Tax audit clause -22 msme

Question BankCategory: Income TaxTax audit clause -22 msme
Kollipara sundaraiah asked 5 months ago

It assessess client accountant share only tally data and gst /tds login details provided any physical documents like purchase and sale biils details and any creditor and debtor confirmation f.y.23-24
Question:
Tax audit complete possible and clause -22 msme procedure 

1 Answers
Manish answered 5 months ago

The query pertains to the feasibility of completing a tax audit when the client has only provided Tally data, GST/TDS login details, and no physical documents like purchase/sale bills or creditor/debtor confirmations for FY 2023-24. It also asks about the procedure under Clause 22 of MSME.

1. Can the Tax Audit be Completed with the Provided Data?

  • A tax audit under Section 44AB of the Income Tax Act requires a detailed examination of the financial records to ensure they are accurate and in compliance with tax laws.
  • The data shared (Tally data and GST/TDS login details) is useful, but physical documents such as purchase and sale invoices, creditor and debtor confirmations, and other supporting documents are essential to verify:
    • Accuracy of recorded transactions
    • Existence and valuation of creditors and debtors
    • Tax compliance (GST, TDS, etc.)
  • Without these documents, a tax auditor cannot fully verify the financials, which may result in the issuance of a qualified opinion in the audit report, or the auditor may even refuse to issue a report due to insufficient information.

Conclusion: A complete and compliant tax audit may not be possible if supporting physical documents like bills, debtor/creditor confirmations, etc., are not provided. The accountant should insist on these documents or at least seek confirmations from third parties (creditors/debtors) to ensure the accuracy of the financial statements.
2. Clause 22 of MSME (Micro, Small, and Medium Enterprises Development Act)
Clause 22 of the Form 3CD pertains to MSMEs under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. This clause requires the auditor to report on the following:

  • The details of all amounts payable to suppliers registered under the MSME Act outstanding for more than 45 days as of the balance sheet date.
  • Interest payable or paid to MSME suppliers under the MSME Act due to delayed payments beyond the 45-day limit.

MSME Compliance Procedure:

  • The company must maintain details of suppliers who are classified as MSMEs.
  • If the company has not obtained confirmations from its creditors regarding their MSME status, it should make efforts to do so.
  • The auditor is required to report if any outstanding dues to MSMEs exist for more than 45 days and whether any interest has been paid or is payable under the MSME Act.

Conclusion: The auditor must ensure compliance with Clause 22 by obtaining confirmations regarding creditors’ MSME status and reporting any overdue payments exceeding 45 days, along with interest due or paid under the MSME Act.
Hence,

  • Ensure that the necessary physical documents are obtained for a complete audit.
  • Confirm MSME status of suppliers to comply with Clause 22 reporting requirements.

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