Pursuant to a M.O.U. between the CBIC and the Income Tax Department, information contained in GST Return has, recently, been made part of Annual Information Report in Form 26AS. In this backdrop, Chartered Accountants Dindayal Dhandaria and Naveen Kumar Dhandaria discuss the purpose which is intended to be served by incorporating such information and state that if the Income Tax Department wishes to match the Turnover as per an Assessee’s accounts and records with that furnished in GSTR 3B, it would be comparing apples with oranges. The authors believe that it is a futile exercise, inter alia, for the basic reason that whereas in GST, inter-state branch transfers of goods/services are treated as supply and forms part of turnover, it is not so considered in financial statements prepared under Generally Accepted Accounting Principles (GAAP) which stipulate that a person cannot sell goods or render services to himself. The authors opine that “If an Assessee is required to reconcile the amount of turnover reported in Form GSTR 3B with that in his Income Tax Return and is subjected to scrutiny for such mismatch, there would be serious miscarriage of justice and unnecessary harassment to him.”

GSTR 3B AND FORM 26AS – COMPARING APPLES WITH ORANGES

Pursuant to a M.O.U. between the CBIC and the Income Tax Department, information contained in GST Return has, recently, been made part of Annual Information Report in Form 26AS.   

In exercise of powers conferred under section 119 of the Income-tax Act,1961 read with sub-rule (2) of Rule 114-I of the Income-tax Rules,1962, the Central Board of Direct Taxes (‘Board’), vide its order F. No. 225/155/2020/ITA.II dated 29-09-2020  authorized the Principal Director General of Income-tax (Systems) or the Director-General of Income-tax (Systems) to upload information relating to GST return, which is in his possession, in the Annual Information Statement in Form 26AS, within three months from the end of the month in which the information is received by him. 

In this way, the details of an Assessee’s monthly turnover as per Form GSTR 3B now finds place in Part H of Form 26AS.  [The Author could find the same in Form 26AS downloaded on 12-11-2020]. Registration of dealers under GST Act was PAN based since inception and it was evident that the Income Tax and GST details would be linked.  A beginning was made from Assessment Year 2018-19 by including clauses for amount of GST Turnover and GST registration number in Income Tax Returns.

It is appropriate to consider the purpose which is intended to be served by incorporating the information relating to GST Return in Form 26AS.  

If the Income Tax Department wishes to match the Turnover as per an Assessee’s accounts and records with that furnished in GSTR 3B, it would be comparing apples with oranges. It is a futile exercise, inter alia, for the basic reason that whereas in GST, inter-state branch transfers of goods/services are treated as supply and forms part of turnover, it is not so considered in financial statements prepared under Generally Accepted Accounting Principles (GAAP) which stipulate that a person cannot sell goods or render services to himself.  The Income Tax Returns are filed on the basis of such financial statements. Apart from this fundamental difference between the concept of ‘turnover”, there are many bona fide reasons for mismatch of the two data which are discussed hereinafter.

Initially, a Form 26AS was a consolidated “Annual tax statement” issued by the Income Tax Department and contained various useful information pertaining to an Assessee including information about the taxes deducted on his income by employers, banks and other and specified persons, advance tax or self-assessment tax paid during the year, tax collected at source, details of any refunds and other prescribed information.  Specified Financial Transactions were also included in it.

The Finance Act, 2020, omitted section 203AA of the Income Tax Act, 1961 (“the Act”) w.e.f. 1-6-2020 and from that date, inserted section 285BB, providing for uploading of “Annual Information Return (AIR)”.

Every taxpayer cross-checks his Form 26AS to ascertain that the taxes deducted and the advance tax paid during the year match with the tax deposited as per the tax department's records because any discrepancy could lead to the tax authority issuing a notice.  He also makes note of any income that is reflected in the Form 26AS but does not match the income that he has received or vice versa. The mismatch could have occurred due to wrong entry of Permanent Account Number (PAN), AY, or the amount while deductor files his TDS;

So far as Turnover as per Form GSTR 3B is concerned, the Income Tax Department would simply upload such information as is in its possession, within the stipulated time.  Obviously, the Department has not assumed the responsibility of ensuring the completeness and accuracy of the information which it would upload. 

Earlier, it has been stated that ‘Turnover’ as per GST Act includes inter-state branch transfers of goods and/or services but not in financial statements prepared under GAAP.  Apart from this fundamental difference between the concept of ‘turnover’ under GST and financial statements, there are, inter alia, the following other differences:   

1. Income by way of interest: As per Entry no. 27 in Notification no. 12/2017- Central Tax (rate) dated 28-6-2017 issued by Govt. of India, Ministry of Finance, Department of Revenue, “services by way of – (a) extending deposit, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services)” is taxable at NIL rate.   As per sub-section 47 of section 2 of ibid, ‘exempt supply’ means supply of any goods or services or both which attract nil rate of tax or which may be wholly exempt from tax under section 11 or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply. As per sub-section (6) of section 2 of CGST Act, “aggregate turnover” includes exempt supply.  Thus, income by way of interest forms part of ‘turnover’ under GST laws.  But such income is not considered as ‘turnover’ in financial statements prepared under GAAP.  In Return of Income, interest income is not a part of turnover.

