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ICAI suggests Verification of all income-tax returns by Professionals

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

Categories: Income Tax

View Comments (32)

  • 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)

  • 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.

  • 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”.

  • 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

  • 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.

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