Form 3CD is not a summary of the accounts. It is a structured set of disclosures designed so that specific adjustments can be identified without reading the accounts at all. Understanding which clauses do that work changes how the audit is planned — and how the working papers are assembled.
These are the clauses that, in practice, generate the most questions.
Clause 20(b) — employees' contributions to welfare funds
This clause requires the due date for payment of employees' contributions to any provident fund, superannuation fund or other welfare fund, and the actual date of payment.
The position is settled. In Checkmate Services P. Ltd. v. Commissioner of Income Tax, decided by the Supreme Court on 12 October 2022, the Court held that the employees' contribution deducted from salary is dealt with under Section 36(1)(va) and not Section 43B. It is deductible only if deposited by the due date under the relevant welfare statute. Payment before the due date for filing the return does not save it.
Clause 21 — amounts debited that are not allowable
Sub-clause (b) captures amounts inadmissible under Section 40(a) — payments to non-residents on which tax has not been deducted or paid, and payments to residents attracting the thirty per cent disallowance under Section 40(a)(ia). Sub-clause (d) captures cash payments hit by Section 40A(3).
This clause is read against the TDS returns and against the cash book. The reconciliation that supports it — expense ledger to tax deducted to challan to quarterly statement — is the single most useful working paper in the entire file, because it also supports clause 34.
Clause 22 — interest under the MSMED Act
The amount of interest inadmissible under Section 23 of the Micro, Small and Medium Enterprises Development Act, 2006. Since the insertion of Section 43B(h), this clause is read alongside clause 26 and against the company's half-yearly MSME Form I filed with the Registrar of Companies.
Three sources, one set of facts. Where they disagree, the disagreement is visible without any enquiry being made.
Clause 23 — payments to specified persons
Payments to persons specified in Section 40A(2)(b) — relatives, directors, entities with substantial interest. The clause asks only for particulars, but the particulars invite the question of whether the payment was excessive or unreasonable having regard to fair market value.
The defence is contemporaneous: a basis for the remuneration or the rate, recorded when it was fixed. A justification prepared after a query has been raised carries considerably less weight.
Clause 26 — sums referred to in Section 43B
The clause distinguishes liabilities pre-existing at the start of the year from those incurred during it, and within each, what was paid and what was not. Statutory dues, employer contributions, interest to banks and financial institutions, and now sums payable to micro and small enterprises under clause (h) all sit here.
The recurring error is presentational rather than substantive: the clause requires the analysis to be given liability by liability, and a single aggregated figure for "statutory dues" is not a completed disclosure.
Clause 31 — loans, deposits and specified transactions
Particulars of amounts accepted or repaid otherwise than by the prescribed banking modes, under Sections 269SS, 269T and 269ST.
Section 269ST is the sub-clause most often overlooked, because it does not concern loans at all. It restricts receipt of ₹2,00,000 or more from a person in a day, in respect of a single transaction, or in respect of transactions relating to one event or occasion. A cash sale split across several receipts of a smaller amount, relating to the same transaction, is within the section. The penalty under Section 271DA is equal to the amount received.
The clauses that create difficulty are rarely the ones requiring judgement. They are the ones requiring a schedule that nobody maintained during the year.The AKV working rule
Clause 34 — compliance with tax deduction and collection
Three parts: whether the assessee was required to deduct or collect and whether the statements were furnished; whether any statement contains a shortfall; and whether interest under Section 201(1A) or 206C(7) is payable and has been paid.
This is the clause most directly capable of being verified by the department without contacting anyone, because the statements are already in the system. The working paper that makes it defensible is a ledger-wise mapping of expenses to the section under which deduction was made, with the reason where no deduction was made.
Clause 44 — break-up of total expenditure
Total expenditure split between entities registered under the goods and services tax and those not registered, with a further break-up of the registered portion.
The clause is demanding because most accounting systems do not capture expenditure by the registration status of the counterparty. It requires the vendor master to carry the GST status of every vendor and the expense ledger to be capable of being analysed by it. Building this once, at the start of the year, converts a fortnight of reconstruction into a report.
Clauses 17 and 18 — stamp duty value and depreciation
Clause 17 captures transfers of land or building for a consideration less than the stamp duty value, engaging Sections 43CA and 50C. Clause 18 captures depreciation, and is read against the fixed asset register and the additions during the year — particularly the date of put to use, which determines whether the half-year restriction applies.
What the audit file should therefore contain
- A TDS reconciliation from expense ledger through to quarterly statement, prepared quarterly rather than at the year end
- A separate schedule for employees' and employer's contributions, with due dates and payment dates
- A vendor master carrying MSME classification and GST registration status
- A cash payments analysis exceeding the Section 40A(3) and 269ST thresholds
- A fixed asset register with dates of put to use, not merely dates of invoice
- A note on the basis of every payment to a specified person, recorded when fixed
None of this is created by the audit. It is either maintained through the year, or reconstructed under time pressure in September — and reconstruction is where errors enter a report that is signed under a professional's name.
Scope of advice. This firm advises on the Indian tax, exchange-control and regulatory position. Where a matter also turns on the law of the country in which you are resident or in which an entity is incorporated, we set out the Indian position and coordinate with your adviser in that jurisdiction; we do not render advice on foreign law.
Discussing your position. If any part of this affects a transaction you are contemplating, the useful conversation is the one that happens before it is executed. A scoping call is the appropriate first step.
This article is general commentary on the law as it stands and is not advice on any specific facts. Positions in tax, corporate and exchange-control law change with amendments, notifications and judicial decisions; please confirm the current position with the firm before acting.