FAQs On Disclosures & Reporting in Form 3CD

5/28/22, 11:29 AM FAQs on Disclosures & Reporting in Form 3CD | Tax Audit | A.Y.
2021-22
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FAQs on Disclosures & Reporting in Form 3CD | Tax Audit | A.Y. 2021-22
FAQs on Disclosures & Reporting in Form 3CD
| Tax Audit | A.Y. 2021-22
Account & Audit | Blog | Tax Audit Week |  1064 Views | 29 Min Read
By Taxmann | Last Updated on 21 February, 2022
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5/28/22, 11:29 AM FAQs on Disclosures & Reporting in Form 3CD | Tax Audit | A.Y. 2021-22
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FAQ 1. Whether the reporting in Form 3CD shall be made as per

books of account or after adjustment as per the Income
Computation & Disclosure Standards (ICDS)?
Ans. The preamble of the ICDS provides that the ICDSs are applicable for computation of income
chargeable under the head ‘ profit and gains of business or profession’ or ‘Income from other sources’ and
not for maintenance of books of accounts.
Further, the CBDT[1] has clarified that the books of account are to be maintained in accordance
with the accounting policies applicable to the assessee. Thus, it can be concluded that the
reporting in Form 3CD shall be in accordance with the books of account maintained by the
assessee. Any adjustment made to profit or loss under the ICDS shall be reported in Clause 13 of
Form 3CD.
Read More about the Income Computation And Disclosure Standards (ICDS) Here
(https://www.taxmann.com/practice/Incometax/IncomeComputationandDisclosureStandardsICDS/1110000000026190
cat=read)
FAQ 2. Who has to follow ICDS?

Ans. In exercise of the powers conferred by Section 145(2) of the Income-tax Act, 1961, the Central
Government has notified[2] the Income Computation and Disclosure Standards (also referred to as ICDS).
ICDSs have been issued to bring uniformity in the accounting policies governing computation of income
for taxability under the Income-tax Act and to reduce the litigations.
Every assessee earning income taxable under the head ‘ profit and gains from business or
profession’ or ‘Income from other sources’ or both is required to compute taxable income in
accordance with notified ICDS. However, the ICDS shall be followed only if the assessee
maintains accounts as per the ‘Mercantile system’ of accounting.
There is no threshold limit on the amount of turnover or taxable income for the applicability of
ICDS. Thus, every assessee earning business income or residuary income shall be required to
follow ICDS for computation of income. The applicability of ICDS shall be subject to certain
exceptions.
The CBDT has clarified that the general provisions of ICDS shall apply to all persons including
banks, NBFCs, insurance companies, etc. unless there are sector-specific provisions contained in
the ICDS or the Act. Example, ICDS-VIII (Securities) contains specific provisions for banks and
certain financial institutions and Schedule I of the Act contains specific provisions for the
Insurance business.
Exception 1: Exemption to Individual or HUF not liable for tax audit
An Individual or HUF, who is not required to get his books of account audited for the previous
year under section 44AB, shall not be required to comply with the requirements of ICDS.
A person opting for presumptive taxation scheme is not required to maintain the books of
account and get them audited. In this regard, the CBDT has clarified[3] that the relevant
provisions of ICDS shall apply to the persons (other than Individual or HUF) opting for
presumptive taxation scheme. For instance, for computing the presumptive income of a
partnership firm under section 44AD of the Act, the provisions of ICDS on construction contract
or revenue recognition shall apply for determining the receipts or turnover, as the case may be.
Exception 2: Exemption for MAT Computation
The CBDT has clarified9 that the provisions of ICDS are applicable for computation of income
under the regular provisions of the Act. As MAT is computed on ‘book profit’ that is net profit as
shown in the Profit and Loss Account prepared under the Companies Act subject to certain
specified adjustments, the provisions of ICDS shall not apply for computation of MAT. However,
where the assessee is liable to pay AMT under the provisions of Section 115JC, the provisions of
ICDS shall be applicable for computation of AMT.
Read More About Income Computation And Disclosure Standards (ICDS) Here

(https://www.taxmann.com/practice/Incometax/IncomeComputationandDisclosureStandardsICDS/1110000000026190
cat=read)
FAQ 3. Who is required to maintain books of accounts as per

Section 44AA?
Ans. Section 44AA provides for maintenance of books of account by an assessee under the Income-tax Act.
The table below demonstrates the requirement for maintaining books of accounts by different taxpayers:
Threshold Limits
Nature of Business o Category of Tax
r Profession payer For Gross Turnover or R
For Income
eceipts
Mandatory in every case except where presum

Specified Profession
Any ptive taxation scheme under Section 44ADA is
s*
opted by the assessee
More than Rs. 2,50,0

More than Rs. 25 lakh
00 in any of the 3 ye
Non-Specified Profe Individual or H s in any of the 3 years
ars immediately pre
ssions UF immediately precedin
ceding the previous
g the previous year**
year**

Non-Specified Profe s in any of the 3 years
Others ars immediately pre
ssions immediately precedin
ceding the previous
year**

Individual or H s in any of the 3 years
Business ars immediately pre
UF immediately precedin
ceding the previous
year**

s in any of the 3 years
Business Others ars immediately pre
immediately precedin
ceding the previous
year**
If income of assessee exceeds the maximum e

Business eligible for
xemption limit and he has opted for the presu
Presumptive Tax Sc Resident Indivi
mptive scheme in any of the last 5 previous ye
heme under Section dual or HUF
ars but does not opt for the same in current ye
44AD
ar.

