Suggestive Reporting in Tax Audit Form for Disallowance under Section 43b(h)

The Finance Act 2023 added Section 43B(h), which states that any payment owed to Micro and Small Enterprises for products sold or services rendered may be deducted in the same year if paid by the deadline specified by the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.

Any disallowance u/s 43B(h) is required to be reported in Clause 22(ii) of Form 3CD.

Here in this article, we’ll discuss Suggestive Reporting in Form 3CD for Disallowance under Section 43B(h) of the Income Tax Act 1961.

Facts of Cases which should be reported by the Auditor and reporting to be made in Form 3CA/ 3CB and 3CD [Para 3 and 5 of 3CB or Para 3 of 3CA].

1. If the Assessee identify all micro/ small enterprises correctly

For Para 3 of Form 3CA / Para 5 of Form 3CB: No separate reporting/ comment/ disclaimer is required.

Form 3CD: Mention the amount of disallowances in Clause 22(ii), if any.

2. If the Assessee could not identify any micro/ small entity at all

For Para 3 of Form 3CA/ Para 5 of Form 3CB: Consequent to the non-identification of Micro and Small enterprises under the MSMED Act, 2006, the amount inadmissible u/s 43B(h) cannot be ascertained, which could impact the provision for current tax and deferred tax.

3. If the Assessee could not identify micro/ small entity completely (for all cases)

For Para 3 of Form 3CA/ Para 5 of Form 3CB: The assessee could not identify all Micro and Small Enterprises. We have test-checked as per standards on auditing issued by ICAI and the details of the amount inadmissible u/s 43B(h) as stated in clause 22(ii) of Form 3CD may not be true and correct.

4. If the Assessee states they there is no transaction with micro/ small enterprises

For Para 3 of Form 3CA/ Para 5 of Form 3CB: The assessee has stated that there is no transaction with any supplier who is micro/ small enterprises as per MSMED Act, 2006, which we have test checked as per standards on auditing issued by ICAI. There is no amount inadmissible u/s 43B(h) of the Income Tax Act, 1961 to be reported in clause 22(ii).

Disclaimer: This Article is shared by CA Sumit Garg. He can be contacted at 9560064645 or at email: [email protected]