Electronic returns of income need review

There are over five million income tax payers in India, and this number is fast growing. The tax department, therefore, has to deal with millions of fresh returns every year.

The tax returns along with annexures make a very huge mass of records which is nearly impossible to handle in a properly required manner.

Therefore, to overcome the problem of dealing with bulky papers, concept of electronic filing of income tax return has been introduced, which is to fulfil the objective of paper less return.

The concept of e-filing of return of income was introduced by the Finance Act 2007. A new section 139D was inserted, which conferred powers on CDBT to make rules for the purpose of filing the return of income electronically.

Initially, it was mandatory for the corporate assessees only to file their return in electronic format, however, vide subsequent amendments in the rules, the firms whose accounts are liable for audit under section 44AB are also obliged to file the return in electronic form.

Prior to insertion of this provision, the return was required to be filed along with various annexures and documents as have been prescribed in explanation 1 to section 139(9).

If the return is filed without annexures/documents, it was treated as a defective return and accordingly the steps
prescribed for correction of defective return were required to be taken.

Therefore, along with section 139D, section 139C was also inserted empowering the CBDT to dispense with the requirement of furnishing documents with the return of income.

In the case of electronic return, no documents are required to be filed. The forms contain separate annexures for the purpose of avoiding the above documents.

For example, in the case of corporate assessees, ITR 6 is required to be filed, which contains separate annexures wherein the details can be filled up while filing the return of income.

Despite the fact that CBDT has made commendable effort to devise suitable annexures for electronic filing, in practical parlance, the taxpayers usually face serious problems primarily because there is no space to give any further information which is considered relevant by an assessee to be filed along with the return.

This difficulty is predominant in case of foreign companies.

To take an example, a foreign company considers that a particular income is not taxable, but the company does not want to take any risk and, therefore, likes to pay tax on such income.

In such a case, as per the existing e-format, the income will be shown as non taxable, and the tax, if any, paid on such income will have to be shown as refund due to the assessee.

If the assessing officer does not agree and holds that the income is chargeable to tax, he will make an addition to income, although no further tax will be payable by the assessee because it has already been paid.

But, since the assessing officer would make addition to income, he is likely to initiate penalty proceedings.

If, on the other hand, the assessee shows such dispu-ted income as taxable, there is no scope left to claim the income as non taxable.

Thus wherever a disputed claim is to be made by an assessee, either he willrun the risk of penalty proceedings or he will have to forego the claim altogether.

This situation arises beca-use there is no provision in the e-format for giving explanation in respect of any disp-uted claim. The problem can surely be avoided if the format is re-devised.

It may also be mentioned that the disclosure of all material facts is necessary for a taxpayer not only as a safeguard against penalty proceedings but also against reopening of completed assessments.

How can an assessee be stopped from disclosing the facts which he considers necessary for disposal of his case.

It is, therefore, suggested that e–formats should now be re-devised taking into account the difficulties of tax payers.

The author is a senior partner in S S Kothari Mehta & Co