Taxpayer has opted for the scheme in any of t
Presumptive Tax Sc Resident Partn
he last 5 previous years but it does not opt for
heme under Section ership Firm
the same in current year.
44AD
Any Assessee e
ngaged in plyin Taxpayer claims that t
Presumptive Tax Sc
g, hiring or leas – he profits are lower th
heme under Section
ing goods carri an the deemed profits.
44AE
age
Business eligible for Non-resident a

Taxpayer claims that t
Presumptive Tax Sc ssessee engage
– he profits are lower th
heme under Section d in exploratio
an the deemed profits.
44BB n of mineral oil

Foreign Co. eng Taxpayer claims that t
Presumptive Tax Sc
aged in civil co – he profits are lower th
heme under Section
nstruction an the deemed profits.
44BBB
* Meaning of Specified Profession:

1. Legal
2. Medical
3. Engineering
4. Architectural
5. Technical Consultancy
6. Interior decoration
7. Film artist[4]
8. Authorised Representative[5]
9. Accountancy Profession
10. Company secretary[6]
11. Information Technology[7]
** Where business or profession has been set up during the previous year, the threshold limit of
income or gross receipts of the current year shall be checked. In other words, in case of new
business or profession, if income or turnover or receipt of the current year, as the case may be, are
not likely to exceed the threshold limit, the assessee shall not be required to maintain the books
of account.
Read More on the Maintenance of Accounts Here

(https://www.taxmann.com/practice/Incometax/MaintenanceofAccounts/1110000000026733/1/0?cat=read)
FAQ 4. What documents should be maintained by the

taxpayers to comply with the requirement of maintenance of
books of accounts as per Section 44AA?
Ans. The following documents should be maintained by the taxpayers to comply with the requirement of
maintenance of books of accounts:
Nature of Business o
Threshold Limits Books of Accounts to be maintained
r Profession
1. Cash-book
2. Journal, if books of accounts are
maintained according to mercantile sy
stem of accounting
3. Ledgers
4. Carbon copies of bills and carbon
copies or counterfoil of receipts issued
Gross receipt exceeds R by the assessee of value exceeding Rs.
s other than compa
s. 1,50,000 in any of 3 y 25 (must be machine numbered or seri
ny secretary and Inf
ears immediately prece ally numbered)
ormation technolog
ding the previous year 5. Original bills issued to the assess
y
ee and receipts in respect of the expen
ditures incurred by him
6. Signed vouchers, if bills and recei
pts are not issued and amount of expe
nditure does not exceed Rs. 50, if cash
book does not contain adequate partic
ulars in respect of these expenditures
1. As specified above for specified pr

ofessions
Gross receipt exceeds R 2. Daily case register in Form 3C
s. 1,50,000 in any of 3 y 3. Inventory under broad heads of st
Medical Professions
ears immediately prece ock of drugs, medicines and other cons
ding the previous year umable accessories used for the purpo
se of profession, as on the first and las
t day of previous year.
In every case irrespecti Such books of accounts which may ena
ve of gross receipts and ble the Assessing Officer to compute t
s
Income he taxable income.
Income and turnover d

Non-Specified Profe oes not exceed the thre Not required to maintain books of acc
ssions shold limit as specified ounts
above
Income and turnover d

oes not exceed the thre Not required to maintain books of acc
Business
shold limit as specified ounts
above
Income and turnover e Such books of accounts which may ena

Non-Specified Profe
xceed the threshold li ble the Assessing Officer to compute t
ssions
mit as specified above he taxable income.
Income and turnover e Such books of accounts which may ena

Business xceed the threshold li ble the Assessing Officer to compute t
mit as specified above he taxable income.
FAQ 5. Mr A is maintaining books of accounts at more than one

location. Whether the address of all the locations is to be
mentioned in the audit report?
Ans. Clause 11 of Form 3CD requires a list of books maintained and the address where such books of
accounts are kept. If such books of accounts are kept at multiple locations, the auditor must mention the
address of all the locations and the details of books of accounts maintained at each location. In the case of
a company assessee, the auditor should verify whether Form AOC-5 has been filed with the Registrar of
Companies under the Companies Act for maintenance of books of accounts at a place other than the
registered office.
The auditor’s duties regarding ‘books of account maintained’ are not limited to merely giving a
list of books of account against clause 11(b). He is required to examine the books of account
maintained. Based on such examination, he is required to state in Form No. 3CB, whether books
of account kept are ‘proper books of account’.
Dive Deeper:
FAQs on Due Date & Process to file Tax Audit Report | A.Y. 2021-22
(https://www.taxmann.com/post/blog/faqs-on-due-date-process-to-file-tax-
audit-report-a-y-2021-22/)
FAQ 6. An assessee has changed the method of accounting from

mercantile to cash basis. What disclosure is required in Form
3CD?
Ans. Clause 13 of Form 3CD requires every assessee to report the method of accounting employed in the
previous year. Further, if there was a change in the method employed in the immediately preceding
previous year, then the same is to be reported. The assessee is also required to disclose the effect of a
change in the method of accounting on the profit and loss. If it is not possible to quantify the effect of a
change in the method of accounting, appropriate disclosure should be made under this clause.
A change in accounting policy will not amount to a change in the method of accounting, and
hence any change in the accounting policies need not be mentioned under clause 13(b).
FAQ 7. Whether adoption of Ind AS for the first time could be

considered as ‘Change in Method of Accounting’ for disclosure
in Form 3CD?
Ans. Method of Accounting refers to the basic rules and guidelines under which businesses keep their
financial records and prepare their financial statements. There are two main accounting methods used for
record-keeping – the Cash Basis and the Accrual Basis. Whereas the Accounting Standards or Ind AS pre-
requisite the accrual basis of accounting. Accounting standards are authoritative standards for financial
reporting and are the primary source of generally accepted accounting principles (GAAP).
Method of Accounting should not be confused with GAAP. Method of Accounting can be either a
cash basis or accrual basis. The GAAP provides the principles and procedures for calculation and
recognition of a financial transaction within the framework of Accrual basis of accounting. When
an entity switches from Accounting Standards to Ind AS, it does not change its method of
accounting. Thus, the transition to Ind AS should not be treated as a change in the method of
accounting.
FAQ 8. Whether GST registration no. of the assessee has to be

furnished in Form 3CD if the assessee is liable to pay tax under
reverse charge?
Ans. The ICAI, vide Implementation Guide dated August 22, 2018, has clarified that even if liability to pay
GST is only under the reverse charge mechanism, the fact of being liable to GST needs to be answered in
the affirmative, with the clarification that such liability is only under the reverse charge mechanism.
FAQ 9. If an assessee has multiple GSTIN, which registration

no. must be furnished in Form 3CD?
Ans. If the assessee has multiple GSTIN numbers (registered in different states), all the GSTIN numbers
allotted to him shall be mentioned in Form 3CD.
FAQ 10. Does the auditor need to report a break-up of the total
expenditure in respect of entities registered or not registered
under the GST?
Ans. Clause 44 of Form 3CD seeks details of the total expenditure incurred during the year. The break-up
needs to be given for expenditure in respect of entities registered under GST and relating to entities not
registered under GST.
Regarding expenditure in respect of entities registered under GST, the following details need to
be provided:
Relating to goods or services exempt from GST.
Relating to entities falling under composition scheme.
Relating to other registered entities.
Total payment to registered entities.
However, the CBDT[8] has kept the reporting under clause 30C and clause 44 of the Tax Audit
Report in abeyance till 31st March 2022.
FAQ 11. How can tax auditor report payments referred to in

