Reversal of Income

This query is : Resolved

SUSHIL SHARMA (Querist)
Follow

14 February 2009 During the FY 2007-08, M/s XYZ Pvt. Ltd. received Rs. 300 lacs from a client after deduction of TDS against a Proforma Invoice. M/s XYZ delivered part services and booked the whole amount as Income of the year 2007-08. The auditors were informed that the work is done and so the full amount is taken to Income. However, during 2008-09, the client of XYZ gives an official letter demanding back full amount of advance i.e., Rs. 300 Lacs. M/s XYZ has no choice but to return the money. Can anyone tell the accounting treatment to be done for reversal of Income in the books of 2008-09. And what happens to the Income Tax return ? Is it to be revised ?

CA Sanjeev Kr Jain

CA Sanjeev Kr Jain (Expert)
Follow

15 February 2009 same as satyam

CA.Tarun Maheshwari

CA.Tarun Maheshwari (Expert)
Follow

15 February 2009 Case is like Satyam, but what is the solution now. What i think, return must be revised immediatley. And what was treated as income last year should be reversed in current year and should be shown ubder the head Prior Period Adjustments.

Upgrade to CAclubindia Pro. Subscribe Now!

SUSHIL SHARMA

SUSHIL SHARMA (Querist)
Follow

15 February 2009 Sorry, this is nothing like Satyam. There is no fudging of accounts here. M/s XYZ rightly believed that the services have been delivered and the money was received long back. The final invoice was duly raised in the month of March, 2008. However, the client of XYZ raised issues and demanded monies back at least two months after the Audit was over. This is a genuine case.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
Follow

24 September 2011 The money returned will be treated as a loss for the year 2008-09. The return of the year 2007-08 need not be revised.

It is not prior period item becuase there was no mistake or error last year.