Accounting, tax deduction norms set to be tightened

New Delhi, December 23: | Updated: Dec 24 2001, 05:30am hrs
The forthcoming Budget is set to make it difficult for companies to manipulate their tax liabilities. The government is contemplating tightening of the Income Tax Act provisions related to deductions and accounting to curb manipulation of tax liabilities by companies in the next Budget.

According to finance ministry sources, the Budget is likely to insert a mandatory provision in the I-T Act which would require all companies and co-operatives to furnish audited profit and loss accounts and the balance sheets of the industrial undertakings eligible for claiming deductions.

Section 80 of the I-T Act provides for deducting a percentage of profits of specific industrial undertakings, including those engaged in exports, shipping and hotel, to a company while computing their total profits for tax payment. Sources said it was found that many big assessees were misusing these deductions, and it was necessary to stop these incidences to improve revenue collection.

A senior North Block official told The Financial Express that from practical experience it was seen that in case of an assessee company having more than one industrial undertaking, the assessee usually submitted only the audit account of entire company and seldom furnished separate audit reports for different undertakings. However, the assessee then prepared its own profit and loss accounts of the eligible undertakings to determine its profit to be qualified for deduction under section 80.

Assessee companies also resorted to diversion of expenses and turnover so that higher profits could be shown against the eligible undertaking, said the official and pointed out that since there was no specific requirement in law that the audit report in case of an eligible undertaking should also be produced by the company, they very often got away with the inflated claims.

The official also claimed that insertion of a mandatory provision to submit audited accounts of the undertakings for which a company claimed deduction would curb manipulation to a large extent.

The government is also considering insertion of a provision in the I-T Act to provide adequate provisions for prosecuting a person who was responsible for blocking the process of producing accounts before I-T officials, and also aligning of these provisions with the relevant provisions in the Indian Penal Code as well.

The official also pointed out that since most of the big assessees maintained their accounts and inventories on computers only, in various cases it had been noticed that the company officials did not cooperate with the IT officers and even refused to give the password for opening the files on the computers, resulting in delay and sometimes even non-availability of the relevant documents. The official said in view of the above experiences, it was suggested that an explanation be added to section 276-D of the I-T Act with a view to provide that in such cases it would be presumed that the person had wailfully failed to produce the relevant accounts, and thus could be prosecuted.