Return filing for individuals, HUF and non-audit cases Care required in personal accounting and compilation of information and ITR filing to ensure correct reporting of income duly reconciled and properly quantified with due diligence and care.

[DEV KUMAR KOTHARI]

Return filing for individuals, HUF and non-audit cases

Care required in personal accounting and compilation of information and ITR filing to ensure correct reporting of income duly reconciled and properly quantified with due diligence and care.

In personal Return of Income (ROI) also reasonable care is required to ensure that income statement is prepared property and correctly. In this regard following illustrative suggestions are important because these are missed at the time of preparation and filing of ITR.

Particularly  in case of individuals and HUF and small firms who are not organised, and accounts are not audited.

 In such cases, own accounting and or / compilation of information is very important and one cannot rely merely  on information found in reports like form 26AS, AIS , TIS and even in salary and interest certificates  issued by other parties. These need to be checked. This is because In such reports also mistakes, omission, double entries etc. can be found. Concerned parties can also revise these statements.

Therefore, own records and compilation of information is very important.

For example suppose in form 26AS a part of sale or perquisite earned is not reported due to any reasons and if you do not give correct information in your ITR, you will be responsible for under reporting of income.

Similarly suppose some non-taxable income or perquisite is reported as taxable  in salary certificate and form 26AS and you do not claim correctly, then also you may end up paying excess tax.   

Therefore, taxpayers own care is required. Income or information reporting agencies and tax return preparer will not come to rescue if you have under reported income or reported excess income and paid excess tax, it will be your loss.

Ensure all reconciliations, confirmations, physical verification, and numerical accuracy thoroughly for information in quantity terms and value terms both.

Reconcile with report in form  26AS (OLTAS) , AIS and TIS. DP, MF, Banks, group concerns and parties having transactions and / or balances b/f and c/f.

Reconcile taxable income computation with amount of profit as per P & L account.

Different accounting methods are adopted in  personal accounts, Policies differ about items in P & L account, capital account and other balance sheet items. In many cases many items are paid out of bank balances but not accounted for properly. In many cases  only income statement is prepared and balance sheet is not prepared. Therefore, there can be omissions and mistakes of different type. It is always advisable to prepare P & L account or I & E Account and also balance sheet to ensure accounting by double entry system. Care should be taken to ensure that:

a. any taxable  income is not left out of computation

b. Any expenses which are allowable are not left out of computation.

c. Any expenses which are disallowable have not been claimed.

c. Check balance sheet and capital account to find out any expenditure or deduction charged in it which is allowable fully or partly. For example telephone expenses, electricity expenses, medical insurance, Life insurance ,  medical expense ,allowable deposits like deposits for telephones, etc. find place in balance sheet and capital account and that can be claimed.

Check whether all expenses have been accounted for and claimed.

Gifts given and received ( cash and kind both) - Check and do proper accounting and adjustments for any gifts given  in all accounts of family members and HUF.

 Ensure corresponding entry in account of other party (donor or done as the case may be)

Check if any dividend is of not taxable category (on which DDT) has been paid – may be related to DDT period received in this year.

Any account -Having interest and dividend income  O/S  – claim expenses of demat charges,, DP charges, stamp duty,  S/E exp. misc. expenses, bank charges , . etc. (except STT ) against other sources and business income as the case may be.

Whether adopting S.115BAC is beneficial? Check calculations.

Prepare Taxable income reconciliation statement. An illustrative  draft is appended. This shows illustrations. It can be placed in Excell sheet in proper way with formulae for additions , deductions and calculation etc.

Reconciliation is  important because of nature of items in profit and loss account and balance sheet. And  Items having impact in   computation of income.

Reconciliation will  ensure that  proper income is determined and chances of mistakes and omissions are reduced.

An attempt should be made to ensure all taxable income and allowable expenses are placed in profit and loss account. Nontaxable  income and not allowable expenses will also find place in Profit and Loss account, These can be placed under suitable classificatiion for easy working on information available.
Personal audit and review:

In a view it is a way of personal review, checking in nature of own audit to ensure correct income accounting, compilation and reporting.

Illustrative reconciliation statement of income computed under Income Tax Act and amount of profit as per Profit and Loss account and information in other statement and reports:

Profit as per P & L account           

Addition in profit :

Security Transaction tax  disallowed (STT)

Income tax ( if debited in P & L account)

Following expenses charged in PLA but not allowable in computation (fully or partially)

Expenses for personal use for telephone, electricity, a part of rent, etc. debited in P & L account

Add: Excess of depreciation as per accounts over as per IT Act.

Incomes not credited in PLA but taxable

a.

b.

Deduction / Less from income as per PLA:

Incomes credited in P & L account but not taxable fully

or  TO THE EXTENT NOT TAXABLE (partially)

Interest on PPF

Interest on tax-free bonds

Excess of LTCG on shares  as per PLA minus as per IT computation

Excess of LTCG as per PLA and as per IT computation

Expenses not charged in PLA but allowable and claimed:

Telephone and electricity expenses out of drawings.

Deductions claimed from gross income, which are not debited in P & L account:

From salary – Standard deduction

House Property - standard deduction

Excess of depreciation as per IT Act over as per accounts.

Deduction for Bank interest  S.80TTA / 80TTB

Exempt amount of

Mediclaim us/ 80D debited in drawings allowable.

Municipal Corporation tax debited in drawings but claimed under HP income

Income as per computation

Then amount shown in ITR can be compared and this statement can be saved for future reference.

These exercises will also help to show diligence , sincerely and honesty of assessee and help in case  in spite of such care there is some mistakes in reporting of income is found by any authority and penalty proceedings is initiated.