Issue/Justification

There are classes of persons who are filing income tax returns but are not declaring their income properly. Either the income is suppressed or various deductions are being claimed which are not legally permissible. With the increase in the work of the Department it is not practicable to scrutinize each and every return. Taking into consideration this aspect the person filing the return takes a calculated risk. Further, basic deductions provided by the Act like section 80C (Rs.1, 00,000), section 80D (15,000), section 24(b)(Rs.1,50,000) being claimed by the individuals and HUFs, in large numbers, have huge revenue impact. To check on the admissibility of the claim for deduction, no proof of investment is called for by the assessee. Today as per e-filing website there are 2.79 crore assessees who have filed return for ITR-1,2,3,4 and 4S online for the AY 2013-14 and are thus expected to have an income of Rs.5,00,000 or more. Considering the slab rate of 10%, the minimum revenue impact is 2,70,000*10.3%*2.79 crore is approximately Rs. 77600 crores. In case the applicable rate of tax is 20.6%, the revenue impact is approx. 155180 crores. In case the applicable rate of tax is 30.9%, the maximum revenue impact is Rs. 232770 crores.

To address this, it is important that all the returns filed are thoroughly checked and cross-verified with the information collected through AIR and other sources by the Department. This process is entirely different from the scrutiny process. In this verification, not only the arithmetical accuracy but the admissibility of the claim regarding the expenditure incurred, income earned or investment made on the basis of the evidence collected from various sources will also be verified. Since this work is voluminous, the same will also be required to be out-sourced preferably to the professionals understanding the law better and who are in a position to identify the grey areas. Although the chartered accountants, through whom approx 85% of the returns are filed, ensure the correctness of the claim, the law does not recognizes the same. Thus, the chartered accountant is questioned by the assessee, when documents are asked for. In the interest of the revenue, it is imperative to have a certification of claims of deductions under section 80C, 80D, 24(b) and the like. This process once started will ensure better voluntary compliance as every taxpayer filing the return would be aware that the return being filed would be subject to a verification process and he cannot afford to take the liberty of making adjustments which are legally impermissible.

Suggestion – Since non verification of admissibility of basic deductions provided in sections 80C, 80D and 24(b) have huge revenue impact, it is imperative to have a certification /verifications of all claims of deductions under section 80C, 80D, 24(b) and the like. In this verification, not only the arithmetical accuracy but the admissibility of the claim regarding the expenditure incurred, income earned or investment made on the basis of the evidence collected from various sources will also be verified. Since this work is voluminous, the same will also be required to be out-sourced preferably to the professionals understanding the law better and who are in a position to identify the grey areas.

(SUGGESTION TO IMPROVE TAX COLLECTION)

Source- Pre-Budget Memorandum – 2014 on Direct Taxes by The Institute Of Chartered Accountant Of India, New Delhi

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0 responses to “ICAI suggests Verification of all income-tax returns by Professionals”

  1. s sudarshana says:

    Dear Ravina Verma,
    Use ITR-4 where provision exists to show expenditrue incurred for tuition, etc viz., rent, electricity etc. ITR-4 for professional income.

  2. Ravina sharma says:

    Hello I have income from tuition & cloth stitching work. my total personal income 2 lac.I would like to know that which ITR form should be filed. and my husband having a agriculture & professional income so for him which ITR form should be filed. kindly reply me . thanking you

  3. R.SUBRAMANIAN says:

    Statement made by Revenue Secretary to Media
    On August 6, 2012, the Finance Minister Shri P. Chidambaram made a statement on the policy of the Government regarding taxation and tax administration. He emphasized that clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution, and an independent judiciary will provide great assurance to investors. This message has been repeated on several occasions since then.
    December 15 is an important day on the calendar of the Central Board of Direct Taxes (CBDT). It is the date on which the third installment of advance tax for corporates and the second installment for all other assesses (including individuals, HUF etc) is due.
    In Assessment Year 2012-13, only 14,62,488 assessees (salaried persons, HUF, professionals, firms, companies and transporters & retainers) have filed their returns disclosing a taxable income of over Rs. 10 lakhs. Any fair minded person will agree that this is a gross under-statement.
    We know that –
    • 16,00,746 persons made payments of Rs. 2 lakhs or more against their credit cards; • 11,91,037 persons decided to purchase or sell house property worth Rs. 30 lakhs or more;
    • 52,42,114 persons acquired mutual funds of Rs. 2 lakh or more; bonds or debentures of Rs. 5 lakhs or more; shares issued by a company of Rs.1 lakh or more; bonds issued by RBI of Rs. 5 lakh or more;
    • 33,83,276 persons made cash deposits aggregating Rs. 10 lakh or more in the savings bank account.
    Government would urge all asessees to disclose their true income. There is no advantage in suppressing the true income or avoiding paying income tax that is due because, sooner than later, the information available with the Income Tax Department will lead the department to the doors of such persons. For assesses who have not yet paid the correct advance tax, there is an opportunity to rectify the mistake and pay the advance tax by December 15, 2012. Government seeks the cooperation of all citizens in this regard.
    For above this problems arise only from Chartered Accountant, the assesses goes to file and get it the certificate from CA, he will get it the fees of Rs.lakhs and above, so the people could not file the return in proper way. India total population estimates is 1270272105, Income tax assesse is estimated 1462488, the ratio is below 1%.

