19. Clauses 36 to 41 Dividend, Cost Audit, Excise, Service Tax & Auditor Disclosures
Clauses 36 to 41 represent the final statutory disclosure layer of Form 3CD. These clauses do not compute taxable income directly, but they provide critical cross-law information relating to dividend distribution, cost audit applicability, indirect tax audits, turnover reporting, and auditor responsibility.
Errors or inconsistencies in these clauses often result in expanded scrutiny across multiple laws, not limited to income tax.
1. Introduction
At this stage of Form 3CD, the focus shifts from computation to regulatory alignment and transparency. Clauses 36 to 41 ensure that:
dividend declarations are disclosed,
statutory cost and indirect tax audits are reported,
turnover figures are transparently compared across years, and
the scope and basis of the tax auditor’s report are clearly stated.
These clauses are frequently used by the department for risk profiling and inter-departmental data matching.
2. Objective of Clauses 36 to 41
The objectives are to:
capture dividend-related disclosures,
confirm compliance with cost audit requirements,
report indirect tax audit obligations,
enable turnover trend analysis, and
clarify the extent of auditor reliance on information provided.
These clauses act as disclosure checkpoints, not computation mechanisms.
3. Clause 36 — Dividend Paid or Declared
Clause 36 requires reporting of:
(a) Whether the assessee has received any amount in the nature of dividend as referred to in sub-clause (e) of clause (22) of section 2 ?
(Yes/No)
(b) If yes, please furnish the following details
(i) Amount received (in Rs.)
(ii) Date of receipt
4. Clause 37 — Cost Audit
Clause 37 requires reporting:
Whether cost audit was applicable to the assessee, and
Whether the cost audit report has been furnished.
Auditors must examine:
applicability under the Companies Act and Cost Audit Rules,
industry classification, and
turnover thresholds, where relevant.
Incorrect reporting here may lead to regulatory follow-up by cost audit authorities.
5. Clause 38 — Audit under Central Excise Law
Clause 38 requires disclosure:
Whether any audit was conducted under Central Excise law, and
Whether records prescribed under Excise law were maintained.
Although excise duty has largely been subsumed under GST, this clause remains relevant for:
legacy periods, and
assessees dealing in notified excisable goods.
Reporting must be purely factual, without opinion.
6. Clause 39 — Audit under Section 72A of the Finance Act, 1994
Clause 39 requires reporting:
Whether any audit was conducted under section 72A of the Finance Act, 1994 (Service Tax), and
Whether records prescribed under that law were maintained.
This clause is relevant for:
pre-GST service tax audits, and
legacy proceedings continuing after GST implementation.
This disclosure enables reconciliation of service tax data with income-tax records.
7. Clause 40 — Turnover and Profit Comparison
Clause 40 requires disclosure of:
Turnover for the previous year,
Turnover for the immediately preceding previous year,
Profit or loss for the previous year, and
Profit or loss for the immediately preceding previous year.
This clause enables the department to:
identify abnormal fluctuations, and
trigger analytical scrutiny where significant variations exist.
Auditors must ensure figures match audited financial statements.
8. Clause 41 — Auditor’s Information and Reliance
Clause 41 requires disclosure:
Whether the tax auditor has relied on information, explanations or representations provided by the assessee, and
Any limitations in verification, if applicable.
This clause is crucial for:
defining audit scope,
managing professional risk, and
clarifying responsibility for factual assertions.
Clause 41 must be drafted carefully and truthfully.
9. Common Errors Observed in Clauses 36–41
Frequently observed issues include:
non-reporting of interim dividends,
incorrect cost audit applicability,
mechanical “Not Applicable” reporting for excise/service tax,
mismatch in turnover figures, and
vague or boilerplate auditor reliance statements.
These errors often lead to extended scrutiny beyond income tax.
10. Practical Guidance for Auditors and Assessees
Best practices include:
verifying dividend declarations independently,
checking cost audit applicability every year,
maintaining legacy indirect tax audit records,
ensuring year-to-year turnover comparability, and
drafting Clause 41 with professional caution.
These clauses should be finalised only after complete audit closure.
11. CABTA Insight
“Clauses 36 to 41 don’t change tax liability — they shape tax risk.”