Section 43B if the same is unpaid as on the date of submission
of tax audit report but paid before the due date of filing of
return of income?
Ans. Clause 26 of Form 3CD seek details of liability incurred in respect of any sum referred to in clause (a),
(b), (c), (d), (e) or (f) of Section 43B in the previous year and was paid or not paid on or before the due date for
furnishing the Return of Income of the previous year.
Since the due date of filing of the tax audit report is one month before the due date of filing of
return of income, it is practically not possible for the auditor to report if any payment is made
after the filing of the tax audit report but before the due date of return of income.
To address this difficulty, the CBDT has inserted sub-rule (3) in Rule 6G. It provides that a person
may get a revised audit report from an accountant and furnish it before the end of the relevant
assessment year for which the report pertains. Thus, if there is payment after furnishing of the
report, which necessitates a recalculation of disallowance under section 40 or section 43B, a
revised report may be filed.
Dive Deeper:
FAQs on Computation of Gross Receipts/Turnover | Tax Audit | A.Y. 2021-22
(https://www.taxmann.com/post/blog/faqs-on-computation-of-gross-receipts-
turnover-tax-audit-a-y-2021-22/)
FAQ 12. If shares of members of AOP are unknown during the

previous year, whether it is required to be reported in Form
3CD?
Ans. If shares of members are unknown during the previous year, the auditor needs to disclose this fact in
Clause 9(a) of Form 3CD.
Read More About The Taxability Of AOP/BOI Here

(https://www.taxmann.com/practice/Incometax/TaxabilityofAOPBOI/1110000000026369/1/0?cat=read)
FAQ 13. How does the auditor need to report the interest
inadmissible under Section 23 MSMED Act, 2006?
Ans. Clause 22 of Form 3CD seeks the disclosure of the amount of interest inadmissible under Section 23
of the Micro, Small and Medium Enterprises Development Act, 2006. The tax auditor needs to report the
amount of interest inadmissible under Section 23 of the MSMED Act, 2006 irrespective of whether the
amount of such interest has been debited to profit and loss account or not.
The auditor should verify that the auditee has disclosed the informat ion as required under
Section 22 of the MSMED Act, 2006 in the financial statements under audit. If the auditee makes
no disclosure in the financial statements, the tax auditor should appropriately qualify his report
in Form No. 3CB and also report the fact of non-disclosure in clause 22 of Form No. 3CD.
FAQ 14. Whether it is mandatory to disclose the nature of all

the businesses carried on by the assessee and any change
therein?
Ans. Clause 10 of Form 3CD mandates disclosure of the nature of every business or profession carried on
by an assessee during the previous year.
Any material change in the nature of business should be precisely disclosed. The change will
include a change from manufacturer to the trader as well as a change in the principal line of
business. Any addition to or permanent discontinuance of a particular line of business may also
amount to change requiring reporting. However, temporary suspension of the business may not
amount to change and therefore need not be reported.
FAQ 15. Mr A has opted for the presumptive scheme under

Section 44AD in respect of one of his businesses. Whether
auditor is required to mention details of such business in the
audit report?
Ans. In case the profit and loss account of the assessee includes any profit declared under the
presumptive scheme (Section 44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB), then it is mandatory to
mention the amount of such profit and the section under which the same is declared in Clause No. 12 of
Form 3CD. The tax auditor is not required to indicate whether the amount of presumptive income has
been correctly computed under the relevant section relating to presumptive taxation. The reporting
requirement is satisfied if the amount per profit and loss account is reported.
Read More about the Presumptive Taxation Schemes Here

(https://www.taxmann.com/practice/Incometax/PresumptiveTaxationSchemes/1110000000026735/1/0?cat=read)
FAQ 16. How to ensure that the profit has been computed
correctly if the profit & loss account includes the profit
computed on a presumptive basis?
Ans. If the profit and loss account of the assessee also includes the presumptive income, the common
business expenditure has to be apportioned to arrive at the correct amount of profit. The tax auditor, in
such a situation, should arrive at a fair and reasonable estimate of such expenditure on the basis of
evidence in possession of the assessee or by asking the assessee to prepare such estimate, which should be
checked by him.
It is also necessary to mention the basis of apportionment of common expenditure. However, if
the tax auditor is not satisfied with the reasonableness of such apportionment, he should
indicate such fact under this clause by a suitable note.
FAQ 17. Sub-clause (d) of Clause 13 requires the details in

respect of the adjustment required for complying with the
provisions of ICDS. Whether such adjustments are required to
be entered separately for income taxable under the head
“PGBP” and Income taxable under the head “Other Sources”?
Ans. The tax auditor needs to enter a consolidated amount by which the profit has been increased or
decreased. Such increase or decrease is not required to be bifurcated between the different heads of
income.
FAQ 18. An assessee has applied for a refund of Special

Additional Duty (SAD), but the same wasn’t credited in profit &
loss account. Whether the disclosure is required in Form 3CD?
Ans. If a claim for refund of SAD has been admitted as due and accepted during the relevant financial year,
it shall be reported under Clause 16. If the claim has been lodged during the previous year, but it has been
admitted as due after the relevant previous year, it need not be reported here. Where such amounts have
not been credited in the profit and loss account but netted against the relevant expenditure/income
heads, such facts should be brought out.
FAQ 19. Whether employees’ contributions to provident fund,

