The Hindu Business Line : India Inc favours consolidated income-tax assessments

WITH the concept of consolidation of financial statements of companies within the Group gaining favour among regulators, India Inc is keen that even income-tax assessments are made on the basis of consolidated Group accounts.

Corporate India also wants banks and financial institutions to consider leveraging funds on the basis of group assets.

Currently, the I-T Department does not accept Group accounts for tax purposes and the report of the Working Group on Income-Tax also does not suggest any change in law.

With the changing dynamics of the corporate world, financial reporting by the companies is also undergoing major changes. The expansion in business has raised the demand for having a consolidated balance sheet for Group companies.

The consolidated financial statements (AS 21 issued by the Institute of Chartered Accountants of India) provide financial information about the economic activities of the Group as a single economic entity.

"Consolidation of accounts of companies within the Group has become the norm in most OECD countries. The countries which permit such consolidation simultaneously allow the consolidated group entity two key facilities such as leveraging funds on the basis of group assets, market value or net worth, and making tax provisions and set-offs applicable for the group as a whole," a Federation of Indian Chambers of Commerce and Industry (FICCI) official said.

According to FICCI, the consolidated accounts concept has broken the legal barriers of individual entity and gives a full picture of the size of the organisation, which was earlier viewed in parts.

The consolidation of accounts highlights the losses that were hidden in the past in some lesser-known entity. Also, some of the poor performing entities get into a spotlight.

Similarly, the funds controlled and the real value of assets held by entities is getting reflected in the consolidated financial statements. With some of the poor performing entities coming to light, there is a pressure on the management to re-look at their business portfolio and restructure to focus only on areas of core competence.

This, according to corporate sector, would help business to be stronger and more profitable in future.

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