Clause 35: Quantitative details of raw material in case of trader and manufacturer
Clause 35: Quantitative details of raw material in case of trader and manufacturer
This clause requires the auditor to obtain quantitative details of the raw materials used by the assessee, if the assessee is a trader or manufacturer. This clause is not applicable to service providers.
Clause 35(a): Quantitative details in case of trading concern
In the case of a trading concern, the auditor is required to obtain the following quantitative details of the principal items of goods traded:
- Opening stock
- Purchases during the previous year
- Sales during the previous year
- Closing stock
- Shortage/excess, if any
The auditor should verify the stock details and also obtain certificates from the assessee in respect of the principal items of goods traded, the balance of opening stock, purchases, sales and closing stock and the extent of shortage/excess/damage and the reasons for the same.
Principal items here would mean the items which constitute more than 10% of the aggregate value of purchases or sales.
For example, if the aggregate value of purchases of all items is Rs. 100 lakhs, then the principal items would be those items whose value is more than Rs. 10 lakhs.
The auditor should also verify the reasons for any shortage or excess in stock. The reasons could be theft, spoilage, or other factors.
The auditor should also ensure that the stock records are maintained properly and that the quantities of raw materials used are in accordance with the stock records.
Clause 35(b) - Quantitative Data for Manufacturing Concern
This section necessitates the auditor to validate quantitative data regarding key components of raw materials, finished products, and by-products for manufacturing entities. The specified details include:
A. Raw Materials
Opening stock
Purchases during the previous year
Consumption during the previous year
Sales during the previous year
Closing stock
Yield of finished products
Percentage of yield
Shortage or excess, if any.
B. Finished Products / By-products
Opening stock
Purchases during the previous year
Quantity manufactured during the previous year
Sales during the previous year
Closing stock
Shortage or excess, if any.
Auditor's Responsibilities:
Verification: The auditor should meticulously cross-check the purchase, consumption, and production details for principal raw materials and finished goods, including by-products.
Selective Reporting: Information should be furnished solely for items where practicable, considering the records maintained by the Assessee.
Reporting of Inadequate Records: In instances where the Assessee does not offer or sustain sufficient records for verification, the auditor should make a note of this in Para 3 of Form 3CA or Para 5 of Form 3CB, as appropriate. The disclosure might take the following forms:
The Assessee has not furnished or maintained satisfactory records for our scrutiny regarding principal raw materials, finished products, and by-products, as mandated by clause 35(b) of Form 3CD.
As per the Assessee's explanation, considering the business's nature, volume, and the numerous items involved, maintaining an updated stock record for quantities of all inbound and outbound goods on a day-to-day basis is practically unattainable. Therefore, providing information under this clause is not feasible.
Definition of Principal Items: "Principal items" refers to components constituting over 10% of the combined value of purchases, consumption, or sales.
Certified Documents: The auditor is required to procure the following authorized documents for principal raw materials, finished goods, and by-products:
An Assessee's certificate validating the quantity and value of opening stock, purchases, sales, and closing stock.
A certificate that covers shortage, excess, or damage and outlines the reasons behind such deviations.
This clause ensures comprehensive reporting of quantitative data for manufacturing entities. Given the dynamic nature of tax regulations, it's advised to stay updated on the latest forms and regulations. Consulting a qualified tax professional or Chartered Accountant is recommended to ensure compliance with the most current requirements.