    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. I hope that Ministry of Finance will consider my above submissions & make necessary amendments to Income-Tax Act/Direct Taxes Code, keeping in mind that “more persons in the line of tax practice more revenue”.

  4. B.S.K.RAO says:

    Attorneys Employed by a CPA Firm….

    The court must have had some kind of vision of the professional world converging in the future, for as early as 1964, it set rather interesting ground rules into place for the cross-employment restrictions of Legal and CPA professionals. In Opinion 23 (January 9, 1964), the court was asked: “May a member of the Bar of New Jersey engage in the practice of law in this State simultaneously with the practice of public accounting?” In response, the court’s opinion states:

    “… we find that the dual practices of law and accounting … by lawyers would not violate the Cannons of Professional Ethics. Nor does it appear to us that any other rules of our Supreme Court would be violated by such dual practices.”

    While one would expect this finding would permit CPA firms to hire lawyers to serve in practice while at the same time permit law firms to employ attorneys who also hold CPA licenses to serve dual masters, the opinion, unfortunately, does not cover CPA firms who hire attorneys. The opinion specifically addresses lawyers practicing law in New Jersey who are also CPAs and practicing public accounting. If a CPA firm employs an attorney, in order for that attorney — assuming he or she is a member of the New Jersey bar — to perform and bill legal services for clients, he or she must do so under the banner of a New Jersey law firm, not the CPA firm.

    Inheritance Tax Returns….

    While it would appear that our law firm colleagues hold the winning position with respect to dual-practice issues, there is one area where the NJSCPA successfully reclaimed a small square of turf involving tax returns.

    In its Opinion 10 (November 1972), the Committee on the Unauthorized Practice of Law ruled that “… the preparation of an inheritance tax return requires the application of a gamut of legal principles, and that its preparation by a non-lawyer, acting for another, would constitute the unauthorized practice of law.”

    However, in 1986, in the matter of the Application of New Jersey Society of Certified Public Accountants, 102.N.J. 231, 242 (1986), the Supreme Court modified the ruling to allow a limited exception that permits CPAs to prepare and file inheritance tax returns as long as the client is notified, in writing and before the CPA commences work on the return, that a review of the return by an attorney may be desirable due to the possible application of legal principles related to the preparation of the inheritance tax return.

    Conclusion……

    The CPA is clearly at a disadvantage in regard to extending his or her practice into areas concerning legal matters, with the exception of entity creation services. CPAs should exercise caution and keep to our roles as trusted advisors, discussing options but referring the legal work to a qualified law firm. In the end, distancing yourself from offering legal services will likely yield a referral to your firm, rather than a fine or lawsuit for practicing law without a license.

  5. B.S.K.RAO says:

    ULTIMATELY,

    WHATEVER COURT ICAI (FINANCIALS) APPROACH ABOUT PRACTICE OF INDIAN TAXATION LAWS, IT GO IN FAVOUR OF ADVOCATES ONLY. SUCH WRIT PETITIONS WILL BE TOTALLY DISMISSED BY THE COURT OF LAW-THIS IS IN VEIW OF LATEST VERDICT IN THE CASE OF BAR COUNDIL OF INDIA VS A.K.BALAJI (SC) & A.K.BALAJI VS GOVT. OF INDIA Madras(HC)

  6. s sudarshana says:

