Readers would be aware of the e-filing requirements with reference to income-tax returns. These were brought onto the statute long back and, by now, most of us are well versed in the process of e-filing of the ITR forms. We also have the e-filing requirements under Company Law whereby we have been filing documents electronically with the MCA. For the past few years, ever since the e-filing of returns was made mandatory, we have had a situation where the audited accounts, the tax audit report, the MAT certificate etc., have not been submitted to the tax department unless specifically called for during a scrutiny. This, in my opinion, has inadvertently led to a bit of leniency being shown by many of our members in terms of timely closure of documentation and filing.
Background:
Section 139 requires certain categories of persons to file tax returns in India. Section 139(1) states that the returns need to be in prescribed form. Rule 12 lays down the prescribed forms. Proviso to Rule 12(3) as amended vide Notification No. 37/2011/F. No. 149/68/2011-SO(TPL) dated 01-07-2011 makes it mandatory for some of these categories of return filers to e-file their returns mandatorily. For others, there is an option to e-file the returns (section 139(1B)) but only if they are assessable in specified cities. Section 139(1B) empowers the Government to formulate a scheme for e-filing. In pursuance of this power, the “Furnishing of Return of Income on Internet Scheme 2004” was notified on 30-9-2004. Then, this scheme was superseded by the “Electronic Furnishing of Return of Income Scheme 2007” vide notification No. SO 1281 (E) d. 27-70-2007.
As per Rule 12 (2), ITR-1, 2, 3, 4, 4S, 5 & 6 are not required to be accompanied by any documents. For A.Y. 2009-10, vide Circular No. 3/2009 d. 21-05-2009, the TP reports were to be filed physically before the due date. Thereafter, we have not had any such similar circulars but the practice of filing the TP reports on or before the due date for filing the returns has continued.
Recent notifications:
Now, on 1st May, 2013, the CBDT issued a Notification (No. 34/2013/F. No. 142/5/2013-TPL) which made amendments to Rule 12 whereby, the following proviso has been inserted in sub Rule (2) w.e.f. 1st April, 2013:
“Provided that where an assessee is required to furnish a report of audit under sections 44AB, 92E or 115JB of the Act, he shall furnish the same electronically.”
It is on account of this amendment that now, tax payers who are subject to a tax audit or a transfer pricing audit or who have to pay MAT, are now required to file the respective reports electronically.
Subsequent to the abovementioned notification, another notification has been issued on 11th June, 2013 (Notification No. 42/2013/ F.No.142/5/2013-TPL) which amended the proviso to Rule 12(2) which was inserted by the earlier notification dated 1st May. Now, the amended proviso reads as under:
“Provided that where an assessee is required to furnish a report of audit specified under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10, section 10A, clause (b) of sub-section (1) of section 12A, section 44AB, section 80-IA, section 80-IB, section 80-IC, section 80-ID, section 80JJAA, section 80LA, section 92E or section 115JB of the Act, he shall furnish the same electronically.”
As a result of the above amendment, now, many more reports are required to be filed electronically.
Another interesting amendment that was made vide the notification dated 11th June is the insertion of second proviso to sub rule (3) of Rule 12. The newly inserted proviso reads as under:
“Provided further that a person who is required to furnish any report of audit referred to in proviso to sub-rule (2) electronically, other than a person to whom clause (aaa) or clause (ab) of the first proviso is applicable, shall furnish the return, in Form as applicable to him, in the manner specified in clause (ii) or clause (iii).”
The cumulative impact of all the amendments is that any taxpayer who is subject to any audit will have to file the audit report electronically and, in addition, also have to file its tax return electronically.
The new e-filing regime:
Before we look at the details of the new e-filing regime, a quick look at the changes in type of tax return forms that can be filed for A.Y. 2013-14:
|
Form No.
|
Change applicable from A.Y. 2013-14
|
|
ITR-1 (Sahaj)
|
Cannot be used by an individual having:
i. A loss under IFOS
ii. A claim for foreign tax credit/relief under section 90/90A/91
iii. Exempt income exceeding Rs. 5,000
|
|
ITR-4S (Sugam)
|
Cannot be used by an individual/HUF having:
i. A claim for foreign tax credit/relief under section 90/90A/91
ii. Exempt income exceeding Rs. 5,000 |
Similarly, the amended position regarding how the tax returns can be filed with effect from A.Y. 2013-14:
Registration of Chartered Accountant on e-filing portal:
Significantly, the onus of uploading the tax audit report, transfer pricing report, MAT certificate, trust audit report etc., has been cast on the concerned Chartered Accountant who signs such a report/certificate. As a result, the process of e-filing of such reports would begin with the concerned CA having to register himself/herself on the e-filing portal. It may be noted that many CAs would already be registered with the said portal and would have been filing their personal tax returns electronically. However, even such CAs would still need to register themselves once again on the portal. For this, one would need to visit www. incometaxindiaefiling.gov.in and register on the site under the sub-category of “Chartered Accountants” under the main category of “Tax Professional”.
