expenditure incurred
(e.g., INR 120) Exclude
Column 2 of Table Depreciation, Allowances,
No Supply etc.
(E.g. Rs. 20) Balance
Rs. 100

Expenditure in relation to Expenditure in relation to

Registered Suppliers Unregistered Suppliers
(e.g. INR 70) (e.g., INR 30)
Column 6 of table Column 7 of table

Taxable Supplies from Non-

Exempt Supplies from Supplies from Composition
Composition Registered Taxable
registered suppliers Taxable Persons
Person
(e.g. INR 10) (e.g. INR 20)
(e.g. INR 40)
Column 3 of table Column 4 of table
Column 5 of table
Clause 44: Sample auditor’s Note

• Assessee has informed auditor’s that "Expenditure

relating to entities not registered under GST" includes
import of goods, import of services and services from
unregistered suppliers on which GST liability under
RCM has been discharged.
• Assessee has further informed that the difference
between Clause 2 (i.e. "Total expenditure“) and sum
of clause 6&7 is on account of depreciation, bad debt
and expenditure, like salary, which is not a supply as
per GST. Also, Total Expenditure as pe column 2
includes “capital expenditure”.
Open House

दक्षम:

Slide No. 20
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