Clause 37 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Clause 37 reports whether a cost audit was carried out and any disqualification or disagreement in it; clause 38 asks the same about an audit under the Central Excise Act, 1944. Both are limited to reports received up to the date of the tax audit report.
From the ICAI Guidance Note on Tax Audit (Revised 2026), the Eleventh and, by ICAI's own statement, concluding edition under the Income-tax Act, 1961. For tax years under the Income-tax Act, 2025 the audit particulars move to Form No. 26 under rule 47 of the Income-tax Rules, 2026, and the corresponding items must be located afresh in that form.
What clause 37 asks
"Whether any cost audit was carried out, if yes, give the details, if any, of disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the cost auditor."
Paragraph 72.1: the tax auditor should ascertain from the management whether a cost audit was carried out, and if yes, a copy of the same should be obtained from the assessee. Even though he is not required to make any detailed study of such a report, he has to take note of the details of disqualification or disagreement on any matter, item, value or quantity as may be reported or identified by the cost auditor. He need not express any opinion in a case where such audit has been ordered but the same has not been carried out.
The two limbs of clause 37 sit in tension and both matter. The auditor does not review the cost audit; but he does have to obtain the report and read it far enough to extract the disqualifications and disagreements. The TAQRB finding below shows what happens when only the first half is observed.
The three timing and completeness rules
| Situation | Clause 37 / clause 38 answer |
|---|---|
| Audit ordered but not carried out | No opinion need be expressed |
| Audit ordered, not completed by the time the tax auditor gives his report | Report appropriately, stating that since the audit has not been completed, the report is not available with the assessee (paragraphs 72.2 and 73.2) |
| Report relating to a period outside the relevant previous year | Not reported — information is required only in respect of a report the time period of which falls within the relevant previous year |
| Report for the right period but received after the tax audit report date | Not reported — "in effect, the information is required to be given in respect of that report which is received up to the date of tax audit report" |
Paragraphs 72.3 and 73.3 are worded identically for the two clauses, so a single test serves both: the audited period must fall in the previous year, and the report must be in hand by the signing date.
What clause 38 asks
"Whether any audit was conducted under the Central Excise Act, 1944, if yes, give the details, if any, of disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the auditor."
Paragraph 73.1 mirrors clause 37 exactly: ascertain from the management whether an audit was conducted under the Central Excise Act, 1944, and if so obtain a copy of the report; no detailed study is required, but the disqualifications and disagreements have to be noted; and no opinion is needed where the audit has been ordered but not carried out.
Excise duty survives GST for a narrow set of goods — petroleum products and tobacco — so clause 38 has not become dead in the way clause 39 has.
Clause 39 — the service tax valuation audit
"Whether any audit was conducted under section 72A of the Finance Act, 1994 in relation to valuation of taxable services, if yes, give the details, if any, of disqualification or disagreement on any matter/item/value/quantity as may be reported/identified by the auditor."
Paragraph 74.1: with service tax subsumed in GST, and no longer in operation, the relevance of this clause has substantially diminished. Consequently, reporting under this clause would, in most cases, not arise. Only in exceptional cases involving legacy issues from the pre-GST regime — such as where a demand raised, adjudicated or concluded during the year — might some degree of consideration be warranted.
So clause 39 is answered "No" in almost every current audit, but it is not to be skipped: a legacy section 72A proceeding concluded in the year is exactly the exception the Guidance Note preserves.
The TAQRB observations
The reviewers recorded the same two failures against clause 37 and against clause 38:
- "Reporting under this clause was based solely on management representations without obtaining and examining the cost audit report" — and, for clause 38, the excise audit report.
- "Contradictory reporting was noticed where the cost audit report was referred to in Form No. 3CA/3CB, but 'No' was reported under this clause."
The second finding needs no working papers to detect. If the main report in Form 3CA or 3CB mentions a cost audit or an excise audit, and clause 37 or clause 38 says "No", the report contradicts itself in two places a reviewer reads within a minute. Run a final consistency read of the Form 3CA or 3CB text against clauses 37, 38 and 39 before signing.
Worked example
| Facts | Reporting |
|---|---|
| Cost audit under the Companies Act applicable; report for FY 2025–26 received in August 2026, before the tax audit report | Clause 37: Yes, with the disqualifications or disagreements in it |
| Cost audit ordered for FY 2025–26 but still incomplete when the tax audit report is signed | Report appropriately that the cost audit is not complete and the report is not available with the assessee |
| Cost audit report for FY 2024–25 received during FY 2025–26 | Not reported under clause 37 for FY 2025–26 — the period audited is not the relevant previous year |
| Cost audit report clean, with no disqualification or disagreement | Yes, with a nil statement of disqualifications — the answer is not "No" |
| Excise audit of the assessee's tobacco division concluded during the year | Clause 38: Yes, with the auditor's disqualifications or disagreements |
| Section 72A service tax valuation demand adjudicated during the year | Clause 39 considered rather than reflexively answered "No" |
Audit checklist
- Obtain and read the report for clause 37 and clause 38 — never answer on a management representation alone.
- Extract the disqualifications and disagreements on matter, item, value or quantity; do not summarise the report.
- Confirm the audited period falls in the relevant previous year.
- Confirm the report was received by the date of the tax audit report.
- Where an audit was ordered but not completed, say so in the report rather than answering "No".
- Do not express an opinion on a cost or excise audit that was ordered and never carried out.
- Read the Form 3CA or 3CB narrative against clauses 37, 38 and 39 to eliminate contradictions.
- For clause 39, check for a legacy section 72A proceeding before answering "No".
Common mistakes
- Answering clause 37 from a management representation without the cost audit report.
- Reporting "No" while the same report mentions the cost audit or excise audit.
- Reporting a cost audit report for an earlier year because it was received during the previous year.
- Answering "No" where the audit was ordered but is incomplete, instead of explaining that.
- Treating clause 39 as permanently dead and missing a legacy adjudication.