AUDIT OF ACCOUNTS

[manoj gupta]

Pls. clarify, whether sales tax/vat is added to total turnover for calculating the limit of gross receipt of Rs. 40 lacs. For example assume total sales excluding vat is Rs. 3900000/-. VAT is Rs. 150000/-. The assessee shows sales net of sales tax in trading account i.e.at Rs. 3900000/-. Is he required to get the accounts audited.

[MANOHAR KALBURGI]

Dear Manoj Gupta, VAT Collected cannot form part of turnover for determination of Income Tax Audit U/s 44AB. Pls refer to gudiance notes issued by ICAI. However caution should be exercised to verify whether the purchases made has crossed the limits of Rs. 40 Lakhs. If yes, it still attracts tax audit U/s 44AB. Purchase or Sales indepedently if crosses Rs. 40Lakhs attracts Income tax Audit u/s 44AB upto Asst Year 2010-11 and Rs. 60 Lakhs (from Asst Year 2011-12). CA. M.K.Manohar Bangalore 98451-16215

[DEV KUMAR KOTHARI]

Refer query of Mr. Manoj Gupta and reply by MANOHAR KALBURGI. Though I am of view that ST/ VAT etc. are diverted at source, being collected on behalf of government, hence does not form part of gross receipt of dealer for the purpose of S.44AB. However, sales tax, being considered a 'trading receipt' sales, turnover or gross receipts can be considered inclusive of sales tax/ VAT in view of Supreme Courts judgments in case of Chowringhee Sales and many others wherein it is held that sales tax is a trading receipt. You may check the applicable provisions of concerned state tax law, if there is case of overriding title in relation to VAT,then it can be excluded. Unless another ruling of the SC is available the revenue will continue to hold ST / VAt as trading receipt. So far TAR is concerned, it is advisable to obtain TAR if the turnover including VAT exceeds specified limits. there is no point in going into litigation. The AO may hold that the assessee is liable for TAR so provisions of S. 40 (a) (ia) are also applicable. Hence litigation can be for penalty for failure to obtain and submit TAR and also disallownace u/s 40.a.ia. Regarding purchases - my view is that purchases cannot be considered as sales, turnover or gross receipts, therefore, on basis of purchases there should not be requirement of TAR. On this point there are difference of opinion amongst some benches of ITAT. Therefore, there is no harm if TAR is obtained for the reason that purchases has crossed specified limits. Obtaining TAR, is useful for the assessee also as he can learn some new points and legal provisions which may apply to him in near future. Therefore, assessee having turnover very near to the specified amount should start to obtain TAR so that his accounting team is also ready to face the new requiremnt.

[Rama Krishana]

You may also refer to section 145A where the turnover shall include the taxes. Therefore for the purpose of Tax Audit, you have no option but to include VAT in the sales value for determining the total turnover of Rs. 40 Lacs / Rs. 60 Lacs

AI Summary

Inclusion of VAT in turnover may trigger mandatory tax audit under section 44AB if turnover exceeds threshold.
Whether VAT collected is part of turnover for a mandatory tax audit under Section 44AB is disputed: ICAI guidance and one view exclude VAT, while alternative judicial and Section 145A-based reasoning treat sales tax/VAT as trading receipt included in turnover. Practically, if turnover inclusive of VAT exceeds the statutory threshold an audit should be obtained to avoid disallowance under section 40(a)(ia) or penalties; purchases generally are not treated as turnover though tribunal views differ.