Timing of TDS u/s 194J & cost audit

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Lakshmi (Querist)
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11 September 2008 Background:
In 2007-08 X & Co appoints a cost auditor under S 233B of the companies act for audit of cost accounts maintained for FY 2007-08 under S 209 (1) (d) and gets the approval of the Govt.

As per cost audit report rules 2001, X & Co has to produce the cost accounts to the cost auditor within 135 days after the close of the Financial Year and Cost auditor has 45 days to audit and submit the cost audit report to the Govt.

Accordingly the company produces the cost accounts for year 2007-08 and the auditor completes the audit in FY 2008-09 within the prescribed time limits. Bill raised and paid after the completion of the audit report, in FY 2008-2009

The following questions arise for clarification:

1. When should the company credit the account of the auditor and deduct the TDS under S 194J? (FY 2007-08 or FY 2008-09)?

2. What period should be mentioned in the TDS certificate (sec 203 ) and Form No 26 AS (Sec 203 AA...)?

3. When does the audit fee become income of the auditor (whether under mercantile system or Cash basis accounting)? (and when can he successfully claim the TDS in the return ( AY 2008-09 or AY 2009-10)?

CA Chirag Shah

CA Chirag Shah (Expert)
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11 September 2008 1.If the company follows mercantile system of Accounting than it is to be considered for F.Y.2007-2008.

2.1.4.2007 to 31.03.2008

3.As the Auditor accounts on Cash basis there fore the audit fee will become income of the Auditor in the year in which it is recieved.

Lakshmi

Lakshmi (Querist)
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11 September 2008 1. Yes, the company follows mercantile system. Even then, can an entry for a transaction (viz; the audit) be made BEFORE the transaction actually happens? First a transaction should happen and THEN an accounting entry should be passed for that transaction according to basic principle of book-keeping.

If the company enters into a contract to build a building in 07-08, but the actual work starts in 08-09, will the company account for this transaction in 07-08 and deduct the TDS even before the work starts?

2A. As per this answer,The tax return (income and TDS) may not match with Form 26AS as the Assessment years will be different and it can cause problem of refund in the new annexureless regime. (Even otherwise).In fact this has actually happened in the past. Is there any case law/notification to allow this mismatch?

2B. If for some reason, the audit was not done by this auditor, who will claim the TDS deducted?

3. The question refers to both options of accounting by the auditor.If the auditor is following mercantile basis, will your answer be different?

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Lakshmi

Lakshmi (Querist)
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15 September 2008 Any further comments pl?

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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30 September 2008 In my opinion, as the cost audit itself can commence only after the closure of financial accounts, even though the audit relates to the figures of 07-08, the work takes place in 08-09 and therefore account the bill during the period when the job is taken up. This will resolve the issue.

Lakshmi

Lakshmi (Querist)
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30 September 2008 Thanks for your view.
The problem starts when (1) the company (a) "provides for the liability to get the cost audit done" in FY 2007-2008 (b) debits the auditor's a/c for the TDS on the 'agreed' fees in FY 2007-08 (c)shows this deduction in the 4th quarter of 07-08 and (d)pays to Govt (Obviously the actual payment is done in 08-09)whereas (2) the auditor (whether he follows mercantile system OR Cash system)accounts for his bill after the audit is done in FY 08-09.

By virtue of the company's treatment, the Form 16 A and Form 26AS show the period as FY 07-08 whereas the auditor accounts for the receipt of fees and the TDS in FY 08-09.