While registering, the CA will have to provide his ICAI Membership Number and date of enrolment with the ICAI. We need to be careful with this data since I am informed by a Regional Council Member of ICAI that this data is cross-verified by the portal with the ICAI records. While this information is not verified by me, if it is true, then even a small mistake may lead to problems in registration. Once the CA is registered successfully, he/she would get a notification by email and on a mobile (so, both these fields are mandatory and we will have to provide a valid email ID and a valid mobile number while registering). The activation link received through email has to be activated and then the registration would be completed. The CA would then get a new login name which is based on this ICAI Membership Number as opposed to the PAN-based login ID that we are generally accustomed to.
Once the CA registers on the site, his client will then need to register the CA as the signatory to the respective report/certificate. So, for example, in case of a taxpayer XYZ Pvt. Ltd., the tax audit report will be signed by CA Mr. A, the transfer pricing report will be signed by CA Ms. B and the MAT certificate will be signed by CA Mr. C, then the said company will have to log onto the e-filing portal and register each of these CAs for the respective report/ certificate. When this is done, the concerned CA will get a mail informing that a particular taxpayer has registered the CA as its signatory. The message contains the following line:
Dear AMEET NAVINCHANDRA PATEL,
User AAXXXXXX1B has added you as the CA for FORM3CA, FORM3CB for 2013-14.
Filing of tax returns only after uploading other reports:
It may be noted that it is no longer possible for a taxpayer to file the ITR form unless the various applicable audit reports (tax audit, transfer pricing, trust, MAT) are uploaded electronically. In the ITR form, the date of uploading of each such document has to be mentioned.
Actual uploading of tax audit reports:
Once the CA has registered himself/herself and the client has also registered the CA as the tax auditor, the uploading of the tax audit report (TAR) can be done. This has to be done by the concerned CA. It may be noted that in case of partnership firms who are appointed as the tax auditors, it is the individual partner who has to register himself/herself and not the firm. Also, the same partner will also need a Digital Signa-ture Certificate (DSC) to be able to upload the TAR.
For uploading the TAR, a CA would need to download the utility provided by the tax department on their portal. Once the utility is downloaded onto a local computer, the CA can start feeding in the data. This is offline preparation of the form. The CA also has the option of going online and preparing the form and submitting it immediately thereafter. However, considering the various issues that have already been faced by the CAs who have tried to use the utility, and also considering that this is the first year of e-filing of the TAR, one would need to be very courageous to attempt an online preparation and submission.
A very important feature of the utility provided by the tax department on their site is that it is NOT MS Excel based. This is one of the biggest drawbacks of the said utility. The utility is not user friendly and requires every bit of data to be manually entered by the CA. Also, it does not allow a user to “cut-paste” from any other file. So, if you thought that you could keep an Excel sheet open and then cut from there and paste the data into the utility, you have a shock in store for you. Many CA firms use private software for preparing the computation of income and also the ITR forms. Such firms will need to decide whether they would like to use the utility provided by the Government for uploading the TAR or whether their private software vendors will provide the utility. This article refers to the utility provided by the Government. For running this utility, you will require your computer to have Java Runtime Environment Version 7 Update 6 or above (32 bit) installed in it.
Once the data is entered into the utility, the entire file needs to be validated (on similar lines as the validation required for ITR forms). Upon successful validation, the CA needs to generate a .XML file. The .XML file then has to be uploaded onto the portal with the help of a DSC (which can be either in the form of a .pfx file or a USB token). Once this is done by the CA, the ball then moves to the court of the concerned taxpayer who will get a notification that his CA has uploaded the TAR for his (taxpayer’s) approval. The taxpayer will then have to review the TAR and “Approve” or “Reject” the same. If for any reason, the assessee rejects the TAR, then the concerned CA would need to resolve the difference that the assessee has and then once again generate a fresh .XML file and upload it. The assessee would then again need to log in and “Approve” the same. Once the assessee approves the TAR with the help of a DSC, the same gets officially filed with the Income-tax department and an e-acknowledgement gets generated. This closes the e-filing procedure as far as the TAR is concerned.
Uploading of financials:
Quietly, along with the e-filing of the TAR, the Government has also simultaneously made it mandatory for the tax auditor to also upload the scanned copies of the audited accounts. Fortunately, the tax auditor does not need to feed in the balance sheet and P&L items all over again but merely scan the accounts and upload the same. This has to be done at the time of uploading the TAR. The scanned documents can be either in .TIFF format or in .PDF format. The overall size of the files cannot exceed 20MB. It appears that this limit stands increased to 50MB as per the General Instructions in the utility. However, the main screen where the said accounts are to be uploaded continues to show the size restriction as 20MB.
