GST DISCLOSURES FOR TAX AUDITS UNDER INCOME TAX

[Dr. Sanjiv Agarwal]

Following points should be kept in mind with respect to GST reporting in Form 3CD of Income Tax:

• Tax auditor has to disclose whether the assessee is liable to pay indirect taxes. This would include taxes such as service tax, VAT, excise duty, GST and customs duty.
• If it is found that auditee is not registered under any law but is required to be registered, auditor should report the same.
• In case the assessee has multiple GSTIN numbers (registered in different states), all the GSTIN numbers allotted to him shall be mentioned in Clause 4 of Form 3CD. All such registration numbers should be examined by the tax auditor and duly reported.
• 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 but with the clarification that such liability is only under the reverse charge mechanism.

• Section 145A provides for the inclusion of taxes, cess, etc., in the value of sale, purchase, and inventory. However, the purpose of this provision is limited to the calculation of income taxable under the head 'Profits and Gains from Business or Profession'.
• Where an assessee has opted for the Composition Scheme under the GST Act, the tax is not recovered from the customer and is debited to the statement of profit & loss as an indirect expense. Thus, the amount of GST paid by an assessee does not form part of gross turnover.
• For other assessees, as GST is charged from the customer and is recognised separately in the books of accounts, it would be appropriate to ignore the amount of GST while calculating the gross turnover or gross receipts.
• If GST recovered from the customer is credited to Current Liability Accounts (Output CGST, Output IGST, or Output SGST) and payments to the authority are also debited to the said separate account, these should not form part of the turnover shown in profit and loss account. ICAI's Guidance Note on Tax Audit confirms that if the tax recovered is credited to a separate account, it would not be included in the turnover.

• Clause 27(a) of Form 3 CD of Income Tax applies to all assesses registered under GST/Central Excise. Though no reference of Input Tax Credit (ITC) is notified in Form 3CD, the same is maintained in the e-filing utility format. Thus, all assessees registered under GST/Central Excise should provide the relevant details in Form 3CD.
• Assessees should also ensure that details are reconciled with the books of account vis-à-vis details available on the GST portal. The assessee shall maintain a proper reconciliation with respect to the same. Assessees may adopt either the books of account or GST portal to provide the information under this clause, provided the same basis is adopted consistently.
• Tax auditor should verify the reconciliation between the balance of CENVAT/Input credit in the accounts and relevant excise and GST records. The tax auditor should report the amount of CENVAT/Input availed and utilized.
• Clause 44 of Form 3CD seeks details of the total expenditure incurred during the year. The break-up should be given for the expenditure in respect of entities registered under GST and relating to entities not registered under GST.

• Clause 44 requires the details in the following manner :

(a) Total expenditure incurred during the year;

(b) Expenditure in respect of entities registered under GST:

• Relating to goods or services exempt from GST;
• Relating to entities falling under the composition scheme;
• Relating to other registered entities;
• Total payment to registered entities;

     (c) Expenditure relating to entities not registered under GST.

• Schedule III to the CGST Act, 2017 lists out activities or transactions that are neither treated as a supply of goods nor as supply of services. Thus, expenditure incurred in respect of such activities need not be reported under this clause.
• Any expenditure incurred, wholly and exclusively, for the business or profession of the assessee qualifies for the deduction under the Act. Registration or otherwise of the payee under the GST Act has no relevance in considering the allowability of expenditure.

Need for keeping working papers of reconciliation (Para 82.3 of guidance note)

• Tax auditor is required to keep reconciliation working paper for total expenditure in Profit and Loss Account and value reported in clause 44.
• Accordingly, details of all deductions and additions must be maintained for each sub-entity (GSTIN-wise) of the legal entity.
• Manner of reconciliation

Particulars	Amount (Rs.)
Total value of expenditure in P&L for the year	***
Add: Total value capital expenditure not included in P&L for the year	***
Less: Total value of non-cash charges considered as expenditure	***
Less: Total value of expenditure excluded for being transactions in securities and transactions in money	***
Less: Total value of expenditure excluded by virtue of Schedule III to the CGST Act, 2017	***
Balance being value of expenditure for clause 44	***