Building the audit defence file before the audit begins

Everything an auditor will ask for, assembled in advance, in the order they will ask for it.

Contents

Turnover: the three way bridge between the financial statements, the GST returns and the income tax return, with source references.

Credit: the GSTR-2B to GSTR-3B reconciliation with a cause column, the blocked credit review under Section 17(5), the Rule 42 and 43 workings, and the reversal and re availment register.

Reverse charge: the register with self invoices, and the foreign payment extract reconciled to it.

Intra group: the cross charge schedule, the ISD distribution reconciliation, and the Rule 28 valuation notes.

Other income: every line of other income with a recorded GST position.

Compliance: the e-invoicing coverage review, the e-way bill exception log, and the job work register with ageing.

Positions: dated notes on every judgment call made during the year, with the authority relied on.

Discipline

Prepared once a year, on a calendar date, by the tax function, with the controller signing off on the source data.

Circulated to the statutory auditors so that the two positions agree.

Archived with the returns, indexed to the line items, and retained for the statutory period, because the audit may come in year five.

Reviewed against the year's amendments, so a position taken under an earlier text is not carried forward unexamined.

Why the dates matter

A note written before the audit is evidence of a bona fide position taken at the time. The same note written during the audit is an argument constructed for the occasion.

The distinction decides whether Section 74 or Section 73 applies for years up to 2023-24, and whether the higher penalty applies under Section 74A for later years.

It also decides how the department reads the taxpayer. A company that produces a dated pack is treated differently from one that produces explanations.

In a Tribunal three years later, the pack is the record, and nothing that is not in it will be believed.

What to do on Monday

1. Fix a calendar date each year for preparing the pack, within three months of the year end.

2. Write a dated note for every judgment call during the year, as it is made.

3. Circulate the pack to the statutory auditors and reconcile any divergence.

4. Archive it with the returns, indexed, for the full retention period.

Questions we are asked on this

Is this not just extra work?

It replaces work done under pressure during an audit with the same work done calmly, and it converts arguments into evidence.

Who should own it?

The tax function, with the finance controller signing off on the source data.

How long should it be retained?

For the statutory record retention period under Section 36, because audits arrive late.

Should the statutory auditors see it?

Yes. Divergence between the statutory audit position and the GST position is itself an audit finding.

What is the single most valuable item in it?

The dated position notes on judgment calls.

In this cluster

• GST audit under Section 65: the clock, your rights and the first reply
• Special audit under Section 66: when an accountant is appointed against you
• ADT-01 to ADT-04: the audit paper trail
• The eleven findings that appear in almost every departmental audit
• GSTR-9 and GSTR-9C: reconciliation exposure and correction strategy
• Turnover reconciliation between GST, income tax and the financial statements
• E-invoicing non compliance: consequences and cure
• Section 35(6): tax on goods not accounted for
• Audit objections versus anti evasion investigation: two different files

GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.