Hassle-free assessment may be difficult, as the new forms have a fair share of ambiguities and inconsistencies.
The new income-tax forms notified by the Central Board of Direct Taxes (CBDT) recently are meant for the current assessment year 2007-08.
The draft forms were published in the last week of April and the basic thrust of the new tax forms are (i) annexure-less filing of tax returns; and (ii) compatibility to electronic filing method.
However, hassle-free assessment may be difficult, as the new forms have a fair share of ambiguities and inconsistencies. Here are some of them:
No annexures/enclosures: Already there are a large number of tax refunds pending. Dispensing with the requirement of enclosing tax-paid challans and TDS/TCS certificates will compound the problem.
No industry-specific activity reporting: There is no manufacturing or trading account for industry-specific activity. Only the profit and loss account and balance-sheet in assorted form are to be furnished. Details of heads of expenditure to each industry/activity would vary and these are not provided in the new forms.
Even exempted incomes to be disclosed in P&L account format: The profit and loss (P&L) account format requires furnishing of details of exempted incomes, such as dividends and those from agriculture. The P&L account furnished in the return will not match with the books of account of the taxpayers as they normally credit these incomes directly to capital account or are not accounted in the books of account relating to business or profession.
Quantitative details: These, including shortages and out-turn statement in the return form, would be difficult to comply with as the form prescribed is long after the end of the previous year. Taxpayers, especially non-corporate, not used to maintaining quantitative details may find it difficult, or even impossible, to furnish the relevant particulars in the return form.
Duplication of AIR: The taxpayers now have to furnish their transactions, covered by the annual information return (AIR), in the new tax return form. If the AIR filed by various authorities are available with the Department, why do taxpayers have to give such information again in the return form?
No status report for partners: In the case of persons who are partners in a firm and who have no independent business or profession, the details are to be furnished in ITR-3. There is no balance sheet or statement of affairs prescribed in the return form. This may create suspicion and confusion in the long run.
Irrelevant details for proprietors: ITR-4, meant for proprietary business, seeks disclosure of salary, bonus or commission paid to any partner or member. Such disclosure will be impossible as the proprietary form of organisation cannot have partners or members. The balance-sheet requires disclosure of revaluation, capital and statutory reserves and these terms are generally alien to proprietary business.
No exact details of payment to partners: In respect of return forms meant for partnership firms, the P&L account format do not provide for disclosure of partners' salary and interest on their capital.
However, the details are to be furnished separately and these are an optional disclosure requirement for non-tax audit cases. That part of the return form meant for computation of income from business provides for overall disallowance under Section 40 without making any particular reference to Section 40(b), and this is not a welcome feature.
Gross profit no more a measure of results: The return forms prescribed do not provide for ascertaining gross profit from the activity of the enterprise. Also, total manufacturing facility may not be available under a single roof and the contract method of manufacture is very much in vogue. Not providing business-oriented trading or manufacturing provision and attempting to standardise the format of P&L account is ill-conceived.
No manufacturing expenditure heads: The P&L account prescribed for all business assessees in ITR-4, ITR-5 and ITR-6 are almost similar, with practically no space for furnishing details of various manufacturing or direct expenses.
In the case of textile manufacturers who may not manufacture the entire product within the premises and who may contract some of the processes to outside agencies and incur contract payments, there is no provision for furnishing those expenditures in the P&L account. Similarly, in the case of assessees having more than one line of business, furnishing details would be difficult as the form does not provide for segmental reporting of details.
Comparability shelved for the present: The new return form would make comparability with past records almost impossible. It displaces the concept of transparent reporting of transactions by the taxpayers and objective appreciation of the same by the tax-gatherers.
Mandating compliance with the new form is a move towards synchronising accountancy and income-tax, two streams which can never really match exactly.
V. K. Subramani (The author is an Erode-based chartered accountant.)