2. Financial Credit Notes: Credit notes issued for Trade discounts are deducted from ‘turnover’ in financial statements prepared under GAAP.  Such discounts are not excluded while determining the value of supply under GST law as such discounts are not known at the time of supply as the conditions laid down in clause (b) of section 15(3) of the CGST Act are not satisfied. Thus, the ‘turnover’ under GST and Return of Income are bound to be different.

Moreover, the turnovers reported in Forms GSTR 3B are not final and can be rectified when filing annual return in Form GSTR 9.  In other words, the turnover reflected in GSTR 3B are not final and subject to correction, if necessary. Form 26AS for Assessment Year 2020-21 contains the monthly turnovers reported in GSTR 3B for the months of April 2019 to March, 2020.  The amounts of these turnovers may be modified, rectified vide Annual Return in Form GSTR 9 which can be filed by 31-12-2020.  Therefore, it is not prudent on the part of the Income Tax Department to obtain information about turnover from GSTR 3B.

The purpose of including the Turnover of an assessee as per Form GSTR 3B in Form 26AS is not stated.  Sub-rule (2) of Rule 114-I of Income Tax Rules, 1962 is reproduced below:

“(2) The Board may also authorise the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) or any person authorised by him to upload the information received from any officer, authority or body performing any function under any law or the information received under an agreement referred to in section 90 or section 90A of the Income-tax Act, 1961 or the information received from any other person to the extent as it may deem fit in the interest of the revenue in the annual information statement referred to in sub-rule (1)”.

[Emphasis supplied]

It is not clear how the uploading of an irrelevant information would serve the “interest of the revenue”.  It is assumed that such turnover would be matched with the ‘Turnover’ reported by an assessee in his Return of Income and in the event of mismatch, necessary enquiries would be made.  

If an Assessee is required to reconcile the amount of turnover reported in Form GSTR 3B with that in his Income Tax Return and is subjected to scrutiny for such mismatch, there would be serious miscarriage of justice and unnecessary harassment to him. He is reminded of the nightmare which he experienced when data contained in Form 26AS was relied upon by the Income Tax Department for giving credit for pre-paid taxes and for computerised processing of Returns of Income. An Assessee can never forget the decision dated 14^th March, 2013 of Hon’ble Delhi High Court rendered on its own motion in  Court on its own motion v. Commissioner of Income Tax reported in [TS-98-HC-2013(DEL)-O] wherein the Court considered the plight of lakhs of tax payers, spread all over the country, who faced numerous difficulties due to faulty processing of the Income Tax Returns and denial of due credit for the Tax deducted at source.  The Hon’ble Court came to the rescue of the taxpayers by issuing the following mandamus:  

“An assessee as a deductee should not suffer because of fault made by deductor or inability of the Revenue to ask the deductor to rectify and correct. Once payment has been received by the Revenue, credit should be given to the assessee. Board will issue such suitable directions in this regard and this is the sixth mandamus which we are issuing.” [Para 42]

Further, I quote the following passage from a write-up titled as “Psychological Factors Behind Tax Compliance” written by Anupama Prasad, Member (DRP)-1, Delhi in Taxalogue Vol. 2, Issue 5 (July-Sep. 2020):

“Role of Trust

A number of studies have proved the relevance of trust between taxpayers and tax authorities as a means of securing tax compliance.  The conclusions also hold true in the Indian context. It would not be out of place to mention that people tend to evade taxes if they feel that the Government is unresponsive to their needs, or that they are being treated unfairly by the tax regime.  Lack of trust of the tax regime can erode the ethics of taxpayers to comply.  The general perception is not to perceive the tax administration as a facilitator and provider of services to a tax paying citizen.  The general attitude among Indians is that an interface with tax authorities is a nightmare.”

The platform, named as “Transparent Taxation – Honouring the Honest” was launched by the Hon’ble Prime Minister Shri Narendra Modiji on 13-08-2020.  In the Taxpayer’s Charter, CBDT has enlisted the duties which the Income-tax Department and its officials should fulfil to protect the interest of the taxpayers of the country.  One of the duties listed therein is: 

“Imparting of Accurate and Complete Information:

Income Tax Department shall provide correct information to help taxpayers in making legal compliances.” 

Section 119A inserted by Finance Act, 2020 w.e.f. 1-4-2020 provides for adoption and declaration of a “Taxpayers’ Charter” by the Board and if the impugned Order issued under section 119 on 29-09-2020 furnishes misleading information and expects a taxpayer to reconcile and match the same, such an order would be void ab initio by operation of section 119A of the Act.