Dear All,

Happy to present before all of you my another article on Guns N Roses – Digital Synchronisation Income Tax vis-a-vis GST 👆. This article has penned after the reporting of GSTR 3B data started in Form 26AS of the Assessee on 12th November 2020. Article briefly discusses what needs to be done in any role played by any one of us pursuant to above bullet shooting form the Guns and how we can enjoy bed of roses in the form of Table of Illustrations. Suggestion to improve upon the article are welcomed with folded hands.

GUNS N  ROSES

Of Digital Synchronisation

Tuesday, 17 November 2020

If one is curious to know from where I derived the name of the Article “Guns N Roses”, let me tell you that I have drawn inspiration from the band “Axle Rose and Tracy Guns” from their performance in 1985.

Digital Synchronization Income Tax vis-a-vis GST

General Meaning

Individually, the words

“Guns” symbolize war, destruction and death

“Roses” usually symbolize love, beauty and romance; their use in making perfumes, as well as their association with Valentine’s Day reinforces this symbolism.

General Meaning in the context legal lexicons

And when used together in the context of legal maxims, in my view it conveys and signifies the following: –

“Guns” symbolise legal provisions which intend to regulate, streamline, detect, prevent, unearth, disclose, digitally match etc. whereby Assessee is asked to formulate the business processes and systems whereby such data reported under any law matches or reconciles without any deviations so that users of such data can derive suitable samples to verify the authenticity of such reported transactions;

“Roses” symbolise words of appreciation, commending the Complier for the timely reporting of legal compliances as per stipulated time limits under respective provisions of the law, whereby if everything is matching or reconciled to the last dot, there are no prime facie deviations in data reported under different laws. This will reduce the initiation of inquiry and litigation proceedings, and lead to overall acceptance of financial reporting statements deeming the same to be a true and fair view of financial results – from which applicable taxes are computed and paid by the assessee. This will result in the well compliant Assessee/Taxpayer following GBP (Good Business Practices), leading to award of Star Status to such Assessee and getting recognised/rewarded in form of award certificates or rating on the Portals.

Formal Introduction of GUNS N ROSES

of Digital Synchronisation under Income Tax and GST

I have used the word GUNS N ROSES in conjunction with

Digital Synchronisation (which was engendered vide Order passed u/s 119 of the Income Tax Act 1961 read with Rule 114 I ( 2) of the Income Tax Rules 1962 on 29th September 2020 where time limit of three months was provided to the Principal General of Income Tax (Systems) or Director General of Income Tax ( Systems) to upload information pertaining to GST Return and thus consequently it was uploaded in Form 26AS on November 12,2020 ( within the time span of just one and half months which reflects the ammunition (data) available with the Sovereign or firing through its GUNS). One such bullet shot through this GUN has alerted all of us viz. Assessee, Board of Advisors, Trustees, CAs, CMAs, Advocates, Legal Counsels, Tax Practitioners and/or anyone who is involved in legal compliances for any business enterprises – requires that the details of Turnover as per GSTR 3B discloses information about each GST Number (GSTIN), ARNs (Application Reference Numbers), Date of Filing, Return period, Taxable Turnover and Total Turnover which includes business transactions involving Stock Transfers as well. Such information has been updated for FY 19-20 and for FY 2021 up to May 2020 only in Form 26AS of the Assessee.

In a recent article appearing in the newspapers, there was an announcement that to combat the menace of Fake Invoices, Govt. may invoke COFEPOSA (Conservation of Foreign Exchange and Prevention of Smuggling Activities Act) against such evaders and the provisions of the said Act could be extended to cover GST Laws, Income Tax Laws and Prevention of Money Laundering Act. Though legally to my knowledge and understanding, such provisions are not being contemplated for immediate application to Income Tax and GST, the signs are ominous that the net will be stretched far and wide through appropriate enactments.

Considering above, I have penned my thoughts to cover the digital synchronisation between Income Tax Law and GST Law only.  I have desisted from the temptation of touching other business laws which may be applicable, because if I try to correlate multiple laws, this article can run into several reams of pages. Intention of penning down this article is to broach the concept to the readers of the articles who can develop such concepts in respect of matters relating to their clients, customising as per apt needs of their clients for different types of assignments.