Superannuation fund etc. after the due dates are deductible?
Ans. Clause 20(b) of Form 3CD seeks the details of contributions received from employees for various
funds as referred to in Section 36(1)(va). There is no duty cast on the tax auditor to verify whether the
amounts of PF/ESIC etc. has been correctly deducted from the employee’s salary. The tax auditor’s duties
are limited to verify whether the amounts deducted from employees salaries have been paid over to the
Govt. on or before the due date.
Section 36(1)(va) provides for deduction of any sum received by an assessee from any of his
employees to which provisions of section 2(24)(x) apply, if such sum is credited by the assessee to
the employee’s account in the relevant fund or funds on or before the due date.
This matter has witnessed substantial litigation and the Courts have given conflicting rulings –
some in favour of the employers stating that employees’ share even if paid before the due date of
filing of return of income can be claimed a deduction, while some rulings have held that deposit
of employee’s share of contribution beyond the dates prescribed under the respective legislation
would not be allowed as a deduction.
The Finance Act, 2021 has put rest to this controversy by inserting an Explanation 5 to Section 43B
to clarify that the provisions of the said section do not apply and are deemed to never have been
applied to a sum received by the assessee from any of his employees to which provisions of
section 2(24)(x) applies. In other words, an employee’s contribution to the specified fund would be
deductible only under section 36(1)(va), if deposited in the time specified therein, and provision of
Section 43B would not apply in that case.
For example, employees contribution to relevant funds deducted from the

salary is Rs. 1,00,000. The said amount is treated as income of the employer
under section 2(24)(x). The due date for making payment of such amount to the
relevant fund is, say 15th April, 2021. If the employer does not make payment on
or before the said date, the said amount would not be deductible under Section
36(1)(va). It is noted that such amount would be disallowed permanently, i.e. it is
not deductible in the year of payment [it was allowable prior to amendment
basis some court rulings]. Accordingly, the employer needs to pay tax on such
an amount, and he also needs to deposit such an amount to the relevant fund.
Read More about the Deduction For Employees' Contribution to Welfare Fund Here
(https://www.taxmann.com/practice/Incometax/Deductionforemployeescontributiontowelfarefund/111000000002671
cat=read)
FAQ 20. Should an auditor quantify if the payment to a related

person is unreasonable or excessive in Clause 23?
Ans. No, an auditor is not required to quantify if the payment is unreasonable or excessive. Only the
Assessing Officer can make the disallowance if, in his opinion, the expenditure is unreasonable.
In case of purchase from the related party, which of the following amount is required to
be reported in Clause 23?
Gross purchase, i.e., before deducting the purchase return
Net purchase, i.e., after deducting the purchase return
Actual amount paid to creditors during the current year
Section 40(A)(2) provides that expenditure for which payment has been or is to be made to certain
specified persons listed in the section may be disallowed if, in the opinion of the Assessing
Officer, such expenditure is excessive or unreasonable. The section enjoins the Assessing
Officer’s power to fix the quantum of disallowance.
It may be advisable for the tax auditor to clarify that what has been reported are the actual
payments made to specified persons during the previous year. These are not necessarily the
amounts claimed in/debited to the profit and loss account.
The tax auditor is only required to give particulars of payments to persons specified under
section 40A(2)(b) under this clause. He is not required to give his opinion on the
unreasonableness/excessiveness of the payments, and that is the Assessing Officer’s prerogative.
Read More about the Disallowance of Payment Made to Related Persons Here

(https://www.taxmann.com/practice/Incometax/Disallowanceofpaymentmadetorelatedpersons/1110000000026720/1/
cat=read)
FAQ 21. Whether reporting under clause 23 applies to capital

expenditure incurred by the assessee?
As the clause requires an auditor to report all the payments made to the specified persons, the payments
made for capital purchases should also be considered for reporting under this clause.
Read More about the Capital Expenditure v. Revenue Expenditure Here

(https://www.taxmann.com/practice/Incometax/CapitalExpenditurev.RevenueExpenditure/1110000000026674/1/0?
cat=read)
FAQ 22. In clause 34(c), the interest payable on 31st March but
paid during the current year should be reported? Or taxpayer is
required to report all interest even if paid in the previous year
itself.
Ans. Under this clause, the auditor must furnish detailed information in case the assessee is liable to pay
interest under section 201(1A) or section 206C(7) of the Act. The reporting in clause 34(c) should be in
accordance with the reporting under clause 34(a) where the details of non-deduction are required to be
reported.
Where the assessee is liable to pay interest under Section 201(1A) or 206C(7), the tax auditor
should verify such amount from the books of account as on 31st March of the relevant previous
year and also from Part G of the statement generated by the Department in Form No. 26AS. In
case the assessee had disputed the levy or calculation of interest under TRACES, in Form No.
26AS, the tax auditor may re-calculate the amount of interest under section 201(1A) or section
206C(7) up to the audit report date for reporting under this clause and mention the fact in his
observations paragraph provided in Form No. 3CA or Form No. 3CB, as the case may be.
FAQ 23. Section 43B specifically disallows the interest expense

which is converted into a loan. Whether such disallowance
shall be permanent?
Ans. Circular No. 7/2006 dated 17-07-2006 clarifies that the unpaid interest, whenever actually paid to the
bank or financial institution, will be in the nature of revenue expenditure deserving deduction in the
computation of income. Therefore, the converted interest, by whatever name called, in the wake of its
conversion into a loan or borrowing or advance, will be eligible for deduction in the computation of
income of the previous year in which the converted interest is ‘actually paid’.
In other words, the nomenclature of the sum of converted interest will make no difference as the
payment of converted interest will not represent the repayment of the principal. The circular
clarifies that the fundamental principle remains that once an amount has been determined as
interest payable to the banks or financial institutions, any subsequent change of nomenclature of
interest will not affect its allowability and deduction in terms of section 43B will have to be
allowed on its actual payment. However, the Assessing Officer can ask for a certificate from the
assessee to be obtained from the lender bank or financial institution, etc., as evidence of ‘actual
payment’ of interest to banks or financial institutions.
Read More about the Deductions Allowed On Payment Basis Here

