Advocate B.S.K.RAO
In this computer era, all records of business enterprises are maintained in computers and voluntary compliance of return filing U/s 139 of Income-Tax Act are also sought in digital format. Return preparation utilities are provided by the Deptt. so that there may not be any instance of wrong claims or deduction, unless there is bug in the utility provided. Therefore, Tax Professional should be more specialized in Computer Operation rather than Income-Tax Law and Accounts at Original Side. As per Section 288(2) of Income-Tax Act, Eight class of persons are authorized to act as representative of assessee. Among them, only following Five class of persons are authorized to prepare return on behalf of assessee under Rule 12A of Income-Tax Rules :-
(a) Legal Practitioners
(b) Chartered Accountants
(c) Cost Accountants, Company Secretaries & Income-Tax Practitioners.
Audit means “verification”, depending on the purpose they are classified as Energy Audit, Environment Audit, Product Audit, Process Audit, Legal Audit in USA & Tax Audit in Indian Income-Tax Act. Here, person conducting audit should be specialized in that subject. Hence the word “Audit” is not the domain of Chartered Accountants. Assessing Officers in Income-Tax Deptt. who conduct audit in assessment proceedings are not Chartered Accountants. In conclusion, person specialized in Income-Tax law should issue “Certificates/Reports’ under Income-Tax Act. In 1984 certificate from only Chartered Accountant U/s 44AB called Tax Audit introduced in Income-Tax Act to ensure that physical books of accounts are properly maintained by business enterprise & claim for deductions are correctly made and also to save the time of assessing officers to verify correctness of totals at the time of scrutiny. Since then, CA Certificates started entering Income-Tax Act and on date there are 46 Plus CA Certificates in Income-Tax Act. Because of 46 Plus mandatory CA Certificates in Income-Tax Act, Legal Practitioners, Cost Accountants, Company Secretaries and Income-Tax Practitioners can not exercise the authority granted in the statute fully & independently. This is practically causing strict hurdle for voluntary compliance. This position is comparable to decree of the court which can not be executed. Here the question is, when such other classes of persons are authorized to PREPARE RETURN under Rule 12A, there is no JUSTIFICATION to prohibit them from issue of certificates in Income-Tax Act. It is also clear that, on introduction of CA Certificates in Income-Tax Act, original intention of legislature in Rule 12A has been struck down. In fact, there is no such type of certification clause in any country throughout the world in revenue side.
In latest e-filing website of Income-Tax Deptt. only CA’s are treated as Tax Professionals with special login to upload CA Certificates, without which Non-CA Tax Professional can not give compliance to the Deptt., if given his clients are under the risk of penal provision. These CA Certificates barricade support for voluntary compliance from Non-CA Tax Professionals & new Non-CA Tax Professionals are not entering tax profession on one hand and total number of practicing CA’s are not increasing on the other hand (Considering the output & death rate of practicing CA’s). In the enclosed Tax Audit Data provided by DIT(S) (See Exhibit-1), it is evident that only 65,570 Chartered Accountants are practicing throughout India. Further, there is ceiling of 45 Nos. of Tax Audit Certificate, fixed for each Chartered Accountant irrespective of corporate and non-corporate assesses, without considering the demographic spread of CA’s throughout India. Because of ceiling, existing Non-CA Tax Professionals handling tax audit cases have to roam around in search of empty slots of CA Signature to give compliance in the case of their clients during due dates. This has also resulted in high cost of compliance, due to high demand and extra payment made for reservation of empty slots of CA Signature. These CA Certificates in Income-Tax Act are causing strict hurdle for voluntary compliance not only in Income-Tax Act, but also in other Central and State Govt. tax laws (Ex: In Finance Act, 2012 negative list introduced in Service Tax requiring the assistance of more tax professionals, but number of tax professionals are stand still on date). In this situation, Govt. has to relay on only 65,570 practicing CA’s for seeking compliance under Income-Tax Act.
In Chapter No.7, Manual of Office Procedure Volume-II published by The Directorate of Income-Tax, lot about widening of tax base has been discussed, but nowhere discussed about hurdles for voluntary compliance in Entry Door of Section 139. Deptt. should admit the fact that compliance U/s 139 from business class comes through Tax Professionals only. Hence, more persons in the line of tax practice more revenue. Following are genuine points should be considered by CBDT before taking action for widening tax base of assesses.
(a) Assesses sign affidavit format called Verification in the return of income, which makes him liable for imprisonment which may be extend to seven years with fine U/s 277 of Income-Tax Act in the event of furnishing false information. (See also Section 181 of IPC) Further, it was held in the case of CIT Vs HCIL Kalindee ARSSPL Delhi HC Dt.29.07.2013 that mere CA Certificate do not establish the bonafide of assesses claim & CIT Vs G.M. Dandekar 22 ITR 235 (Mad) it was held that CA’s can not be made accountable to Income-Tax Department as they are acting in representative capacity. Therefore, Deptt. should decide that it wants CA Certificates or Revenue ?