This article can be issued as an illustrative Reference Guide for MIS reporting, Working Papers and/or documentation to be prepared for executing the assignments of Advisory Services, Statutory Audit, Tax Audits, Income Tax Returns, Tax Assessments, GST Audit and/or Compliances vis-à-vis Outward supplies. It needs to be noted that information pertaining to Outward Supply is reported and auto populated in Form 26AS of the Assessee.

In the Table below, for the benefit of Readers, I am presenting a Ready Referencer which suggests Data Mining Information to be collated in respect of Outward Supplies (article covers information on outward supplies only, thus Input Tax Credits or Tax pay-outs not covered hereunder) in the process of data synchronisation:

Sr No Source of data Value Remarks
Data to be derived from Books of Account maintained
1 Turnover/Gross Receipts of Business or Profession excluding taxes Xxxxxx.xx Value that would be reported in Audited Financial Statements or Financial Statements as well as Income Tax Return by the Assessee where audit is not applicable.
2 Taxes collected on Turnover/Gross Receipts of Business or Profession Xxxxxx.xx Value that would be reported in Audited Financial Statements or Financial Statements as well as Income Tax Return by the Assessee where audit is not applicable based on method of accounting followed.
Sr No Source of data Value Remarks
Data to be derived from GST Records maintained/available
3 List of GST Registrations with addresses NA Single or Multi-GSTIN registrations information
4 Month wise summary of GSTR 1- Return of
Outward Supplies with yearly consolidated data for single or multi GSTIN separately with PAN India consolidations.
Xxxxxx.xx Copies of GSTR 1 filed can be downloaded from the GST website to collate such data using Login ID and passwords viz.www.gst.gov.in
5 Taxes collected on Turnover/Gross Receipts of Business or Profession as reported in GSTR 1 with PAN India
consolidations.
Xxxxxx.xx Copies of GSTR 1 filed can be downloaded from the GST website to collate such data using Login ID and passwords viz.www.gst.gov.in (Supra)
6 Month wise summary of GSTR 3B with yearly consolidated data for single or multi GSTIN
separately with PAN India consolidations.
Xxxxxx.xx Copies of GSTR 3B filed can be downloaded from the GST website to collate such data using Login ID and passwords viz.www.gst.gov.in
7 Taxes collected on Turnover/Gross Receipts of Business or Profession as reported in GSTR 3B with PAN India consolidations. Xxxxxx.xx Copies of GSTR 3B filed can be downloaded from the GST website to collate such data using Login ID and passwords viz.www.gst.gov.in (Supra)
8 Electronic Cash and Credit Ledger for verifying the date of filing for single or multi GSTIN separately Copies of such ledgers can be downloaded from the GST website using Login ID and passwords viz.www.gst.gov.in
Such data can be collated using GST Software available in public domain too.
Sr No Source of data Value Remarks
Other Data to be derived from Books of Account and Financial Statements
9 Other Incomes reported in Financial Statements which are also reported in GSTR 1 as well as GSTR 3B for single or multi GSTIN separately followed by PAN India Consolidations.
10. Bifurcation of Outwards Supplies – B2B, B2C, Exports with and without payment of GST, Deemed Exports, Exempt Supplies, NIL Rated Supply, Non-Taxable Supplies and Non-Supply transactions (such bifurcation of details can help at the time of filing of GSTR 9 & 9C if applicable for single or multi GSTIN separately followed by PAN India consolidation
11 Letter of Undertaking Copies & Foreign Inwards Remittances copies wherever applicable
12 Transaction values which are reported in next financial year up to time limits specified u/s 16(4) viz. April to September of next financial year pertaining to previous financial year for single or multi GSTIN separately followed by PAN India Consolidations
13 Details of Business transactions with Distinct persons as defined under the provisions of GST Act 2017
14 Details of Deemed Supplies under Schedule I and II if they are not accounted in the books of account by the Assessee
15 Valuation adjustments due to section 15 of the CGST Act 2017 for single or multi GSTIN separately followed by PAN India Consolidations if not recorded in the books of account
16 Any other adjustments viz. Ind AS or method of accounting etc.
17 Other Incomes reported in Financial Statements but not reported in GSTR 1 as well as GSTR 3B for single or multi GSTIN separately followed by PAN India Consolidations.

