As-22 clear explanation needed with example....

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Rajesh (Querist)
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14 December 2011 Dear Experts,
I have theoratically read AS - 22 Accounting for taxes on income but unfortunately dont have any practical exposure.
1) Can anyone just explain me how practically it has to be approached?
2) Suppose for an existing company if we are going to apply AS-22 the how to calculate the amount by applying the rate depending upon the timing difference?
3) In case we have to reverse it under what condition we have to reverse it and how to reverse it.
Thank you for everyone who helps me in this
Regards,
Rajehs.

CA Deepak Bora

CA Deepak Bora (Expert)
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15 December 2011 Dear Rajesh,

In this regard i will first like to bring to your notice that separate books of accounts are required to be maintained under Companies Act and under Income Tax Act.

Now tax is payable on Income.

There are many items which are treated differently under Income Tax Act and under Companies Act. This separate treatment results in different profits under Income Tax Act and under Companies Act.

There are two kinds of differences
1) permanent difference - they are contrary provisions and will not be reconciled... it means that expense is allowable/ disallowed under one act and not under the other.

2) timing differences - the expenses are allowed or disallowed in the same manner but at different point of time...

This difference in profit has to be explained and it should be reconcilable one. If it is capable of being easily reconciled then it means that the profits are different under the Act due to a justifiable reason and not without a cause.

Once you adjust these changes the income will be reconciled and also the tax payable thereon...

To understand the provisions of AS-22 one has to understand the provisions of Income Tax Act and Companies Act with full clarity. You need to understand the provisions and the differences in them if any. Only then you can clarify this topic.

Copyright with the Author - (Part of a book which is copyrighted by the Author and will be published in near future.)

As you have rightly said i acknowledge the fact that AS-22 is not an theoretical standard but a practical one. And you need to understand the exact practical application of the subject first.

Only experts who have practiced for years can command application of this topic.

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