(https://www.taxmann.com/practice/Incometax/DeductionsAllowedonPaymentBasis/1110000000026728/1/0?
cat=read)
FAQ 24. Will the sum payable to Indian Railways for

advertisement at railway stations be disallowed under Section
43B?
Ans. If an advertising agency is making payment to the railways for putting up hoardings or display
panels on railway premises, such payment would be deemed to be the payment for the use of railway
assets, as the payment is for the use of space on the premises. However, where an advertiser is making
payment to the railways for the display of advertisements on hoardings or displays in railway premises,
such a payment is in the nature of payment for the services of advertisement and not for the use of railway
assets.
Any sum payable to Indian Railways for the use of railways assets shall be allowed on a payment
basis. Any sum payable to Indian Railways for its services shall be allowed as per the method of
accounting regularly employed by the assessee.
FAQ 25. As Clause 27(a) requires details of CENVAT, should ITC

under GST be reported under this clause?
Ans. Clause 27(a) applies to all assesses registered under GST/Central Excise. The e-filing fillable Form
3CD requires that information required by Clause 27 should be reported in the following Tabular format:
Treatment in Profit &

CENVAT/ITC Amount
Loss Account
Opening Balance
Credit availed
Credit utilised
Closing/Outstanding Ba
lance
Though no reference of Input Tax Credit (ITC) is notified in Form 3CD, the same is maintained in
e-filing utility format. Hence, all assessees registered under GST/Central Excise should provide
the relevant details.
FAQ 26. Whether details to be provided in Clause 27(a) should

match with the books of accounts?
Ans. While providing the detail under Clause 27(a) of 3CD, an assessee should ensure that details are
reconciled with the books of account vis-a-vis details available on the GST portal. A proper reconciliation
with respect to the same shall be maintained by the assessee. However, an assessee may adopt either
books of account or GST portal to provide the information under this clause, provided the same basis is
adopted consistently.
FAQ 27. If the statutory auditor does not consider an item as a

prior period expense, whereas tax auditor feels that such item
should be considered as a prior period, should that expense be
disclosed in Clause 27(b) of Form 3CD?
Ans. It may be noted that there is a difference between the expenditure of any earlier year debited to the
profit and loss account and the expenditure relating to an earlier year, which has crystallised during the
relevant year. An expense, though related to previous periods, which has been determined in the current
period, would not be considered as prior period items.
In such cases, though the expenditure may relate to the earlier year, it can be considered as
arising during the year on the basis that the liability materialised or crystallised during the year
and such cases will not be reported under this clause.
In case of any conflict in the opinion of the statutory auditor and tax auditor, the opinion of tax
auditor shall prevail and the information thereof shall be reported in Form 3CD.
FAQ 28. There is a difference in opinion between the tax

auditor and the client with respect to the applicability of a TDS
provision on a particular payment. How to report such
differences in the tax audit report?
Ans. If the tax auditor and client have a difference of opinion with respect to the applicability of TDS/TCS
provision, such concern shall be reported in clause (3) of Form 3CA or clause (5) of Form 3CB, as the case
may be.
FAQ 29. Mr A, a sole proprietor, agreed to transfer his personal

property to Mr X and received some non-refundable advance
against such a deal. The sale could not materialise as Mr X
could not pay the whole amount, and the advance money was
forfeited by Mr A. What are the disclosure requirements?
Ans. Section 56(2)(ix) of the Income-tax Act, provides for taxability of any sum received as an advance in
the course of negotiations for the transfer of capital asset and such sum was forfeited due to non-transfer
of such capital asset. A new Clause 29A to Form 3CD has been inserted to report any advance received from
the buyer but forfeited due to the non-materialisation of a deal to sell the capital asset.
The auditor is not required to report any such forfeited amount if it is in respect of a personal
capital asset or stock-in-trade. Any advances received and forfeited towards the sale of stock-in-
trade would be taxable under section 28(i), and would not be required to be reported since the
amount would be credited to the profit & loss account.
The requirement of reporting arises only on forfeiture of advance. If an advance has been received
and has been outstanding for a considerable time, there is no requirement to report such amount
unless and until it is forfeited by an act of the assessee.
FAQ 30. Whether advance received from a person for sale of

goods shall also be disclosed under Clause 31?
Ans. Loans or deposits are generally squared off by repayment of the sum to the lender. While as in the
case of advance for the sale of goods, the party’s ledger is squared off by the delivery of goods or services.
Thus, advance received against the agreement of sale of goods could not be deemed as a loan or deposit.
Accordingly, details of advances shall not be reported in Clause 31. Further, the ICAI, in the guidance note,
has clarified that advance received against the agreement of sale of goods is not a loan or deposit.
FAQ 31. ABC Ltd. has rendered services to its Associated

Enterprise resulting in a net profit of 15% on cost. Transfer
Pricing Officer (TPO) calculated the ALP of this transaction at
20% of the cost and accordingly made adjustment. Is it
required to be reported in Form 3CD?
Ans. As per Clause 30A of Form 3CD, if any primary adjustment to the transfer price has been made as per
Section 92CE(1), then the following details need to be given in Clause 30A of the form.
1. Clause of section 92CE(1) in which primary adjustment is made

2. Amount of primary adjustment
3. Whether the excess money available with the associated enterprise is required to be
repatriated to India as per the provisions of section 92CE(2)?
4. If yes, whether the excess money has been repatriated within the prescribed time.
5. If no, the amount of imputed interest income on such excess money which has not been
repatriated within the prescribed time.
FAQ 32. How to calculate the interest on excess money that

