Adjustments in turnover due to reasons not listed above

[Affirmservicesconsultancy Privatelimited]

R/sirs

A taxpayer declared same turnover in his sales register/GSTR 9. During filing of the GSTR 9C, it is declared in the column- Adjustments in turnover due to reasons not listed above. when asking about the details, no satisfactory reply received. The TP enhance the turnover in the PL and declare that this is not related to sale. it is answered that we have declared the enhanced figure with income tax and no GST liability arises on this.

Please guide that GST liability arises or not in this matter.

[Raam Srinivasan Swaminathan Kalpathi]

Kindly go through the notes to accounts attached to the Statement of Profit and Loss and see if there are any break-up available.  You may ignore if the differences arises due to the following heads:

Interest income, Receipts from employees for breach of contract, supplier credits (pl check if proportionate ITC is reversed as per Rule 42) or customer product advance receipts written back, SEIS/ MEIS/ Rodtep/ ROSCTL income, insurance claim receipts (not adjusted with relevant head of expenditure). 

Else, I am afraid that there may be a possibility of escapement of turnover.  Thanks 

[KASTURI SETHI]

The CGST department will issue SCN on the basis of the figures declared with Income Tax department. In order to avoid SCN, try to explain and justify the difference with documentary evidences to the Proper Officer, CGST/SGST department prior to issuance of SCN on the basis of expert advice given by Sh. Raam Srinivasan Kalpahi Ji.

Normally in such a situation SCN is issued. A SCN is also an opportunity to defend. So it depends upon how you present your case before the Officer.

[Padmanathan KV]

There seems to be inherent problems in the client's accounts. That is to say, his P/L does not match with his books of accounts (sales register). This is in violation of all basic tenets as the Financial Statement is not reflecting a true and fair view of the accounts (from accounting & auditing POV, Income tax POV and also GST POV) and will land the client (even the auditor) in big problems.

Nevertheless, if SCN is issued by the Department at this stage, it is still defendable in my opinion. The Department cannot simply tax the amount shown as "adjustments in turnover due to reasons not listed above", without establishing first that such amount is "consideration for supply". Consequently, Time of supply, Place of supply, classification, etc... also have to be established qua the supply and without which, the SCN will be vague and will not sustain.

That being said, since the P/L does not reflect a true and fair view of the accounts, the Department can carry out Audit, Special Audit, inquiry/ investigation etc in their powers to ascertain the true picture and raise demands accordingly.

[Padmanathan KV]

My Post 3 is assuming that the difference is not due to genuine reasons such as those mentioned by Sri Srinivas Kalpathi Ji in his Post 1. This assumption is because of the inference from the query viz., "turnover more than the sales register" and "no satisfactory reply received" , "TP enhanced the turnover in the PL" etc.

[Shilpi Jain]

It is important to know what is the transaction undertaken for the differential income. Is it interest or any other exempt or no supply item? If yes, no liability.

Else liability may arise.

AI Summary

GST liability on unexplained turnover may arise unless the excess is shown as non supply receipts with documentary support.
A taxpayer disclosed excess turnover in the profit and loss account under adjustments not elsewhere classified. If the excess is due to non supply receipts (interest, breach receipts, supplier credits with ITC reversal, export incentives, insurance recoveries) and documented in notes to accounts, no GST liability arises. If unexplained, the department may treat it as escapement and issue a show cause notice but must first establish that the amount is consideration for supply; documentary evidence should be furnished to the proper officer to avoid or defend against departmental action.