Dear Experts,
Below is the situation and accounting entry for that situation as per my view. Kindly correct me if I am wrong somewhere in passing accounting entry !!
The assessee has invested a sum in Fixed Deposit from where it earns income by way of interest on FD after deduction of TDS. He also maintains proper books of accounts in tally. As per the balance sheet of FY 2015-16, the asset side of balance sheet shows TDS Receivable for FY 2015-16 of Rs. 22,000 (as deducted by the bank under section 194A). The amount also matches with Form 26AS downloaded from Traces.
At the time of filing of return of income (i.e July, 2016), it was discovered that the income tax payable by the assessee came to Rs. 3,000 for FY 2015-16. CPC has adjust Rs. 3,000 against the amount of Rs. 22,000 and issued balance amount of Rs. 19,000 as refund along with interest on the same.
The mistake that the assesse did is that he didnot create any provision for income tax at the time of finalising the balance sheet for the said accounting year. So no debit to Profit and Loss account was made for income tax and no corresponding liability was created as provision.
Now as per my view, following accounting year shall be passed at the time of receipt of refund. Correct me if I go wrong somewhere:
Bank A/c ....... Dr 19,150
Income Tax Expense ....... Dr. 3,000
To Interest on Income Tax Refund ...... Cr 150
To TDS Receivable A/c ...... Cr 22,000
My thinking at the time of passing the above accounting entry is that, since no provision for income tax was made in the financial year 2015-16, hence the income tax payable of Rs. 3,000 has to be shown as an expense for Financial Year 2016-17.
Thanks and Regards,
Dhrunil Bhatt
CAclubindia