Once all above data is collated and maintained for single or each multi GSTIN and summarised for PAN India consolidations, one will be in a position to draw suitable conclusions for accurate reporting and reconciliation of data to be reported in the Financial Statements, Income Tax Returns as well as GST records – which can constitute summary documentation for supporting the defence if any inquiry is initiated under different applicable laws.

PAN India consolidation plays pivotal role in data reconciliation reporting because only one Income Tax Return is filed on PAN India basis whereas GST compliances are done for single or multi GSTIN registrations as the case may be. Under GST laws, annual return in the form GSTR 9 as well as Reconciliation statement in GSTR 9C is filed separately for each GST registration of Registered Taxable person, as transactions amongst them are considered as separate supplies in the light of the references provided in explanation of Section 8 of IGST Act, Section 25 of the CGST Act 2017 and valuation points arising as per Section 15 of CGST Act 2017 – if the same are not accounted and reported in the Financial statements as well as in the Income Tax Returns.

Standard Reconciliation Statements (Illustrative Tabulation shared below which can be customised as per one’s requirement considering size, nature and volume) to be prepared for the outward supplies or sale of goods or services or both are presented below:

1. Reconciliation of Turnover as per Books of Account with Audited Financial Statements or Non-Audited Financial Statements with reasons for deviations, if any (Table 1)

2. Reconciliation of Turnover declared in Audited Financial Statements or Non-Audited Financial Statements with Income Tax Returns with reasons for deviations, if any (Table 2)

3. Reconciliation of Turnover declared in Audited Financial Statements or Non-Audited Financial Statements with GSTR 1 for single or each multi GSTIN followed by PAN India consolidations with reasons for deviations if any (Table 3)

4. Reconciliation of Turnover declared in Audited Financial Statements or Non-Audited Financial Statements with GSTR 3B for single or each multi GSTIN followed by PAN India consolidations with reasons for deviations, if any (Table 4)

5. Reconciliation of Turnover declared in GSTR 1 vis-à-vis GSTR 3B for single or each multi GSTIN followed by PAN India consolidations with reasons for deviation, if any (Table 5)

In each case, impact of deviations and the reasons therefor need to be analysed both from the disclosure perspective as well as from the remedial aspect. Corrections in the form of revisions in Financial Statements and Income Tax Returns need to be corroborated by Stakeholders so that instances of show cause notices on account of mismatch of data reporting is minimised or if there are genuine deviations, then they can be confidently explained when mismatch inquiries are initiated under law by the Appropriate Authorities.

To conclude, considering rampant developments in technology using Artificial Intelligence and Data synchronisation affecting several business laws which apply to every business enterprise, one needs to be proactive with Business Processes and Systems to compliantly respond to such technology related developments. This will ensure that correct and timely information is reported on the dotted lines and corrections or remedial options can be carried out to minimise resultant damages. It can be now easily perceived and imagined that Sovereign has all information on their dashboard which can be fired using “Guns” if system derived reports “shoot down” anomalies in reporting by the Assessee under any laws. And if no anomalies are reported, then Assessee can expect “Roses” to be awarded by the Sovereign to felicitate genuine stakeholders by way “Appreciation Certificates” or “Star Ratings” or by way of minimum litigation inquiries.

In my considered view, if all stakeholders should strive to customise their Business Processes and Reporting System to gear up and cope up with such challenges, and if this extends seamlessly to the finalisation of the Financial Statements, it would help each one of us in the long run – whereby we don’t have to face the “Gun”, instead we enjoy the bed of “Roses” while compliantly discharging our obligations. Another spin-off is that none of the stakeholders need to face the challenges of due date pressures if proper systems are planned and executed by all.

Time has come whereby all stakeholders need to enhance their Systems Deployment thereby generating information on real time basis – and all applicable benefits due to timely and proper legal compliances are maximised efficiently and effectively in the interest of all.

With this I complete my article GUNS N ROSES of Digital

Synchronisation with reference to Income Tax vis-à-vis GST. My views can be adapted or improved by any reader considering the due dates extension available to each one of us. Similarly, reconciliations can be planned for compliances under other laws (Note 6) that may be applicable to various business enterprises – how to do it is some food for thought!

