Need To Rationalize TAR And ITRs – A Measure To Remove Duplication and To Minimise Litigation

BACKGROUND: Presently, in India, a large number of income tax assesses are required to get their accounts audited under section 44AB of the Income Tax Act, 1961. The report of audit (TAR) is required to be e-filed by the tax auditor (alongwith subsequent approval by the assessee) to the income tax department. Thereafter, the income tax return (ITR) is required to be prepared and e-filed by the assessee. The relevant ITRs are ITR-4, 5 & 6. In the present article, efforts have been made to analyse the drawbacks in the present system and to suggest some measures to eliminate them.

DRAWBACKS IN PRESENT SYSTEM: The various drawbacks in the present system are summarized as under:

DUPLICATE SUBMISSION OF SAME INFORMATION : In the ITR, almost all the bulky information as contained in the TAR are again required to be furnished e.g., profit and loss account, balance sheet, quantitative details, detailed depreciation chart, details of disallowable expenses under various sections as reported by the tax auditor, details of various incomes not credited to the profit and loss account and other deemed incomes as reported by the tax auditor, method of accounting and of valuation of stock and changes therein and their impact, carry forward of losses and unabsorbed depreciation, business details (name, code etc.),details of auditor, date of signing & furnishing of audit report and many other information.

This duplicate task takes much time and efforts on the part of the assesses, without any additional benefit to the income tax department.

DIFFERENT FORMAT FOR FILING SAME INFORMATION IN TAR AND ITR: For furnishing of various similar information, the format in the TAR and ITR are different e.g., in case of TAR, the profit and loss account and balance sheet and schedules are required to be furnished in pdf format whereas in the case of ITR, the same are required to be furnished in XML format in the ITR form itself. Further, no specific heads of income, expenditure, assets, liabilities etc. have been prescribed for furnishing profit and loss account and balance sheet alongwith the TAR, whereas in the ITR the above information is to be furnished only in the specific format. Due to this, there may be chances of mistakes and inconsistencies in similar information in TAR and ITR.

UNNECESSARY LITIGATION WITH THE DEPARTMENT : In many cases, it is practically seen that the information as filed in the ITR is compared at the end of the department with that of similar information in the TAR and due to mismatch between them (merely due to different format in TAR and ITR and not due to any actual mismatch) notices for limited scrutiny have been issued to the assesses. Thus, practically and in reality, the present procedure of e-filing of TAR and ITR is also a reason for unnecessary litigation between the department and the assessee.

SUGGESTIONS: To overcome with the above problems, some practical suggestions are as under:

1. There should not be a duplication of information in TAR and ITR. The information which is already contained in the TAR should not be again sought in the ITR.
2. The ITR forms should be rationalised and columns pertaining to such duplicate information which is already contained in the TAR should be removed from them.
3. Both TAR and ITR may be internally linked in the departmental computer system so that the information necessary for processing of ITR can be taken directly from the TAR, by the departmental computer system itself.
4. The format of filing information in TAR may also be rationalized so that the information contained in the TAR which is necessary for the purpose of processing of ITR may be taken directly by the departmental computer system from the TAR (e.g., instead of filing of balance sheet, profit and loss account etc. with TAR in pdf format, the same may be sought alongwith TAR in XML format so as align them with the format of ITR).
5. In the cases, where the assessee has more than one business and the books of account of different businesses are to be audited by different auditors, then also this system may work smoothly.
6. In those cases, where the assessee is not liable for the tax audit or has not got the accounts audited despite liability for that, the assessee may be required to prepare and submit both ITR part and TAR part himself. A separate consolidated utility may be provided to them so that they may fill both the parts in one step easily and smoothly without having any additional compliance burden.
7. The present system of having different due dates for ITR and TAR may continue in the new system also. All other facilities which the assessee and the tax auditors have under the present system may also continue under the new system.

CONCLUSION: Thus, the rationalisation of TAR and ITR may on one hand reduce the work burden and compliances on part of the assesses and on other hands may also be helpful for the department for smooth tax administration, reduction in errors, speedy work and minimization of litigations.