23 February 2018
When we are adding the value of taxes in sale, purchase and Inventory as per ICDS -II it is resulting in increase in Gross Profit -(By the amount of taxes on Sales Margin). Please explain how value of taxes should be taken in closing stock so that ICDS are also complied with and net impact of taxes on Gross profit is also NIL.
EG:(Taken from an earlier query on Ca Clubindia by Roshan) Current Year Data : State Tax assumed to be at 10% Opening Stock [1000 unit] - 50,000 + Tax on it - 5,000 Purchases [2000 unit] - 1,00,000 + Tax on it 10,000 Sales with 20 % Margin on Cost price [1500 unit] - 90,000 + Tax on it 9,000 Closing Stock [1500 unit] valued @ Cost - 75,000 + Tax on it 7,500 Gross Profit excluding taxes - 15,000
No Opening ITC available as per books of accounts. Now referring to Section 145 A and ICDS 2, I need to Compute my profit by valuing my purchase, sales and Inventory including taxes, Also ICDS 2 says that "NO CHANGE IN VALUATION NEEDED IN OPENING STOCK" So considering example mentioned above and giving effect to ICDS GP - 15,000 Add: Tax on Sales - 9,000 Tax on Closing Stk - 7,500 Less: Tax on Purchases - 10,000 Total profit chargable 2Tax 21,500 As per Institute guidance on Income Tax audit - Referring Para 23.23 - The tax on revenue will be neutral. How it can be made neutral?
23 February 2018
My reply to Roshan Ji's query is self explanatory which covers neutrality concept as envisaged in the ICAI publication referred by you.
CAclubindia
