What should be first, ITR or Tax Audit report? Lord Ganesha -Please Help!

CA Umesh Sharma

Karniti -Dear Vighnaharta .., what should be first…, Income tax return or Tax Audit report? Please remove the Vighna (Complications)

Arjuna (Fictional Character): Krishna, the festival of Lord of Wisdom Shri Ganesha is being celebrated with Joy all over India, but the Income Tax payers under Tax audit are facing the obstacles in their Joy. As per Income Tax Departments recent circular, the due date of income tax return is 30th September 2014, but the extended due date of Tax Audit report filing is 30th November 2014. What mess is going on? Please explain in detail.

Krishna (Fictional Character): Arjuna, by worshiping Lord Ganesha and using knowledge, everyone’s work would be done without obstacles (Vighna) , hence he is called “Vighnaharta” . In the month of September, Businessmen are busy in finalising their books of Accounts for filing Income tax return & Tax Audit Report. As per Income tax Act, Businessmen having annual turnover exceeding 1 crore & Professionals (e.g. Doctors, Engineers, Advocates, etc.) having annual receipts exceeding 25 lakhs have to get their books audited. Further whose turnover is below 1Crs but shows taxable income below 8% are also covered. This is audit being termed as Tax Audit and “Tax Audit Report” is to be generally uploaded with Income tax Return. The date for filing Tax Audit report upto 30th September, but due to changes in Tax Audit Report this year, Central Government has extended the due date upto 30th November 2014. Hence confusion has been created.

Arjuna: Krishna, Income tax return filing due date is upto 30^th September & Tax Audit Report filing due date is upto 30th November, why such discrepancy and what could be the result?

Krishna: Arjuna, while uploading income tax return, correct information consisting of Balance sheet, Profit & Loss Account, Taxable income, Tax & TDS, etc. has to be uploaded. The same information is also verified in Tax Audit. Due to this, after doing tax Audit the taxpayer files the return which is normally followed. This means that generally after Tax Audit report completion only, correct Income tax return can be filed. It means before 30th September, income tax payer has to complete his Tax audit. Then what’s the use of extending the date of filing Tax Audit report to 30th November? What will happen, if return is filed without doing tax audit & subsequently any error is identified? Revised return will have to be filed which will give rise to unnecessary consequences and then the trail of enquires will follow the Income tax payer. Government should avoid such unreasonable changes in the middle of the year. The changes in Audit Report have been made applicable from 25th July 2014 which means it’s already late, utility to upload new tax audit is introduced in late August and now in the period of the festivals, the Income tax return has to be filed in hustle & bustle. Further in case of loss returns, payment of liability u/s 43B and other reports u/s 80 IA or IB needs to be filed before 30^th September.

Arjuna: Krishna, what are the features of this Tax Audit?

Krishna: Arjuna, Chartered Accountant has to submit Tax Audit report in Form 3CA/CB & 3CD. In these forms lots of information about whether Incomes & Expenditures are according to Income Tax Act or not & correct or not are to be given. Eg. Books of Accounts, Balance Sheet, Profit & Loss Account made available by Businessmen are correct? In the same way Depreciation, EPF, TDS, Loans & Deposits etc. such type of information as per the provisions of Income Tax Act is required to be given. Chartered Accountant has to e-file this tax audit report & taxpayer has to accept it through his log in on the website of Income Tax Department. It’s the duty of tax payer to file tax audit report.

Arjuna: Krishna, this year what new information has to be submitted in Tax Audit report?

Krishna: Arjuna, in this year very detailed and critical information will have to be complied and given in this year’s tax audit report. Following are some of the major points which have been inserted in the Tax Audit Report:

1] For assessees liable to pay indirect taxes such as excise duty, service tax, sales tax, customs duty, etc, registration number under such Act is to be provided.

2] Address where books of accounts are kept is to be mentioned.

3] In case of taxpayers who have sold immovable property for a value less than government valuation, details of property sold along with actual consideration and stamp duty valuation are to be reported.

4] Details of sale of shares of private limited company without consideration or for inadequate consideration.

5] Where expenditure and loan receipts and payments have been made in cash exceeding Rs.20000, the Name and PAN of the payee alongwith the nature of payment is to be furnished.

6] Where any Cost Audit, Excise audit, Service tax Audit was carried out, information of any disqualification or disagreement on any matter is to be reported.

7] Where any demand has been raised or refund has been issued under other tax laws like VAT, Service tax, Excise, etc. details of the same to be reported.

8] Comparative details regarding Gross turnover, Gross profit, Net profit, Stock Turnover Ratios are required. Eg. For financial year 2012-13 & financial year 2013-14.

9] Complete details of Tax deduction made and paid to the Government such as nature of payment on which TDS deducted, whether TDS has been deducted on correct amount and correct rate and whether the same has been paid on time or not. Further, details of TDS return if the same have been late filed and the interest payable on late payment of TDS.

Arjuna: Krishna, What is the need of Tax Audit report & how does Income tax Department uses it?

Krishna: Arjuna, Income Tax Department cannot verify every taxpayer’s books of accounts. Also, compliance of provisions of various Acts has become difficult. Many a times it is difficult for the taxpayer to fit the complicated business transaction within the framework of law. For the taxpayer to easily follow all the legal requirements, Tax audit is required. Many may face the problems of it but its benefits are also in plenty. By this Government can assess tax properly. Further due to use of information technology lot of data is analyzed and used for tax administration.

Arjuna: Krishna, moral of this is that Taxpayer should get his books audited & file the correct return before time but government should not make changes in law which may create obstacles.

Krishna: Arjuna, Changes in law should be made in the beginning or at the end of the year. Changes made in between, create confusion & compliance of it becomes difficult. In this matter taxpayer will have to face many problems. The law makers should keep in mind that it is easy to make the law but difficult to follow. Hope that the Government will make beneficial amendments soon to provide relief to the taxpayer in this case. Otherwise taxpayer and auditor will be in great difficulty in fulfilling all the requirements of law before 30^th September. Let’s pray that Lord Ganesha (Vighnaharta) will remove these obstacles (vighna) of taxpayers.

Dear Tax guru lovers, your comment please, as they are very valuable and precious.

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