need to be repatriated after a primary adjustment?
Ans. Rule 10CB provides the rate of interest at which interest has to be calculated on excess money or part
thereof which is not repatriated within the time limit. Where the international transaction is
denominated in Indian rupees, the rate of interest will be the one-year marginal cost of fund lending rate
of State Bank of India as on 1st April of the relevant previous year, plus 325 basis points (3.25%). Where the
international transaction is denominated in foreign currency, the rate of interest shall be the six-month
London Interbank Offered Rate (LIBOR) as on 30th September of the relevant previous year plus 300 basis
points (3%).
It is possible that the amount of imputed interest income on the excess money not repatriated to
India may relate to more than one year. Having regard to Rule 10CB, the interest liability extends
till the date of repatriation. Accordingly, for the relevant year under audit, such liability in
respect of imputed interest may extend not only to the primary adjustment but may also relate to
the primary adjustment made in the earlier years.
FAQ 33. My client has borrowed money from its foreign holding
company, and the interest paid on such a loan was Rs. 1.05
crore during the previous year. Whether this transaction is
reportable in Form 3CD?
Ans. The Finance Act, 2017 has inserted a new section 94B to the Income-tax Act, 1961. The disallowance
under this provision shall be made if an Indian company or a Permanent Establishment of a foreign
company in India, incurs any expenditure by way of interest (or of similar nature) exceeding Rs. 1 crore in
respect of any debt issued by a non-resident. This provision shall not apply if the specified entity is
engaged in the business of banking or insurance.
The excessive interest shall not be deducted from the business profits of the current year, and
such excess interest shall be interest paid or payable in excess of 30% of earnings before interest,
taxes, depreciation and amortisation (EBITDA) of the payer entity. If there is a negative EBITDA,
then the entire interest is disallowable. The disallowance of excess interest will be made even if
the borrowing is for the purpose of business and rate of interest is at arm’s length under section
92.
The amount of interest expenditure, which is not deductible from business profits of current year,
shall be carried forward to the following assessment year and shall be allowed as a deduction
against the income from business or profession assessable for that year. The carried forward
interest shall be allowable to the extent of maximum allowable interest expenditure in
accordance with the calculation explained above. The interest shall be carried forward for a
maximum period of 8 assessment years immediately succeeding the assessment year for which
the excess interest expenditure was first computed.
A new Clause 30B has been inserted in Form 3CD, which requires details of such interest
payment with the following disclosures:
1. Amount of expenditure by way of interest or of similar nature incurred.
2. EBITDA during the previous year.
3. Amount of expenditure by way of interest or of similar nature as per (a) above which exceeds
30% of EBITDA as per (b) above.
4. Details of interest expenditure brought forward as per Section 94B(4).
5. Details of interest expenditure carried forward as per Section 94B(4).
This clause shall not be applicable in case of a company which is engaged in the business of
banking or insurance.
FAQ 34. Whether the figure of EBITDA shall be as per books of

account or as per provisions of Income-tax?
Ans. While computing the EBITDA, the figures as per the final audited stand-alone accounts of the
company should be considered, and not the figures as adjusted for the income tax computation after
various allowances and disallowances.
FAQ 35. How shall the details of loans accepted and repayment
thereof be reported in Clause 31 of Form 3CD?
Nature of transaction Mode To be reported in
Loan or Deposit Accepted A/c Payee cheque Clause 31(a)
Loan or Deposit Accepted Others Clause 31(a)
Receipt of advance for transfer of

A/c Payee cheque Clause 31(b)
Immovable Property
Receipt of advance for transfer of

Others Clause 31(b)
Immovable Property
Other Receipt of Rs. 2 lakhs or m Cheque or draft (n

Clause 31(ba)
ore ot being A/c Payee)
Other Mode (not b

Other Receipt of Rs. 2 lakhs or m
eing Cheque or Dr Clause 31(bb)
ore
aft)
Cheque or draft (n
Payment in excess of Rs. 2 lakhs Clause 31(bd)
ot being A/c Payee)
Other Mode (not b

Payment in excess of Rs. 2 lakhs eing Cheque or Dr Clause 31(bc)
aft)
Repayment of Loan or Deposit or

advance for transfer of Immovabl A/c Payee cheque Clause 31(c)
e Property
Repayment of Loan or Deposit or

advance for transfer of Immovabl Others Clause 31(c)
e Property
Repayment of loan or deposit or

advance for transfer of Immovabl
Any Clause 31(d)
e Property (originally accepted ot
her than through cheque)
Repayment of loan or deposit or

advance for transfer of Immovabl
e Property (originally accepted th Any Clause 31(e)
rough cheque or draft not being
A/c payee cheque/draft)
FAQ 36. My client has furnished the TDS/TCS statement within

the prescribed time limit. Do I have to report the details of
such returns in form 3CD?
Ans. Up to Assessment Year 2017-18, an assessee was required to report details regarding furnishing of
TDS/TCS statement under clause 34(b) if such statements weren’t submitted within the prescribed time
limits. However, w.e.f. assessment year 2018-19, Form 3CD requires such details even if the assessee has
submitted the statements within prescribed time limits.
Further, if the assessee failed to report all transactions in statements of TDS/TCS then
unreported transactions have to be disclosed in clause 34(b) of Form 3CD.
Dive Deeper:
FAQs on Introduction & Applicability of Tax Audit | A.Y. 2021-22
(https://www.taxmann.com/post/blog/faqs-on-introduction-applicability-of-
tax-audit-a-y-2021-22/)
FAQ 37. Should capital expenditure be reduced from the actual

cost of a capital asset if tax was not deducted from such
expenditure?
Ans. As per section 40(a)(ia), 30% of an expense is disallowed if tax is not deducted or after deduction is
not paid to the Government. Whether this provision shall be applicable only in the case of revenue
expenditure or in respect of capital expenditure as well has been a matter of dispute between taxpayer and
revenue. The revenue always argues to reduce the actual cost of a fixed asset if the tax has not been
deducted for an expense that is capitalised as per provisions of section 43(1). In the cases of CIT v. Plasmac
Machine Mfg. Co. Ltd. (https://www.taxmann.com/research/search?
searchData=CIT%20v.%20Plasmac%20Machine%20Mfg.%20Co.%20Ltd.) [1993] 201 ITR 650 (Bom.) and Sumilon
Industries Ltd. v. ITO (https://www.taxmann.com/research/search?
searchData=%5B2010%5D%203%20taxmann.com%20187%20(Ahmedabad-ITAT)) [2010] 3 taxmann.com 187
(Ahmedabad-ITAT), it was held that disallowance under this section could be made only from an expense
which is claimed in Profit and Loss Account. Since in the case of capital expenditure, no deduction is
claimed under the P/L account, there should not be any disallowance under section 40(a)(ia) in respect of
such payment.
FAQ 38. Whether quantitative details of each and every stock is

to be mentioned in clause 35?
Ans. Clause 35 requires quantitative details of ‘principal items’ of raw materials and finished goods.
Therefore, information about petty items need not be given. Normally, items that constitute more than
10% of the aggregate value of purchases, consumption or turnover may be classified as principal items.
FAQ 39. In case of a manufacturing concern, the auditor failed

to ascertain the yield of finished goods because of different
measurement units of raw material and that of the finished
product. How to report this in Form 3CD?
Ans. If the assessee is engaged in the manufacture of goods, the yield and shortage cannot be ascertained
if the input of raw materials and the output of finished goods are recorded in different units of
measurement.
If the end product is a standard item and can be converted back and related to the input of the
raw material in the same unit of measurement, it should be done to ascertain the shortage, yield
etc. If it is not possible, the tax auditor should state the fact under this clause.
FAQ 40. How to furnish the ratios in Clause 40 of Form 3CD?