(b) Whether Widening of Tax Base has direct relation to growth in number of persons engaged in Income-Tax practice? If so, who are the persons authorized to practice Income-Tax law U/s 288(2), assisting for propagating & compliance U/s 139. Whether they are increasing/decreasing every year, because of support/cornering in the Income-Tax law or is there any constraint in their practice. Even holding CA’s are increasing, whether they stick to practice without seeking employment ?
(c) Hurdles in Entry Door U/s 139 of Income-Tax Act, analyzing the types of hurdle such as highly complicated process of e-return filing prevailing under Income-Tax Act on date or any other hurdle that relates to assesses or tax professionals. Extent of application and coverage of Income-Tax Act as compared to other Indirect Taxes, quantum of tax professionals required for the same and there demographic spread throughout India. Ie, whether persons on whom full power of certification and representation granted in Income-Tax Act on date are evenly spread throughout India to cover all cases ?
(d) Stop filers tracking mechanism, whether tax professionals can handle such event better by sending notice on regular basis to their clients, if they are encouraged by the Income-Tax Deptt. without bias.
In India there are professional bodies passed by the Acts of Parliament, to protect the interest of their members only, but there is no professional body to generate tax professionals to protect the interest of govt. revenue. Therefore, it is right time, our Central Govt. should seriously consider passing of Tax Practitioners Bill either in the lines of Tax Agent Service Act of Australia (See www.tpb.gov.au & Exhibit-3) or in the line of Tax Practitioners Bill of Republic of South Africa (See www.sars.gov.za) to generate tax professionals to fully support voluntary compliance in Indian taxation laws to enjoy the privilege of optimum tax collection by widening of genuine tax base of assesses. In developed countries like Australia 70% to 80% of population are under tax net, whereas in India only 2% of population are under tax net. This is because of confining certification powers only to Chartered Accountants in Income-Tax Act, 1961 as discussed above. On date ample tax compliance work is there, but there is no required Tax Professionals to support voluntary compliance.
(Author may be contacted on his email at raoshimoga@gmail.com)
Following are genuine points should be considered by CBDT before taking action for widening genuine tax base of assesses in India:-
(1) Assesses sign affidavit format called Verification in the return of income, which makes him liable for imprisonment which may be extend to seven years with fine U/s 277 of Income-Tax Act in the event of furnishing false information. (See also Section 181 of IPC) Further, it was held in the case of CIT Vs HCIL Kalindee ARSSPL Delhi HC Dt.29.07.2013 that mere CA Certificate do not establish the bonafide of assesses claim & CIT Vs G.M. Dandekar 22 ITR 235 (Mad) it was held that CA’s can not be made accountable to Income-Tax Department as they are acting in representative capacity. Therefore, Deptt. should decide that it wants CA Certificates or Revenue ?
(2) Whether Widening of Tax Base has direct relation to growth in number of persons engaged in Income-Tax practice? If so, who are the persons authorized to practice Income-Tax law U/s 288(2), assisting for propagating & compliance U/s 139. Whether they are increasing/decreasing every year, because of support/cornering in the Income-Tax law or is there any constraint in their practice. Even holding CA’s are increasing, whether they stick to practice without seeking employment ?
(3) Hurdles in Entry Door U/s 139 of Income-Tax Act, analyzing the types of hurdle such as highly complicated process of e-return filing prevailing under Income-Tax Act on date or any other hurdle that relates to assesses or tax professionals. Extent of application and coverage of Income-Tax Act as compared to other Indirect Taxes, quantum of tax professionals required for the same and there demographic spread throughout India. Ie, whether persons on whom full power of certification and representation granted in Income-Tax Act on date are evenly spread throughout India to cover all cases ?
(4) Stop filers tracking mechanism, whether tax professionals can handle such event better by sending notice on regular basis to their clients, if they are encouraged by the Income-Tax Deptt. without bias.
Dear Sir,
In practice,if u compare a Tax Advocate and CA, u will find the difference,it is fact that Advocates are having knowledge of tax laws and knowledge of accountancy,instead CA’s are experts in the accountancy only.Now it is high time that CBDT should act according to field work and authorise Tax Advocates to work as Tax Professionals,otherwise sooner no tax advocates will be seen,as the major role is played by CA’s.
Assessing authorities who determine the income of assessee on audit of books of accounts of assessees in assessment proceedings are not Chartered Accountants, then why tax audit under Income-Tax Act done only by CA’s.
Here, if Deptt. talks about AO’s experience, Deptt. can also grant such power of tax audit U/s 44AB to all Non-CA Tax Professionals who are authorised to prepare return Under Rule 12A of Income-Tax Rules, putting restriction for number of years of practice, like that of prevailing in Karnataka Value Added Tax Act, 2003 for VAT Practitioners, so that hurdle for voluntary complaince can by avoided.
