CA Organisation issues Suggestions for Common Income Tax Return (ITR)

The Chartered Accountants Association Surat has sent letter to Director of Central Board of Direct Taxes regarding the Suggestions for Common Income Tax Return.

We introduce ourselves as a non-profit organization working for the betterment of working conditions of our members being Chartered Accountants from Surat as well as across India. We represent on regular basis, issues, ideas, suggestions in the form of demands, fulfilment of which not only helps our working conditions, but also achieve department’s commitment towards Citizen’s Charter.

Under the able leadership of Shri Atal Bihari Vajpayeeji, we saw the introduction of the simplest form of IT Return i.e. Saral. Now after a couple of decades later, we once again have the opportunity to simplify the returns. To this, we would like present a very crisp, limited, yet comprehensive requirement which members of our Association has brainstormed for the effective collation of meaningful and fruitful information assimilated through the means of Income Tax Returns. For the time being we are not representing issues in mal-functioning/ill- functioning of CPC, Procedural issues in TDS/OLTAS, policy flaws in the delegated legislations under Income Tax Act, all of which may be reserved for a later date. We put forth our suggestions to the Common ITR as follows:

1. Financials Statements Portal:

The present format of ITR as well as the one proposed in the draft Common ITR, requires the assessee to furnish Financial Statements in a format adapted to the requirements of the department for variety of reasons including meaningful analysis. On one hand the department is in the rush to design the form and make it bulky and less user friendly, whereas on the other hand, the assessee face unwanted litigation when their case is selected for scrutiny based on absurd information. Contribution of financial statement is noteworthy in the profiling of any entity and its obvious importance need not be reiterated.

All departments including but not limited to GST, Income Tax, MCA, RERA etc require financial statements to be furnished as a part of their annual filing or monitoring process. Even banks require financial statements as a part of their due diligence process while granting or renewing of credit facilities. All the above departments, agencies and private bodies require financial statements in different formats. At times, many queries of mismatch are raised when details of such financial statements are regrouped and reclassified as per the requirement of different departments. It may be noted that:

i. The assessees, either advertently or inadvertently, submit information in different formats without even noticing that they result into submission of materially different and misleading information.

ii. Information which is meant to be compiled by and is the prerogative of the management end up being an endorsement by an auditor.

iii. Regrouping under deadlines may lead to wrong grouping, which further leads to wrong data analytics by the department. The concept of GIGO (Garbage-in-Garbage-Out), holds good here.

iv. The grouping as per ITR also requires technical expertise of some degree. A layman is unable to fill up Profit Loss and Balance Sheet under the ITR, if devoid of any technical knowledge.

On account of the above, the user-friendly touch of Income Tax Return is lost, and the ITRs become bulky and users of IT Return are unable to analyse any meaningful information from the financial statements forming part of the present system of IT Returns or the one proposed.

Suggestion: Development of Financials Statements Portal

The Requirements of:

i. Manufacturing Account (Schedule MF.1 to MF.7);

ii. Trading Account (Schedule TR.1 to TR.12);

iii. Profit and Loss (Schedule PL.1 to PL.31);

iv. Balance Sheet – Individual (Schedule BSI.1 to BSI.16);

v. Balance Sheet – Companies (Schedule BSC.1 to BSC.43);

vi. Balance Sheet – Other than Individuals (Schedule BSO.1 to BSO.25);

vii. Balance Sheet – IND AS (Schedule BSAS.1 to BSAS.66)

viii. Assets and Liabilities at the end of the year (for individuals and HUF) (Schedule ALI.1 to ALI.16);

ix. Assets and Liabilities at the end of the year (for unlisted companies) (Schedule AL1.1 to AL1.10); and

x. Assets and Liabilities at the end of the year (for startup) (Schedule AL2.1 to AL2.0)

should be dropped from the proposed ITRs whether regular or Common. In its stead, financials statements portal be developed to capture only the financial statements of any person or entity and reference to such captured financial statement can be quoted in the Income Tax Returns as well as various other use cases.

The Salient features of such a proposed Financials Statements Portal may be:

a. The assessees (whether big or small) or their authorized representatives (who may be their accountants, employees or CFOs) upload the information on the portal;

b. The information required in (a) above is the unaudited trial balance cum balance sheet containing items of both Balance Sheet and Profitability Statement with basic grouping as per Generally Accepted Accounting Practices and which is as per a pre-decided machine-readable format XML or JSON or any other new format;

c. The information thus uploaded is finally recorded on the portal on successful authentication by Aadhar OTP based Digital Signature system;

d. A unique Financial Statement ID (FSID) is generated on the portal which can be used by the assessee on various portals;

e. The use case of such a system can be – in case where accounts are subject to audit; quoting to the Tax Auditor, Company Auditor, Stock Auditor, or while filing Income Tax Return, or preparing AOC-4 in case of Companies or Form No.8 in case of LLP, under RERA or GST or any other Central or State Law.

f. Once the audit of the financial statement is complete, the authorized tax auditor and/or company auditor can flag the said FSID as audited. This methodology is in line with the concept that the auditors basically audit the financial statements for their true and fair position, whereas the preparation of financial statement is always the sole responsibility of the assessee.

g. Various regulatory authorities can utilize the information thus uploaded for information interchange, freely.

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