Ans. Clause 40 seeks the following ratios for the previous year and the preceding previous year.
S.No. Particulars Previous Year Preceding Previous Year
Total turnover of the as

1
sessee
2 Gross profit/turnover
3 Net profit/turnover
4 Stock-in-trade/turnover
Material consumed/fini
5
shed goods produced
The ratios have to be given for the business as a whole and are not required to be given product-
wise. The relevant previous year figures are to be taken from the last previous year audit report.
In case the preceding previous year is not subject to audit, nothing should be mentioned in the
relevant column.
The tax auditor is not to sit in judgment over whether ratios calculated under clause 40 are fair
for tax assessment purposes. He should simply comply with clause 40 to calculate and report the
ratios with calculations.
FAQ 41. In the case of the first Ind AS financial statements,

whether the details regarding turnover, gross profit, ratios,
etc., for the previous year and preceding previous year shall be
as per Ind AS financial statements.

Ans. As per Ind AS 101 (First Time Adoption of Indian Accounting Standards), in case of transition from
AS to Ind AS, the opening balances and comparative figures must be calculated and presented as per Ind
AS.
The Income-tax Act does not provide any mechanism for calculating gross profit, turnover or
ratios for disclosure in Form 3CD. Thus, such disclosures have to be made as per the financial
statements prepared in accordance with AS or Ind AS. As the entity has to present the
comparative figures in Ind AS financial statements, the same information can be used to disclose
the desired information in Form 3CD.
FAQ 42. In the case of Ind AS financial statements, if liability

increases due to change in actuarial assumptions taken to
calculate the provision of gratuity, which is debited to OCI, can
the entity claim the deduction for such additional liability?
The courts have held that if provision for gratuity is computed on a scientific basis (i.e., actuarial
valuation), the deduction thereof shall not be denied. If any liability increases due to a change in the
actuarial assumptions, the resultant expense is recognised in OCI by virtue of Ind AS 19 (Employee
Benefits). Thus, if provision for gratuity increases due to change in the assumptions, such as, discount
rate, mortality rate, etc., the additional expenses recognised in OCI should be allowed as deduction while
computing the taxable business income. If an increase in provision for gratuity is attributable to such a
change in actuarial assumption, it shall not be disclosed as disallowable under Clause 21(e).
FAQ 43. How should the deduction of interest charged to

Statement of Profit & Loss due to the “effective interest rate
method” of Ind AS be allowed under the Income-tax Act?
Ans. In view of Ind AS, the processing fees paid to the banks or financial institutions in respect of
borrowings have to be amortised over the tenure of the loan. In other words, the amount of borrowing cost
recognised during the year shall be the sum of actual interest paid or payable to the bank and the
amortised amount of processing fees.
Under the Income-tax Act, the deduction for such borrowing cost shall be subject to Section 43B.
The deduction for interest and processing fees shall be allowed on a payment basis. Thus, if the
processing fee has been paid to the bank, the deduction for the entire fees shall be allowed in the
year of payment itself. Irrespective of the amount of borrowing cost recognised in the books of
account, the Income-tax Act shall allow a deduction for the entire amount of interest or process
fees paid to the bank during the year. The disclosure shall be made in Clause 26.
FAQ 44. A demand was raised with respect to Custom duties on

my client and the same was adjusted against the refund due. So
no amount was paid by him to the department. As an auditor,
do I need to disclose the same in form 3CD?
Ans. Yes, an auditor is required to report the details of demand raised or refund issued to the assessee
during the previous year irrespective of the fact that it was adjusted against any pending demand or
refund. Details are to be shown under Clause 41 of Form 3CD.
FAQ 45. Any consideration for the issue of shares that exceeds
the fair market value of the shares as referred to in section
56(2)(viib) received by a start-up to be reported in clause 29?
Ans. Reporting obligation under Clause 29 is triggered if unquoted shares are issued at a premium by a
closely held company. In such a case, the excess of the premium over the fair market value of the shares
shall be taxable as income from other sources in the hands of the company.
The DPIIT recognised start-ups are exempted from the applicability of Section 56(2)(viib) subject
to the satisfaction of various conditions prescribed under the notification issued by the DPIIT[9].
Therefore, Clause 29 shall apply only to closely held companies except DPIIT recognised start-ups
that satisfy the condition for exemption. If the private limited company in question is a DPIIT-
recognised start-up eligible for exemption under section 56(2)(viib), the e-mail received from
CBDT regarding eligibility for exemption must be verified by the tax auditor and suitable remarks
should be made regarding the applicability of the exemption and the non-applicability of Clause
29.
Section 56(2)(viib) and Notification issued by the DPIIT15 prescribe various conditions for a start-
up to claim exemption from payment of tax under this provision. In case of failure to comply with
these conditions, the consideration received from the issue of shares, as exceeding the fair
market value of such shares, shall be deemed to be the income of the company chargeable to tax
for the previous year in which such failure takes place. When the exemption is withdrawn, it
shall be deemed that the company has under-reported the income in consequence of the
misreporting and, consequently, a penalty of an amount equal to 200% of tax payable on the
underreported income shall be levied as per Section 270A[10].
Read More about the Shares Issued at Premium or Discount Here

