The auditing community across the nation is busy finalising the tax audit reports of their clients — the drop-dead date to get these reports done is end-September. While this is an annual routine for the auditing fraternity, this year the mandate to report on a new clause is the crux of many discussions.
The decisions based on these discussions have been varied. Clause 44 asks the auditors to report the total expenditure debited to the profit or loss account during the year and provide a break-up of this expenditure as per their GST transactions.
The break-up asks auditors to split the total expenditure into those registered under GST, those under the Composition Scheme of GST and those with unregistered suppliers. The general consensus amongst auditors has been to give a disclaimer.
A form of insurance
A popular disclaimer states that the form and format in which the transactions are recorded in the books of account of the assessee does not make the information readily available. A variant of this disclaimer states that the accuracy of the information furnished cannot be fully ascertained.
Disclaimers serve as an insurance for the tax auditor and provide no assurance of accuracy of the numbers to the GST department. Due to this, the need for this clause to be a part of the tax audit report can be questioned.
It is obvious that the income tax department is only going to act as a conduit and pass on the data in Clause 44 to the GST department.
Some taxpayers are worried about the repercussions of giving this information. They suspect that they could get notices from the GST department based on an analysis of the information provided.
Of late, some taxpayers have been receiving bizarre notices from the GST department.
Some of these notices have asked for e-way bill information from a non-banking financial company, notices to attach bank accounts have been issued liberally, GST has been demanded on items such as impairment and depreciation and, in some cases, penalty of ₹20,000 has been levied on taxable values of ₹72.
Taxpayers fear that the GST department can slice and dice the information given in the tax audit report and issue notices at will — a possibility that cannot be ruled out.
With audits by auditors under GST all but eliminated, Clause 44 of the tax audit report could be a source of enquiry for a GST audit by the department.
Info in monthly returns
It is a fact that the information required under this Clause needs to be culled out from the basic financial entries — requiring time and effort. There are also unanswered questions such as on how to present GST that has been paid under reverse charge. What is surprising is that the GST department would have all the information required under Clause 44 courtesy the monthly returns filed by taxpayers and their counterparties.
With e-invoicing becoming a norm than an exception, it would not be very difficult for the GST department to get information about transactions with registered dealers.
Transactions with unregistered dealers is something the department may not have readily available from existing returns. If the department so wants this information, they can seek it as an additional line item in the GST annual returns.
After its proposed introduction in the tax audit report, Clause 44 has been deferred multiple times and has been recently re-introduced.
During this period, GST laws have been amended multiple times seeking information from the taxpayer.
Since the information required can be extracted from the GST monthly and annual returns, there is a strong case for the removal of Clause 44 in the tax audit report.
The writer is a chartered accountant