    Mr. K.C.Agarwal,
    You are stating again one more layer is to be brought to the tax payer to add expenses, time and energy while the Govt. of India and IT Department is going allout to make things simple by introduting online filing, doing away with enclosures making refunds directly, bringing in TRACES to help tax payers to know the TDS details. You should have read the comments of earlier writers and countered them, who have opposed one more layer. before advocating for one more layers. You have not reacted/countered my comments of 12/6/2014 06.02 pm wherein your suggestions have been addressed without actually bringing in one more layer.
    Your advocacy implies that we should suspect the those filing online now, that majority are cheaters/wrong claimers of deduction and ignorant of the rules. This is a very sad part. Whenever the tax payer feels he is in difficulty to file himself he will certainly take the help of professionals. Why you want to make it mandatory to process through one more layers.
    In the light of the recent trend to bring in ‘single window’ from ‘multi window’ for quick and smooth result your suggestion is retrograde and was avoidable.
    Your concern that they are ignorant of rules and making wrong claim is to be supported by statistics, Sir. Please ask the IT CPC to provide for the STATISTICAL figures regarding correct filing, false filing, suppressing the income cases by those who have resorted to direct filing and also those filed by Professionals. As and when more than 50 % people are filing wrongly and causing loss to govt, despite collecting fines from the assessees, such suggestions cannnot be seen as right.

  7. K C AGARWAL says:

    i fully agree with the view of ICAI. In most of the cases, the return is being filed by non qualified person,who does not have thorough knowledge of the taxation. Under section 80c, Rs.100000.00 is being claimed, without having the detail. Insurance is being claimed, without knowing whether the person is entitled for insurance, as per act or not. Many due claim is not being claimed. All required information is not filled up in the return. Detail of fixed asset is not filled up.In our view, return should be certified by professional
    K C AGARWAL

  8. Asokant says:

    Give suggestion for the simplification of Income tax rule for the salaried class and retired people. Do not complicate the matter to make few people wealthy at the cost of other people.

    Start basic classes on taxes/general laws to the school children and understand them the importance.

  9. B.S.K.RAO says:

    Ram Patil Sir,

    This suggestion given with the motto of inserting certificate in Income-Tax Return itself. In my practical experience majority of the assessees invest in savings covering the whole limits prescribed U/s 80C of Income-Tax Act, in order to plan tax. There is no further verification required in the matter. Rather, Deptt. should investigate, why combined tax admission in ITR-4 & 5 covered by tax audit is still 45 thousand crores only. Because return filed in ITR-4 & 5 covers assessees engaged in business of agricultural & industrial output and also service sector.

  10. vswami says:

    To add: In the published article – Finance Bill, 2006 -IMPROVING TAXPAYERS SERVICE – A Study ((2006) 151 Taxman 295) , one of the connected matters briefly touched upon relate to the implications of rule 12A of the IT Rules. The duties /responsibilities of CAs authorized to render service to taxpayers by way of assisting them in preparing tax returns, as focused on, are onerous in nature. Should, as pointed out, the said rule be modified to render it comprehensive, foolproof and purposeful enough, in one’s perception, that itself might go a long way in eventually accomplishing the same outcome the august professional body seems to,- have had in mind/be its dream.
    Now, over to the Experts for an intensive deliberation.

  11. vswami says:

    Simply to share one’s own individual reactions, tentatively and in brief:

    The suggestion to ‘outsource’, so generously offered, does not prima facie appear to have been made after an appropriately required home work. This is yet another instance of impulsive ‘suggestion’, in quick succession, which has given rise to serious doubts about the objective behind or useful purpose , if any, aimed at. As echoed by some, rightly so, at best the suggestion is potent with undesirable and retrograde outcome.

    Be that as it could not have been expected to be any different, one keeps painfully wondering whether or not in venturing any such suggestion, the following very relevant material angles have been unwittingly or otherwise over sighted:

    1. The most harmful and objectionable consequences,- lately and many times brought to focus in legal and other knowledgeable quarters,- the fashionable technique of ‘outsourcing’, albeit that has come to be resorted to recklessly n almost every field of human activity, in the ultimate analysis has in store; if remember right, the bone of objection is that any such basically ‘governmental’ work / responsibilities, with attendant ‘confidentiality’, ought not to be, from the viewpoint of ‘public interest’, delegated- to do so may be strictly speaking impermissible by any idealistic principle/ logic, – to ‘outsiders’ of any type, all and sundry.

    2. Is there not a full fledged machinery of governmental audit very much in place ,coming under the purview /supervision of the esyeemed constitutional authority – ‘CAG’/ AGs, which is supposed, rather duty-bound, to take sufficient care of the elaborate task of ‘verification’ sought to be underscored?

    3. Is not the suggestion tantamount to impliedly or otherwise questioning or throwing serious doubts, in one’s view unwarranted though, on the effectiveness/efficacy of the several laudable steps taken by the government; mainly, the most modern ideas given shape and implemented, at a colossal cost to the exchequer (in turn, to the public), being the ‘national net work’ set up and the ‘CPC’ in full swing /operation.

    (Left open to be ‘edited’, if so wish, by one and all concerned, endowed with a public-centric motive/ insightful thinking)

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