Clause wise discussion on form 3CD Clause 17(a) to (m)

[Tax Audit Report]

Amounts debited to the profit and loss account, being:

(a) expenditure of capital nature

[Clause 17(a)]

(b) expenditure of personal nature

[Clause 17 (b)]

(c) expenditure on advertisement in any souvenir, brochure, tract, pamphlet or the like, published by a political party

[Clause 17(c)]

(d) expenditure incurred at clubs,
(i) as entrance fees and subscription
(ii) as cost for club services and facilities used

[Clause 17(d)]

(e) (i) expenditure by way of penalty or fine for violation of any law for the time being in force
(ii) any other penalty or fine;
(iii) expenditure incurred for any purpose which is an offence or which is prohibited by law

[Clause 17 (e)]

(f) amounts inadmissible under section 40(a)

[Clause 17 (f)]

(g) interest, salary, bonus, commission or remuneration inadmissible under section 40(b)/40(ba) and computation thereof

[Clause 17(g)]

(h) (A) whether a certificate has been obtained from the assessee regarding payments relating to any expenditure covered under section 40A(3) that the payments were made by account payee cheques drawn on a bank or account payee bank draft, as the case may be, [Yes/No]

(B) amount inadmissible under section 40A(3), read with rule 6DD [with break-up of inadmissible amounts]

[Clause 17(h)]

(i) provision for payment of gratuity not allowable under section 40A(7)

[Clause 17 (i)]

(j) any sum paid by the assessee as an employer not allowable under section 40A(9)

[Clause 17 (j)]

(k) particulars of any liability of a contingent nature

[Clause 17 (k)]

(l) amount of deduction inadmissible in terms of section 14A in respect of the expenditure incurred in relation to income which does not form part of the total income

[Clause 17(l)]

(m) amount inadmissible under the proviso to section 36(1)(iii)

[Clause 17(m)]

[Tax Audit Report]

This clause requires the tax auditor to state the amount of expenditure incurred by the assessee in respect of various items listed therein.

These expenses may be allowable or may not be allowable or may be allowable subject to certain limits. It is important to note that the amount of expenditure in respect of each of the items is required to be stated. Accordingly, tax auditor will have to obtain the information and make necessary enquiries in that behalf. It may necessitate review of books of account, basis of classification, groups under which such expenses have been debited, and so on.

[Tax Audit Report]

Capital expenditure is not allowable in computing business income unless specifically provided in any sections of the Act.

The words “capital expenditure” are not defined in the Act and no conclusive test or rules can be laid down to determine whether a particular expenditure is capital or revenue in the nature.
Different tests have been applied by the courts in different cases depending upon the facts and circumstances of each case and the case law on the subject, as evolved over a period of years, gives guidance for determining the nature of expenditure.

[Tax Audit Report]

Some tests which, however, are generally applied to determine whether a particular item of expenditure is of capital nature, are set out hereunder

(i) Whether it brings into existence and asset or advantage of enduring benefit. The question whether a particular benefit is of an enduring or permanent nature will depend upon the facts and circumstances of each case, the concept of permanency being relative.

(ii) Whether it is referable to fixed capital or fixed assets in contrast to circulating capital or current assets.

(iii) Whether it relates to the very framework of the assessee’s business.

(iv) Whether it is an initial expenditure or an expenditure incurred in setting the profit earning machinery into motion.

(v) Whether it is an expenditure to acquire a concern or goodwill.

The nature of receipt in the hands of the recipient is not a determining factor to determine the nature of payment in the hands of payer. If the amount is in the nature of capital receipt in the hands of the payee, it does not necessarily imply that it is a capital expenditure for the payer and vice versa. The case of the payer has to be considered independently based on the facts concerning him.

[Tax Audit Report]

Under the Act, capital expenditure of certain types

Examples:
on scientific research referred to in section 35, is deductible in computing income.
Similarly depreciation at 100% is allowed in respect of capital expenditure on certain assets like energy saving devices.
Similarly, capital expenditure on preliminary expenses, etc. is deductible over a period of years.

It is, however, suggested that those items of capital expenditure which are otherwise fully deductible in computing the total income of the assessee under the Act should be separately indicated under this clause so that the assessee can claim proper deduction in the computation of his total income.

[Tax Audit Report]

The capital expenditure, if any, debited to the profit and loss account should be disclosed in a classified manner stating the amount on various heads separately.

Since part of this capital expenditure may be allowable as deduction in the computation of total income, it is necessary to specify the nature of expenditure, the amount of expenditure incurred, and the relevant provision under which the expenditure is admissible, so that proper deduction can be allowed in the computation of total income.