27 May 2016
Its been my first encounter to the case where the assessee has closed his business during FY 2014-15 for which return for AY 2015-16 is to be filed.
Query: After passing closing entry of taking all the assets & liabilities, the capital account gets settled. So, whether the Balance Sheet will be blank ??? Only P&L a/c is to be entered in the ITR ???
02 August 2024
When a business is closed, the process of finalizing the accounts and filing the last income tax return involves several specific steps. Here’s how you should handle the situation:
### **Handling the Final Income Tax Return:**
1. **Finalizing the Accounts:** - **Balance Sheet:** At the time of business closure, the balance sheet should ideally show the settlement of all assets and liabilities. Once all assets are disposed of, and liabilities are settled, the balance sheet will be effectively blank, reflecting no outstanding balances. - **Capital Account:** The capital account will be settled, and any remaining balance should be adjusted, typically reflecting in the final Profit & Loss (P&L) account.
2. **Income Tax Return Filing:** - **Return Form:** For a business, **ITR-4** (or ITR-3 if applicable) is typically used for income tax returns. Since this is the last year of the business, you should indeed file ITR-4. - **P&L Account:** You will need to prepare and enter the final Profit & Loss account. The P&L account for the last year will include all the income and expenses up to the date of closure. The net result (profit or loss) will need to be reported. - **Assets and Liabilities:** You may not have detailed assets and liabilities to report, but you need to ensure that all transactions until the date of closure are accounted for. Any gain or loss on the sale of assets should be reported in the P&L account.
### **Steps to Follow:**
1. **Prepare Final Accounts:** - **Final P&L Account:** Show all revenues and expenses incurred until the date of closure. Include any gains or losses from the sale of assets. - **Final Balance Sheet:** It will typically show the settlement of all assets and liabilities, and should be adjusted to zero or show any remaining amounts as a final adjustment.
2. **File the Income Tax Return:** - **ITR-4**: Use this form if you are filing for a business that was under the presumptive taxation scheme. Ensure you complete all sections related to final income and adjustments. - **Ensure Accuracy:** Make sure all final transactions are accurately reflected in the P&L and that all tax liabilities are settled.
3. **Other Considerations:** - **Tax Liabilities:** Any pending taxes or dues need to be cleared before filing the return. - **Documentation:** Maintain all documents related to the closure of the business, including the final settlement of accounts and tax filings.
### **Summary:**
- **Balance Sheet:** Will likely be blank or show a settlement of balances. - **P&L Account:** Must be entered in the ITR, reflecting all income and expenses up to the date of closure. - **ITR Form:** **ITR-4** should be used if it was applicable to your business. Ensure the final return is comprehensive and accurate.
If you have any specific queries or complications, consulting a tax professional or accountant can help ensure compliance and proper handling of the business closure and final return.
CAclubindia
