Clause 43 of Form 3CD: A Detailed Explanation

Clause 43 of Form 3CD: A Detailed Explanation

Clause 43 of Form 3CD of the Income Tax Audit Report requires the auditor to report the following information:

• Whether the assessee or its parent entity or alternate reporting entity is liable to furnish the report as referred to in section 286(2) of the Income-tax Act, 1961.
• If yes, the details of the report.

Section 286(2) of the Income-tax Act, 1961, (2) Every parent entity or the alternate reporting entity, resident in India, shall, for every reporting accounting year, in respect of the international group of which it is a constituent, furnish a report, to the prescribed authority on or before the due date specified under sub-section (1) of section 139, for furnishing the return of income for the relevant accounting year, in the form and manner as may be prescribed.

This section requires certain persons to furnish a report to the prescribed authority in respect of any specified transaction. The specified transactions include:

• Any transaction involving an amount of Rs. 20 lakh or more, if the consideration for the transaction is in cash.
• Any transaction involving an amount of Rs. 30 lakh or more, if the consideration for the transaction is not in cash.

The report under section 286(2) of the Income-tax Act, 1961, is to be furnished by the following persons:

• The person who is a party to the specified transaction.
• The person who is responsible for providing the consideration for the specified transaction.
• The person who is responsible for arranging for the financing of the specified transaction.

What is the purpose of Clause 43 of Form 3CD?

The purpose of Clause 43 of Form 3CD is to prevent tax evasion through cash transactions. Cash transactions are difficult to track and therefore, they are often used to evade taxes. By requiring certain persons to furnish a report in respect of cash transactions, the government can track these transactions and prevent tax evasion.

Who is liable to furnish a report under section 286(2) of the Income-tax Act, 1961?

The following persons are liable to furnish a report under section 286(2) of the Income-tax Act, 1961:

• The person who is a party to the specified transaction.
• The person who is responsible for providing the consideration for the specified transaction.
• The person who is responsible for arranging for the financing of the specified transaction.

For example, if A sells a property to B for Rs. 20 lakh in cash, then A and B are both liable to furnish a report under section 286(2) of the Income-tax Act, 1961. If C is a bank that provides a loan to A to finance the purchase of the property, then C is also liable to furnish a report under section 286(2) of the Income-tax Act, 1961.

What are the details that need to be included in the report?

The report under section 286(2) of the Income-tax Act, 1961, must include the following details:

• The name and address of the person who is furnishing the report.
• The date of the specified transaction.
• The amount of the specified transaction.
• The nature of the specified transaction.
• The mode of payment for the specified transaction.
• The name and address of the other party to the specified transaction.

The report must also be signed by the person who is furnishing the report.

What are the consequences of failing to furnish a report under section 286(2) of the Income-tax Act, 1961?

Any person who fails to furnish a report under section 286(2) of the Income-tax Act, 1961, is liable to a penalty of Rs. 10,000. In addition, the person may also be prosecuted under the Income-tax Act, 1961.

What is the role of the auditor in relation to Clause 43 of Form 3CD?

The auditor is required to report whether the assessee or its parent entity or alternate reporting entity is liable to furnish the report under section 286(2) of the Income-tax Act, 1961. If yes, the auditor is required to report the details of the report.

The auditor is also required to comment on the correctness and completeness of the report.