VAT Paid disallowed u/s 40(a)?

Originally posted by : SSG
	Excess VAT paid has been debited to profit & loss a/c. Whether it will be hit by sec. 40(a) and added back to the net profit? Please suggest and thanks.

First of all why excess VAT paid has been debited to Profit & Loss Account. It should be under current assets and will be available for adjustment against next months VAT liability.

First of all why excess VAT paid has been debited to Profit & Loss Account. It should be under current assets as ITC Receivable and will be available for adjustment against next months/years VAT liability.

Excess VAT is paid for the 3rd quarter of 2010-11. But the assessee has not carried forward it as ITC in the 4th quarter VAT return.

Still.. u are supposed to take it to balancesheet :)

if am right.. then we can claim it against the next i.e 1st quater of next year :)

But the assessee doesn't want to carry forward it in VAT return and thus has charged it to Profit & Loss A/c.

No, VAT paid written off is not disallowed u/s 40(a) as only tax calculated on the basis of profit is disallowed.

But if a huge amount is written off then the reason for such write off must be explained, which maybe allowed

only at the discretion of the officer. But at any how it is not disallowed u/s 40(a)

There are cases when the amount cannot be set off in the next year, example where there has been correction in the figures of monthly returns and the mistakes were identified at the time of audit (VAT). In those cases if there is excess VAT then it is generally written off. But if the amount is material then permission from the VAT Dept has to be obtained. This is with respect to Kerala Value Added Taxes. This may differ from state to state.

The excess VAT paid shall be shown as VAT Receivable (VAT Refund) under the group Current Assets. There is no question of disallowance of VAT u/s 40(a).

Regards,
Devendra