(https://www.taxmann.com/practice/Incometax/Sharesissuedatpremiumordiscount/1110000000026257/1/0?
cat=read)
FAQ 46. Whether a change in shareholding of a start-up

company is to be reported in Clause 32(b) of Form 3CD ?
Ans. Clause 32(b) applies only to closely-held companies (companies in which the public are not
substantially interested). It seeks the information of change in shareholding of the company in the
previous year due to which the losses incurred before the previous year cannot be allowed to be carried
forward in terms of section 79.
Section 79 provides that the losses incurred by a closely held company in any year before the
previous year shall not be carried forward and set off against the income of the previous year
unless the shares of the company carrying at least 51% of the voting power are beneficially held
by the same persons on the following two dates:
On the last day of the previous year in which loss was incurred;
On the last day of the previous year in which such brought forward loss has to be set-
off.
The losses incurred by an eligible start-up shall be allowed to be carried forward and set off
against the income of the previous year on the satisfaction of any of the two conditions specified
below:
Condition 1: Continued 51% shareholding
In the year of set-off of losses, at least 51% of voting power is beneficially held by the same
persons who held them as on the last day of the year in which loss was incurred; or
Condition 2: Continued 100% shareholders with the same voting
rights
100% of shareholders, on the last day of the previous year in which loss was incurred, should
continue to hold the same shares on the last day of the previous year in which loss is to be set-
off. Further, such losses should have been incurred during 7 years beginning from the year of
incorporation of the company.
Hence, the tax auditor should check whether a change in shareholding as envisaged by section 79
of the Act has taken place, the composition of shareholding as at the last day of the current
previous year should be compared with the composition of shareholding as at the last day of each
previous year in which loss was incurred. The comparison should be made by reference to the
Register of Members. The carry-forward of loss incurred in respect of different previous years
should be determined previous year-wise.
Read More about the Restriction on the Losses of Closely Held Companies Here
(https://www.taxmann.com/practice/Incometax/Restrictiononlossesofcloselyheldcompanies/1110000000026567/1/0?
cat=read)
[1] Circular No. 10/2017, dated 23-03-2017

[2]Notification No. 87/2016, dated 29-9-2016
[3] Circular No. 10/2017, dated 23-03-2017

[4] Notification: No. SO 17(E), dated 12-1-1977
Film artist includes actor, cameraman, director, music director, art director, dance director,
editor, singer, lyricist, story writer, screen play writer, dialogue writer, and dress designer.
‘Authorised Representative’ means a person, who represents any other person, in lieu of fee or
remuneration, before any Tribunal or statutory authority, but does not include an employee of the
person so represented or a person carrying on legal profession or a person carrying on the
profession of accountancy.
[6] Notification: No. SO 2675, dated 25-9-1992
[8] Circular no. 5/2020 [F. NO. 370142/9/2018-TPL], dated 25-3-2021
[9] Notification No. GSR 127(E), Dated 19-2-2019
[10] Inserted by the Finance (No. 2) Act, 2019 with effect from Assessment Year 2020-21.
Tags: Tax Audit (https://www.taxmann.com/post/tag/tax-audit/)
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information of the user and shall not be construed as legal advice. While the Taxmann has
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2 thoughts on “FAQs on Disclosures & Reporting in Form 3CD | Tax
Audit | A.Y. 2021-22”
1. Rajkamal Shah says:

January 16, 2022 at 4:45 pm (https://www.taxmann.com/post/blog/faqs-on-disclosures-
reporting-in-form-3cd-tax-audit-a-y-2021-22/#comment-5716)
Ver y apt, informative & useful analysis. Thanks for sharing
Reply
2. 0b3M says:
April 27, 2022 at 7:05 am (https://www.taxmann.com/post/blog/faqs-on-disclosures-reporting-
in-form-3cd-tax-audit-a-y-2021-22/#comment-9527)
462673 926265Woh I like your posts , saved to fav! . 203773
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FAQs On Disclosures & Reporting in Form 3CD - Tax Audit - A.Y. 2021-22

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5/28/22, 11:29 AM FAQs on Disclosures & Reporting in Form 3CD | Tax Audit | A.Y.

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| Tax Audit | A.Y. 2021-22

RBI issues Guidelines on Import of Gold by Qualified Jewellers under IFSCA

Blog, FEMA & Banking, News

RBI reduces the net-worth requirement for non-bank BBPOUs to Rs 25 crore

FAQ 1. Whether the reporting in Form 3CD shall be made as per

FAQ 2. Who has to follow ICDS?

Read More About Income Computation And Disclosure Standards (ICDS) Here

FAQ 3. Who is required to maintain books of accounts as per

Mandatory in every case except where presum

More than Rs. 2,50,0

More than Rs. 1,20,0

More than Rs. 2,50,0

More than Rs. 1,20,0

If income of assessee exceeds the maximum e

Business eligible for

Business eligible for Non-resident a

Business eligible for

* Meaning of Specified Profession:

Read More on the Maintenance of Accounts Here

FAQ 4. What documents should be maintained by the

1. As specified above for specified pr

Income and turnover d

Income and turnover d

Income and turnover e Such books of accounts which may ena

Income and turnover e Such books of accounts which may ena

FAQ 5. Mr A is maintaining books of accounts at more than one

FAQ 6. An assessee has changed the method of accounting from

FAQ 7. Whether adoption of Ind AS for the first time could be

FAQ 8. Whether GST registration no. of the assessee has to be

FAQ 9. If an assessee has multiple GSTIN, which registration

FAQ 11. How can tax auditor report payments referred to in

FAQ 12. If shares of members of AOP are unknown during the

Read More About The Taxability Of AOP/BOI Here

FAQ 14. Whether it is mandatory to disclose the nature of all

FAQ 15. Mr A has opted for the presumptive scheme under

Read More about the Presumptive Taxation Schemes Here

FAQ 17. Sub-clause (d) of Clause 13 requires the details in

FAQ 18. An assessee has applied for a refund of Special

FAQ 19. Whether employees’ contributions to provident fund,

For example, employees contribution to relevant funds deducted from the

FAQ 20. Should an auditor quantify if the payment to a related

Read More about the Disallowance of Payment Made to Related Persons Here

FAQ 21. Whether reporting under clause 23 applies to capital

Read More about the Capital Expenditure v. Revenue Expenditure Here

FAQ 23. Section 43B specifically disallows the interest expense

Read More about the Deductions Allowed On Payment Basis Here

FAQ 24. Will the sum payable to Indian Railways for

FAQ 25. As Clause 27(a) requires details of CENVAT, should ITC

Treatment in Profit &

FAQ 26. Whether details to be provided in Clause 27(a) should

FAQ 27. If the statutory auditor does not consider an item as a

FAQ 28. There is a difference in opinion between the tax

FAQ 29. Mr A, a sole proprietor, agreed to transfer his personal

FAQ 30. Whether advance received from a person for sale of

FAQ 31. ABC Ltd. has rendered services to its Associated