Issues highlighted in the above Article by the author can not be set aside or ignored by the Income-Tax Deptt. The Deptt. should keep in mind that compliance in Income-Tax Act is voluntary & such compliance can only be sought by assessees by introducing simplified law & compliance procedure
i am agree with Mr.B.S.K.Rao
I completely agree with RAo Sir, we all advocate should take united steps for such injustice with us
I totally agree with the contents of the article and comments expressed by my fraternity in this column. At least even after 30 years of introduction it is for the Finance Minister and CBDT to carefully examine and to take a meaningful decision over the matter in the interest of Revenue and to protect Rights of legal fraternity. I appreciate the efforts taken by my friend BSK Rao and other friends
in presenting the analytical view of the problem from time to time.
sir,
I am point out some interesting points according to that income tax assessee wants to pay tax instead of audit their accounts by chartered accountants. Section 44AB of income tax forcibly imposed on indian assesses without evaluating its output since 1984.
IN ASSESSMENT YEAR 2011-12 TOTAL AUDIT CASES 1666209.
2013-14 1427764
INSTEAD OF 25 LACK AUDIT CEILING UNDER SHELTER OF SECTION 44AD. THESE REDUCING AUDIT ABLE CASES TREND SHOWS THAT ASSESSEE WANTS TO PAY TAX INSTEAD OF AUDIT REPORTS. RATIO OF 8% NET PROFIT SHOULD BE REDUCED TO 4% FOR MORE TAX COLLECTION.
If our ministry of finance delete section 44AB for non corporate definitely increase revenue of government.
Lawyers should be permitted to sign and endorse tax audit certificates and reports, the Bar Council of India (BCI) has said.
“ The BCI has written to the Indian Finance Ministry and Central Board of Direct Taxes (CBDT) to inform them that a close reading of the Income Tax Law and Advocates Act has “made it clear that such audit reports/certificates could be signed only by advocates.”
A new report, published following a BCI committee investigation, calls for an end to the current system whereby only chartered accountants (CAs) complete such processes and appear before the relevant tax authorities.
The report states: “CA’s are trained in accounts only and not in interpretation of tax law and procedures.” It claims that to practice income tax law and fill in tax audit report forms, “one should specialize in [the] interpretation of income tax law and procedures, besides analysing [the] intention of the legislature, Civil Procedure Code, and [the] impact of furnishing affidavit ad sworn statements in the course of I[ncome] T[ax] proceedings.”
The committee concluded that “when legal practitioners are the only class of persons entitled to practice law, there is no justification for prohibiting advocates from issuing certificates or report under the IT Act.”
The BCI alleges that were the system changed, the tax base would grow and revenue collection would improve.
Dear reader,
Mr. Rao is absolutely correct in his article. Now, I would like to draw reader’s kind attention towards the section 2(2) of the CA Act. In this section, the CA class is authorized to practice of accountancy, certifying the accounts and for certification he may do audit work. In other words, this class is not allowed to do practice of Income-tax Law. The word practice is itself clear. In other hand the Advocate class is authorized only the class to do practice of law through section 29 to 33 of the Advocate Act. Now, the Hon’ble Apex Court also confirm in the case of BCI vs A K Balaji that right of practice of law including non litigation work are with only Advocate class. The submitting of form 3CB/CD are non litigation works. In other words, the CA once certified the accounts, his duty is over according to above referred case. Then after, only the Advocate class can submit form 3CB/CD.
Same way, the CA class is not entitle to do practice of Company law, Service tax Law and Excise Law. They are appearing before the authority on power of attorney. Have you heard that the power of attorney holder argue before the any Court ? Once it may be argue from this class that they can appear before the quasi judicial authority and argue the matter on behalf of the assessee. However, the quasi judicial authority also a judicial. When judicial pass any adjudication, he is judicial authority and therefore, they can’t appear before him.
Now, there is only the way to come out from this funny situation is to stop all other class from practice of law.
sir,
In present there is no need of audit reports. Form 3CD which is used for audit report is purely interpretation of laws & it is well covered under practice of Law. to fill form 3CD is not a practice accountancy u/s 32 of chartered accountant 1949. It is practice of law u/s 29 of Advocates Act 1961.
In computer ear audit reports are just formality. nominal differences are pointed out by computer, Notices received under TDS & under punjab vat act 2005 are justify that audit reports are just formality . if sales & purchase not tally with seller & purchaser return then it is automatic pointed by the system.
sir,
It is right that for widening of the tax base a dream of the Present Finance Minister has not been achived since last 10 years.The new assessees are not being introduced into income tax net because of the number of problems in filing the retruns U/S 139 it self.The CA certificates is one of the reasons for this.even today number of assessess do not file the returns becasue of the fear of the CA audit and the COST involved in AUDIT.It is further true that in these yeasrs of COMPUTERISATION of the accounts and return filing the mistakes which earlier was committed by the accountants do not have a scope at all, and if so why the 44 AB audit? Specially just for Rs.1 crore turnover? The turnover limit is arbitrary and those who have less than ONE crore turnover but huge profit margin are escaping the tax net because of the fulish limit fixed by the CBDT.
Dear Sir, what u write is Absolutely Correct, but the other institutional bodies[CS, CMA & LAW] are not taking any steps on this. Even companies act gives more importance to CA’s rather than C.S.