In our earlier article Selection of Income Tax returns for scrutiny during the Financial Year 2014-15, we had mentioned basis of selection of income tax scrutiny. In the article we have mentioned that one of the methods of selection of scrutiny is Computer Aided Scrutiny Selection (CASS). In our experience following types of cases are selected randomly for scrutiny through CASS.
1. Claiming High Refund
2. Declaring Low net profit margin
3. Claiming Loss return
4. Additions to capital during the year
5. Increasing share capital during the year
6. High volume of unsecured Loans
7. High volume of sundry creditors balances
8. Aggregate Cash deposit of Rs. 10.00 Lakhs and more in the savings bank account
9. High volume of Investments in Mutual Funds
In selected cases, as part of examination, the department shall send a notice to the taxpayer to appear before the Income Tax Officer (ITO) or furnish any document/evidence in support of his return.
In this article we tried to compile most commonly asked information or documents by the income tax officer.
Most commonly asked information by the ITO or Assessing Officer (AO)
1. A brief note on business activities and history of the company/business. This information can be given in plain paper or company letterhead. If the company has a brochure/information leaflet it can also be given.
2. A copy of the return of income with computation of income statement. A complete set of document such as ITR Acknowledgement, computation statement, MAT calculation statement, Balance sheet, profit and loss account, all schedules, notes forming part of the financial statements.
3. Statement showing the shareholding pattern of the company/firm.
4. List of directors.
5. Audit report u/s 44AB of the Income Tax Act. If the company/firm is subject to Tax audit u/s 44AB, the Chartered Accountant report Form 3CA/3CB and Form 3CD, Annexures to be given.
6. Exemptions and Deductions – If the individual, company firm has availed any exemption, say u/s 10B, 80IB, the details of the same to be given. If the individual or company has availed any deductions say, u/s 80G, 80C, 80D etc the proof of such expense has to be given.
7. Gross and Net Profit Ratio – A comparative chart showing Gross Profit and Net Profit to be given.
8. Previous Assessment Orders – If the company/firm was assessed in the previous 3 years, a copy of the order has to be furnished.
9. Carried Forward Losses – If the company has adjusted any carried forward losses against the profits of the current year, the details of such losses, copy of IT return of the previous year to be furnished.
10. Loans given to relative parties – A list of loans given to related parties to be given along with any loan agreement, interest rate offered and paid and a copy of the ledger extract.
11. Bank Loan confirmation – a certificate from the banker or a copy of all the loan statement showing the closing balance as on 31st March to be given submitted.
12. Fixed Assets – Furnish the details (copy of bills) of additions made to fixed assets.
13. Proof of payment of statutory dues – Details of statutory dues such as service tax, profession tax, provident fund, employee state insurance, VAT, etc to be given. A ledger extract for the whole year and the proof of payment (payment challan) for the outstanding dues as on 31st March to be given.
14. Unsecured loan – List of people alongwith the details of their PAN, address from whom unsecured loans are taken by the company is to be given. If the loans are given from the directors or shareholders or partners, the Income Tax return, statement of affairs of such people to be furnished.
15. A copy of Bank statement – If the bank statement is running into several pages, one can submit the first sheet (opening balance), last sheet (showing closing balance) and bank reconciliation statement.
16. FIRC company – If the company exports the services or gets the capital from overseas investors, the details of inward remittance (copy of Foreign Inward Remittance Certificate – FIRC) to be submitted.
17. List of creditors and confirmation – The list of creditors, address, PAN in case of whose balances are over Rs.1 lakh to be given along with the confirmation of balances by the party.
18. Reconciliation of Form 26AS with Total Turnover appearing in the Profit and loss statement – Copy of Form 26AS along with reconciliation statement of Form 26AS with the books of account. Party wise reconciliation of TDS deducted and Form 26As may also be asked.
19. Details of Bad Debts written off – A ledger extract of bad debts written off to be submitted along with other documents to prove that the sundry balances are not recoverable.
20. Sale of immovable property – In case of sale of properties, the documents such as a copy of sale deed at the time of purchase, at the time of sale, reinvestment to be given. In case the capital gains are invested in capital gain bonds, a copy of the bond to be furnished.
21. Statutory liability outstanding as on 31st March: Proof of all statutory payments made within the due date of filing return for the balance appearing as outstanding in financial statement
Will your company get a Notice? It is a million dollar question. So, we suggest the auditors, companies to keep the above documents, statements ready while filing the return of income. Please note that the scrutiny notices comes much later than the end of financial year. For example, for the financial year ending March 2014, one can expect a notice from the department during September 2015 and the assessment should get over by March 2017. If one tries to get hold of the information at the time of scrutiny, it will be a difficult and cumbersome process. So friends, let’s do it now! Now is always better.
You may also recall our other article The day you get brown colour envelope, where we explained why you should not file your income tax return without properly analyzing Bank transactions.This is applicable even for income tax return of salaried employees.