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Liable for audit??? service tax amount to be added to sales? (Income Tax)

This query is : Resolved

Komal Thakkar

( Author )
04 September 2012

My company is a recruitment firm and i am the proprietor.

In teh year 2011-12 my company's turnover is 55 lacs. If I add service tax then the turnover is around 61 lacs.

Does this call for AUDIT??????

My CA is of the opinion that I do not get covered under TAX AUDIT. Among other thoughts he is stating that since i am accounting my services separately and the service tax separately then i shall not be covered under tax audit.

Since my service charges are 55lacs and the limit is 60 lacs.

I am inclined to believe him since if i would have got my books audited it was business for him but he is not forcing me to do so.

However i would Like to get an opinion with case studies to back this up.

Please suggest.

Regards,

Komal
komalthakkar77@rediffmail.com

CA.Sourabh Sethia

( Expert )
04 September 2012

what accounting policy you follow normally ?

i mean do you debit your receipts including service tax
i.e if your receipt from the client is Rs.100 and service tax is suppose Rs.12
then total is Rs.112

if you show Rs.112 as your receipts and debit the service tax in the P&L A/c then you are liable for audit

but if you account your receipt as Rs.100 and service tax is directly adjusted i.e the service tax is not dr to P&L then audit is not required

but note this will be considered with your current and other previous years accounting policy
if you change this year it will be not considered
it should be followed regularly.

CA AYUSH AGRAWAL

( Expert )
04 September 2012

Section 44AB Says That Turnover Include Tax, Duty Cess.

So In Your Case You are Liable for Tax Audit.

Currently I dont Have Any Case Law in My Mind, If Will, I Will State Here Name of Case Law.

Regards,
CA Ayush Agrawal
ayushagrawal@rediffmail.com

Komal Thakkar

( Author )
04 September 2012

we have always followed separate accounting means service tax is not debited to P&L ... we have followed this each and every year......

CA AYUSH AGRAWAL

( Expert )
04 September 2012

Generally People Follow to Show Duty Cess Separately, But Income Tax Always Says to Include That into Turnover.

CA.Sourabh Sethia

( Expert )
04 September 2012

it is also not return anywhere in income tax to include the tax in turnover
and the rule which i mentioned is also not mentioned but as per various issues
the following mentioned rule is generally followed

CA ayush agrawal
please read the accounting standard section of income tax Section 145

CA AYUSH AGRAWAL

( Expert )
04 September 2012

Section 145 Says For Method of Accounting.
Mercantile or Cash Basis.

CA.Sourabh Sethia

( Expert )
04 September 2012

section 145(1)

Also please refer
http://220.227.161.86/21025guide_44AB_dtc.pdf

B.Chackrapani Warrier

( Expert )
04 September 2012

Mr Sethia's view can be supported with the observation of ICAI in their book 'Issues on Tax Audit' with respect to sales tax accounting.

CA AYUSH AGRAWAL

( Expert )
05 September 2012

Section 145A of the Income Tax Act,1961 states that purchase , sale and inventory shall be valued by taking into account the amount of any tax, duty, cess or fee . An extract of section 145A is as follows:

145A. Notwithstanding anything to the contrary contained in section 145,

(a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head Profits and gains of business or profession shall be

(i) in accordance with the method of accounting regularly employed by the assessee; and

(ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.

Explanation.For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment.

CA AYUSH AGRAWAL

( Expert )
05 September 2012

Therefore , in my opinion , maintaining accounts of excise duty VAT separately is not correct in terms of section 145A of the I T Act. In that sense , for determining the meaning of the word “sales turnover” VAT or excise duty should also be considered for purpose determining the criteria for getting accounts audited u/s 44AB of the I T Act.

CA AYUSH AGRAWAL

( Expert )
05 September 2012

Similarly a luxury tax collected by a hotelier also a trading receipt in his hand- Pandyan Hotels Ltd. v. CIT [2004] 266 ITR 172 (Mad.)

CA AYUSH AGRAWAL

( Expert )
05 September 2012

But As Per ICAI Guidelines,

“The term ‘turnover’ for the purposes of this clause may be interpreted to mean the aggregate amount for which sales are effected or services rendered by an enterprise. If sales tax and excise duty are included in the sale price, no adjustment in respect thereof should be made for considering the quantum of turnover. Trade discount can be deducted from sales but not the commission allowed to third parties. If however, the Excise duty and/or sales tax recovered are credited separately to Excise Duty or Sales Tax Account (being separate accounts) and payments to the authority are debited in the same account, they would not be included in the turnover.

We are Not Here to Fight That Who is Right or Who is Wrong, Better to Take It as a Discussion Part.

CA.Sourabh Sethia

( Expert )
06 September 2012

yes
ca ayush

thats not for fight

it will generally help in enhancing our knowledge

Komal Thakkar

( Author )
06 September 2012

Friends,

I am slightly lost,, may be because of lack of understanding of the discussion . . .

What should i consider?????

CA AYUSH AGRAWAL

( Expert )
06 September 2012

Better to Go For Tax Audit.
ICAI Observation Cant be Taken as Evidence in Court of Law.
These are Just Observations/Suggestions Not Notified.

& In Section 145A of Income Tax Act, Its Clearly Written That Tax Audit Need to Do in Your Case.