(Note: Views expressed are my personal views and they are based on my understanding of the subject as dealt by this article and views shared may be acceptable or may not be acceptable to the readers of this article. All readers are requested to take their considered views based on their own study to reach any suitable conclusions. There can be many other situations under the law but through this article I have tried to sow the seed of thought in the minds of readers. Suggestions to improve the article are always welcome with folded hands).

Initially, such exercise of Reconciliation will appear to be lengthy, arduous and demanding but once we are accustomed to do such reconciliations and document them, the initial feel of facing the battle of guns will yield to the pleasure of enjoying the bed of roses. Of course, this requires that we undertake such exercise by customising and building systems according to one’s needs considering the size, volume and complexities involved in different assignments.

Illustrative Table of Reconciliations

Table 1 Reconciliation of Turnover as per Books of Account with Audited Financial Statements or Non-Audited Financial Statements

Sr No Particulars Value Remarks Source
1 Turnover or Gross receipts from Business or Profession as per Books of Accounts Xxxxxx.xx Note 1
2 Other adjustments (+/-)
a. Other Incomes reported in Financial Statements Xxxxxx.xx Note 1
b. Any other adjustments viz. Ind AS or method of accounting etc. Xxxxxx.xx Note 2
c. Others (not covered above) – Branch Transfers Xxxxxx.xx Note 3
Total of Other adjustments (total of 2a to 2c) Xxxxxx.xx
3 Total Turnover as per Books of accounts (1+2) Xxxxxx.xx
4 Turnover/Gross receipts as per Audited Financial Statements or Non-Audited Financial statements Xxxxxx.xx Note 4
5 Deviations (3-4) Xxxxxx.xx
6 Reasons for deviations

Table 2 Reconciliation of Turnover declared in Audited Financial Statements or Non-Audited Financial Statements with Income Tax Returns

Sr No Particulars Value Remarks Source
1 Turnover/Gross Receipts as per Audited Financial Statements or Non-Audited Financial statements Xxxxxx.xx Note 3
2 Other adjustments (+/-)
a. Other Incomes reported in Financial Statements Xxxxxx.xx Note 1 & 2
b. Any other adjustments viz. Ind AS or method of accounting etc. Xxxxxx.xx Note 1 & 2
c. Others (not covered above) – Branch Transfers Xxxxxx.xx Note 1 & 2
Total of Other adjustments (total of 2a to 2c) Xxxxxx.xx
3 Total Revenue or Turnover (1+2) Xxxxxx.xx
4 Turnover or Receipts or Other Income Tax to be reported in the Income Tax Returns finalised before filing Xxxxxx.xx Note 3
5 Deviations (3-4) Xxxxxx.xx
6 Reasons for deviations

Table 3 Reconciliation of Turnover declared in Audited Financial Statements or Non-Audited Financial Statements with GSTR 1 for single or each multi GSTIN followed by PAN India consolidations

Sr
No
Particulars Value Remarks Source
1 Turnover as per Audited Financial Statements or Non-Audited Financial statements Xxxxxx.xx Note 3
2 Other adjustments (+/-)
d.    Other Incomes reported in Financial Statements Xxxxxx.xx Note 1 & 2
e.    Any other adjustments viz. Ind AS or method of accounting etc. Xxxxxx.xx Note 1 & 2
f.     Others (not covered above) – Branch Transfers Xxxxxx.xx Note 1 & 2
Total of Other adjustments (total of 2a to 2c) Xxxxxx.xx
3 Total Revenue or Turnover (1+2) Xxxxxx.xx
4 Total Aggregate Turnover reported for single or every Multi GSTIN Number as per GSTR 1 Xxxxxx.xx Note 4
5 Deviations (3-4) Xxxxxx.xx
6 Reasons for deviations

Table 4 Reconciliation of Turnover declared in Audited Financial Statements or Non-Audited Financial Statements with GSTR 3B for single or each multi GSTIN followed by PAN India consolidations