Actual uploading of other reports:
The same procedure as is adopted for uploading the TAR has to be followed for other forms as well. Thus, whether it is the Transfer Pricing Report in Form 3CEB or the MAT certificate in Form 29B or the audit reports of trusts, the same procedure of uploading data by the CA, validating the file, generating .XML file, uploading the said .XML file with the help of a DSC and then approving of the same by the assessee with the help of his DSC has to be followed. Upon successful “approval” of each report by the assessee, a separate e-acknowledgement gets generated.
Issues currently being faced:
There are a number of hardships that CAs are facing in the context of e-filing of the various audit reports. Some of the important ones (on which the BCAS has already made a representation) are:
1. After the notification, the forms and the utility files were hosted on the e-filing website in the month of July, 2013 and have undergone several changes. After each change, an assessee, who has partly filled in a report but has not uploaded it, is required to re-feed the entire data, verify and then upload in the latest version, for the report to be furnished on the website. As a result, all the work-in-progress is wasted.
2. It is not clear as to whether the financial statements to be attached have to be a scanned copy of the manually signed statements or even a PDF file digitally signed will be treated as sufficient compliance. Also, it is unclear as to where the notes to account, the auditor’s report, director’s report and the schedules are to be uploaded. In the portal, there are only the following fields for uploading the accounts:
a) Balance Sheet
b) Profit & Loss Account
3. In respect of several clauses of the Form 3CD, it is normal practice for CAs to give appropriate comments. But in the e-filing utility, there is no space provided for such comments/notes/ remarks/disclaimers etc. In such a situation, would it be legally valid for the assessee/tax auditor to keep the appropriate comments/remarks/explanation in the hard copy and in the utility, mention either “Yes”/”No”/”0” etc. as the case may be? Here the real question is whether an assessee can have two sets of 3CD—one that is uploaded electronically and another one that is signed physically? My personal view is that this would not be correct. However, considering the problem at hand, one needs a written clarification from the Government. The other option that a tax auditor may consider is of putting all comments/remarks/ disclaimers etc. in the 3CA/3CB. However, there seems to be an overall limit on the number of characters that one can feed into the 3CA/3CB. So, in many cases, this option may not work. Also, whether doing such a thing results in the report being perceived to be a qualified report is also a question that needs pondering over.
4. In the clause relating to depreciation on fixed assets, there is no column to give details of additional depreciation. Further, it appears that date-wise details of all the minor items of additions to fixed assets are also required to be given. This data could run into a few thousand entries for many businesses, and would take substantial time to re-enter.
5. In the clause relating to quantitative details, often, such data is not available. In such cases, the tax auditor simply reports “Information Not Available”. Now, in the e-filing utility, it is not possible to give such a comment. What does one do in such a situation? In the same clause, in case of manufacturing assessees, if the yield is more than 100%, the utility does not accept the figure. On a lighter vein, does it indicate that the Government does not expect taxpayers to be extra-efficient?
6. In the clause relating to ratios, in case of service industry or professionals, normally the tax auditor states that “since the activity of the assessee is neither trading nor manufacturing, such ratios are not applicable.” In the e-filing utility, there is no space for such a comment. In this situation, can a tax auditor simply skip this clause?
7. If one sees the Income-tax Rules, in Form 3CD, Annexure II is still a part thereof despite the fact that from A.Y. 2010-11, the provisions of FBT are made ineffective. The e-filing utility does not provide this Annexure II. It is not clear as to what the exact position is. Can an e-filing utility override the statutory forms prescribed?
8. In the clause relating to payments covered u/s. 40(A)(2)(b), it appears that every payment so made is required to be reported. Hitherto, the tax auditor used to report only the total amount for each type of transaction with a particular party. Now, it seems that the date-wise transaction details are to be given. This will cause a lot of hardship to the tax auditor while filling in the data.
9. In the clause relating to loans taken or repaid, one has to give the PAN of the party reported. It appears that the utility matches this PAN with the Government’s PAN records and if the name and PAN do not match exactly then the file does not get validated. If this is true, then this is likely to cause tremendous slowdown in the preparation of the reports.
Thus, as can be seen from the above paragraphs, filing of returns and tax audit and other reports for A.Y. 2013-14 is going to be a very cumbersome and difficult process and unless the tax department comes up with solutions to the numerous problems very soon, we are very clearly headed for an extremely stressful month of September and then later, November. One hopes that the CBDT will read the representations sent by professional bodies like BCAS and act expeditiously.
