tax return
This query is : Resolved
19 December 2010
my method of accounting is mercantile, i have raised my invoice on my client for consultancy provided by me on 03/03/2009.BUT i have not received payment from my client till now, so far i have not accounted the said invoice in my returns, what i should do now the tax dept have knlwledge of my above invoice.kindly guide me.
19 December 2010
Mukeh Ji, You are following mercantile system of of accounting. It should be followed in consistent basis.You can revised your return. A O can cosider the said income.
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19 December 2010
i have not received payment yet, DO I HAVE TO PAY TAX ?
19 December 2010
Mukesh ji,
I think you are following cash basis.
Please confirm.
How the tax department is having knowledge of the invoice, kindly elaborate.
I think you are following cash basis.
Please confirm.
How the tax department is having knowledge of the invoice, kindly elaborate.
20 December 2010
Yes , I am agree with Mr. bafna reply.
20 December 2010
Yes, YOU have to pay tax if you are following mercantile system of accounting.
20 December 2010
mr bafnaji, i follow mercantile because my client had ginen me cheque which got dishonoured my IT returns were called by court and in my ITR-4 it is clear that my method is mercantile, and my client has informed my AO of my ward. if i have to pay tax than how much willbe tax and penalty, my invoice is for 5 lacs.
21 December 2010
Mukeshji,
Sorry for seeking reconfirmation. But it was necessary to know the whole issue and for which I have further gone through via your profile.
The problem has arisen due to not showing the income of the bill raised by you on a client whose cheque has later bounced. As you have still not received the income, you need not to worry. As such we can say that problem has arisen due to adopting mercantile system of accounting. I realised and come to know the reason as why we CAs ARE generally FOLLOWING THE CASH SYSTEM.
Now we come to the relevant issue-
1. In preparing Accounting Statements we follow certain accounting policies.
2. For Sales/ Revenue we generally follow the policy of recognising sales/ revenue as and when the bills are raised. But this is not the universal rule.
3. Accounting policies should be based on sound principles of accounting and for that major considerations in selection and application of accounting policies as narrated in AS-1 of ICAI are-
A. Prudence
B. Substance over Form.
I am reproducing the contents of AS-1 of ICAI-
A. Prudence
In view of the uncertainty attached to future events, profits are not anticipated
but recognised only when realised though not necessarily in cash. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information.
B. Substance over Form
The accounting treatment and presentation in financial statements of transactions and events should be governed by their substance and not merely
by the legal form.
From the above it may be concluded that when it is not certain that the income will be received- you are not supposed to recognise it.
Income Tax Officer may harras you but can not tax you in the absence of cogent evidence in support of the realisation of the income.
Sorry for seeking reconfirmation. But it was necessary to know the whole issue and for which I have further gone through via your profile.
The problem has arisen due to not showing the income of the bill raised by you on a client whose cheque has later bounced. As you have still not received the income, you need not to worry. As such we can say that problem has arisen due to adopting mercantile system of accounting. I realised and come to know the reason as why we CAs ARE generally FOLLOWING THE CASH SYSTEM.
Now we come to the relevant issue-
1. In preparing Accounting Statements we follow certain accounting policies.
2. For Sales/ Revenue we generally follow the policy of recognising sales/ revenue as and when the bills are raised. But this is not the universal rule.
3. Accounting policies should be based on sound principles of accounting and for that major considerations in selection and application of accounting policies as narrated in AS-1 of ICAI are-
A. Prudence
B. Substance over Form.
I am reproducing the contents of AS-1 of ICAI-
A. Prudence
In view of the uncertainty attached to future events, profits are not anticipated
but recognised only when realised though not necessarily in cash. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information.
B. Substance over Form
The accounting treatment and presentation in financial statements of transactions and events should be governed by their substance and not merely
by the legal form.
From the above it may be concluded that when it is not certain that the income will be received- you are not supposed to recognise it.
Income Tax Officer may harras you but can not tax you in the absence of cogent evidence in support of the realisation of the income.
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