10 January 2022
The assessee has 1 normal business(profit 7 lac) and other is trading in share (speculative loss 55000). His both business are subject to audit.I have filed audit report by combining both businesses profit and loss account and balance sheet. When I am filing ITR the profit of normal business is getting set off by speculative loss which is not allowed as per income tax act. Now I have separated business profit from speculative business in ITR. But now error showing that profit are not equal to profits shown in audit report.and you will get notice from department. My query is how to report speculative loss in ITR which is subject to audit-- 1. When I combine both business- profit get set off. 2. When I separate it ,it shows -difference in reported value in audit report and ITR. Please suggest how to solve the issue.
06 July 2024
Handling the reporting of speculative loss separately from normal business profit in your Income Tax Return (ITR) can be tricky, but here’s how you can address it correctly:
### Approach to Report Speculative Loss in ITR:
1. **Separate Reporting in ITR:** - Since speculative loss cannot be set off against normal business income, it needs to be reported separately in your ITR. - Ensure that in your ITR, you are reporting the speculative loss distinctly from the profit of the normal business.
2. **Matching Audit Report with ITR:** - If you have already filed an audit report where both businesses (normal and speculative) are combined, you need to reconcile this with the separate reporting in your ITR. - The discrepancy arises because the audit report shows combined figures, whereas your ITR shows separate figures. This difference needs to be reconciled to avoid potential notices from the tax department.
3. **Reconciliation Steps:** - **Ensure Accuracy:** Double-check both your audit report and ITR to ensure all figures are accurate and correctly segregated. - **Correcting ITR:** If the ITR shows a difference from the audit report, you may need to revise the audit report to reflect separate reporting if permissible under tax laws. Consult with a tax professional or CA for this adjustment. - **Explain Differences:** When there are differences between the audit report and ITR, provide explanations in the reconciliation statement or notes to the accounts. This helps in clarifying the adjustments made.
4. **Consultation with Tax Professional:** - Given the complexity and potential notice from the department, it’s advisable to consult with a tax professional or CA who can assist in rectifying the reporting and ensuring compliance with tax laws. - They can help you accurately report speculative losses and ensure alignment between the audit report and ITR to mitigate any issues.
### Key Points to Remember: - **Separate Reporting:** Ensure speculative business losses are reported separately in the ITR from normal business profits. - **Accuracy and Reconciliation:** Reconcile figures between the audit report and ITR to avoid discrepancies. - **Professional Guidance:** Seek professional advice to handle adjustments and explanations effectively.
By following these steps and seeking professional guidance, you can address the issue of reporting speculative losses in your ITR correctly and avoid potential notices or penalties from the tax department.
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