Sr
No
Particulars Value Remarks Source
1 Turnover as per Audited Financial Statements or Non-Audited Financial statements Xxxxxx.xx Note 3
2 Other adjustments (+/-)
g.    Other Incomes reported in Financial Statements Xxxxxx.xx Note 1 & 2
h.   Any other adjustments viz. Ind AS or method of accounting etc. Xxxxxx.xx Note 1 & 2
i.     Others (not covered above) – Branch Transfers Xxxxxx.xx Note 1 & 2
Total of Other adjustments (total of 2a to 2c) Xxxxxx.xx
3 Total Revenue or Turnover (1+2) Xxxxxx.xx
4 Total Aggregate Turnover reported for single or every Multi GSTIN Number as per GSTR 3B Xxxxxx.xx Note 4
5 Deviations (3-4) Xxxxxx.xx
6 Reasons for deviations

Table 5 Reconciliation of Turnover declared in GSTR 1 vis-à-vis GSTR 3B for single or each multi GSTIN followed by PAN India consolidations

Sr No Particulars Value Remarks Source
1 Turnover as per GSTR 1 filed Xxxxxx.xx Note 5
2 Other adjustments (+/-)
j. Other Incomes reported in Financial Statements Xxxxxx.xx Note 1 & 2
k. Any other adjustments viz. Ind AS or method of accounting etc. Xxxxxx.xx Note 1 & 2
l. Others (not covered above) – Branch Transfers Xxxxxx.xx Note 1 & 2
Total of Other adjustments (total of 2a to 2c) Xxxxxx.xx
3 Total Value of Supplies as per GSTR 1(1+2) Xxxxxx.xx
4 Total Aggregate Turnover reported for single or every Multi GSTIN Number as per GSTR 3B Xxxxxx.xx Note 4
5 Deviations (3-4) Xxxxxx.xx
6 Reasons for deviations

Notes

1. Finalised Trial Balance at Pan India level supported by Trial Balances of multi GSTIN is a starting point to undertake this exercise. Trial Balance would reflect all requisite information needed to undertake such reconciliation exercise.

2. Trial Balance Finalisation and Compilation is fundamental to the drawing up of the Financial statements, and Users are expected to be aware of the impact of adjustments on Financial Statements – in a holistic as well as cross-relating manner to perceive their impact under Income Tax Laws, GST Laws and all other laws that apply to the enterprises. If other adjustments are recorded/given effect to in the books of account, then they will not appear in the Reconciliation Statements. But if they are not recorded, then they would impact the reconciliations.

3. The figures of Turnover/Gross Receipts that would be reported for the Audited Financial Statements or Non-Audited Financial Statements need to be meticulously computed and validated, as these figures would need to be reconciled with such values disclosed under various laws viz. Statutory Law, Tax Audit, Income Tax Returns, MCA Compliances, MSME compliances, Management Reporting etc.

4. Definition of Aggregate Turnover as per section 2(6) of CGST Act, 2017 is much wider and inclusive as compared to Turnover/Gross Receipt of Business or Profession as reported in the Financial Statements. Under GST Law, all reconciliations are invariably linked to the definition of Aggregate Turnover. The concept of “Turnover” in Financial statements and under GST Regulations are different, so such distinction needs to be kept in mind and one needs to build up suitable convergence systems for reporting and timely reconciliations.

5. “Turnover” as per GSTR 1 as well as GSTR 3B are preferably expected to be equal and if not equal, then the need for reconciliations would arise – which should appropriately state the causative factors for such deviations while considering their implications under the provisions of GST laws.

6. Other illustrative reconciliations that may be considered by the readers viz. Input Tax Credits, GST Levies, Outward and Inward E Way Bills, RCM, TDS under Income Tax & GST, ISD, Corporate Laws, FEMA, Labour and Social Security Laws, Audits (viz. Statutory Audits, Internal Audits, Secretarial Audits, Inventory Audits, Investigation and Forensic Audits etc.), Directors Report, Stock Exchange Listing, Regulatory Compliances, Industry Specific Regulatory Reviews etc. to build up the business processes review.

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4 Comments

  1. Sanjay Kumar Acharya says:

    Very Good and Thought ful article, ii understood 50% as it is technical and a lengthy subject, how ever thank you sir for bringing a such a light to the digital synchronization of data..

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