Adjustment of accounts in case of rejection of itc claimed

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HIMANSHU (Querist)
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17 August 2013 Dear Sir, i would like to know that if in the case of sales Tax proceedings the officer reduces the amount of ITC as claimed, what should be accounting treatment in this situation.

Example: ITC carried forward as per the balance sheet for the year 2010-11 was Rs. 75000, and the same ITC was claimed in next year.

ITC carried forward in the balance sheet of year 2012-13 was Rs. 25,000.

During Sales tax proceedings officer disallowed the ITC of 2010-11 and passed order for carry forward of ITC of Rs. 15,000 only.

how to reflect this position in books?
should we require to amend the audited balance sheet for 2011-12 and 2012-13

Please give me guidance in this regard.

Thanking You.

HIMANSHU

HIMANSHU (Querist)
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18 August 2013 Please help me in this regard

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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14 July 2024 In the situation where the Sales Tax Officer disallows Input Tax Credit (ITC) that was previously claimed, the accounting treatment and adjustments would typically be handled as follows:

### Accounting Treatment:

1. **For the Year 2010-11 (Original ITC Claimed)**:
- Originally, ITC carried forward from the balance sheet of 2010-11 was Rs. 75,000.
- The Sales Tax Officer disallowed a portion of this ITC and allowed only Rs. 15,000 to be carried forward.

**Adjustment Entry for 2010-11**:
- Debit: Input Tax Credit Receivable (Asset) - Rs. 60,000
- Credit: Input Tax Credit (ITC) Disallowed - Rs. 60,000

This entry reduces the ITC asset on the balance sheet and reflects the disallowed amount as a separate expense or adjustment.

2. **For the Year 2011-12**:
- The ITC of Rs. 75,000 was claimed in the subsequent year based on the balance sheet carry forward.

**Adjustment Entry for 2011-12** (if already claimed):
- Debit: Input Tax Credit (ITC) Disallowed (Expense or Adjustment Account) - Rs. 60,000
- Credit: Input Tax Credit Receivable (Asset) - Rs. 60,000

This reverses the ITC claimed in 2011-12, as it was based on the now disallowed ITC from 2010-11.

3. **For the Year 2012-13**:
- ITC carried forward in the balance sheet was Rs. 25,000.

**Adjustment Entry for 2012-13**:
- Debit: Input Tax Credit Receivable (Asset) - Rs. 10,000 (adjusting the balance to the allowed carry forward of Rs. 15,000)
- Credit: Input Tax Credit (ITC) Disallowed (Expense or Adjustment Account) - Rs. 10,000

This reflects the reduced ITC carry forward allowed by the Sales Tax Officer for 2012-13.

### Audited Balance Sheet Amendments:

- **2011-12 Balance Sheet**: Yes, you should amend the audited balance sheet for 2011-12 to reflect the adjustment in ITC claimed. The ITC disallowed should be shown as an expense or adjustment in the income statement or as a separate note to the financial statements.

- **2012-13 Balance Sheet**: Similarly, amend the audited balance sheet for 2012-13 to reflect the adjusted ITC carry forward amount. The ITC disallowed should again be reflected appropriately in the financial statements.

### Additional Considerations:

- **Tax Treatment**: Ensure that the disallowed ITC is treated correctly for tax purposes and any related tax implications are addressed.

- **Disclosure**: Provide appropriate disclosure notes in the financial statements explaining the adjustments made due to the Sales Tax Officer's order.

It’s important to consult with your accountant or tax advisor to ensure compliance with accounting standards and tax regulations specific to your jurisdiction, as the exact treatment and disclosures may vary.

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