90 lacs contract + service tax: tax audit applicable?

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yashsr (Querist)

17 October 2012 Hello,

A labour contractor raised a bill of Rs.90 lacs in October 2012. He charged service tax @ 12.36% and hence the total invoice value exceeded Rs.1 crore. This was the only bill raised in the Financial Year 12-13 i.e. Assessment Year 13-14.

Will he liable to Income Tax Audit?

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)

17 October 2012 According to the 44AB turnover guidelines. If such service tax separately charged in bill and collected and separately accounted i.e not included in the contract amount then it wouldn't be treated as turnover in such case tax audit not applicable because of your turnover doesn't exceeded the 44AB prescribed limit i.e below 1 crore.

OM SAI SRI SAI JAI JAI SAI

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yashsr

yashsr (Querist)

17 October 2012 Thanks! What if it is not separately charged in the bill and invoice of approx 101 crores is prepared?

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)

17 October 2012 Then such service tax is also considered as turnover and has to make tax audit according to the section 44AB. As well as at the time of payment of such collected service to the government then it would be debit to the P&L Account.

OM SAI SRI SAI JAI JAI SAI

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yashsr

yashsr (Querist)

17 October 2012 Don't we just make a backward working and find out that the actual turnover is just 90 lacs and the rest is service tax by dividing the total turnover by 112.36% instead of taking the entire approx 101 crore as turnover and debiting service tax as an expense in Profit/Loss A/c?

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)

17 October 2012 Yes,

OM SAI SRI SAI JAI JAI SAI

yashsr

yashsr (Querist)

17 October 2012 Thanks but I'm confused. I'll reframe my question. If I invoice approx 101 Crore without showing Service Tax Component on my invoice then which of the following options is correct:

1) Backward calculation is done by dividing the above amount by 112.36% and 90 lacs is found out. Hence Tax Audit is not applicable since turnover is only 90 lacs.

2) 101 crore is shown as turnover and hence tax audit is applicable. The service tax is then shown as an expense in Profit/Loss A/c.

Let me know which one of the 2 has to be followed. Or do we have an option?

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)

17 October 2012 Option no 2 will apply.

OM SAI SRI SAI JAI JAI SAI

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