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Serive tax & 44AB

santhosh (CA) (636 Points)

05 January 2010

X & co is engaged in business where turnover excluding service tax is say 32 lacs & including service tax exceeds 40 lacs.

Is the assessee liable for tax audit 44AB ?

Pls suggest any case laws.

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10 Replies

Ashok J (CA Final) (880 Points)
Replied 05 January 2010

Service tax doesn't form part of the turnover achieved by the business.....So, the assessee is not liable for tax audit....Consider the example of VAT on Sales.....VAT doesnt form part of the sales turnover.....Hence the assessee is not liable for tax audit u/s 44AB

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santhosh (CA) (636 Points)
Replied 05 January 2010

Can you tell me where it is said it does not form part of turnover. can you quote any relevant case laws.

kumarsatish022 (Professional) (165 Points)
Replied 05 January 2010

As per Guidance Note on Tax Audit, it had been made amply clear that turnover for the purpose of SEc. 44AB shall includes all taxes on sales. hence Assessee liable for Tax audit. i dont know any case law as in now ,will confirm soon.

Amir (Learner) (4016 Points)
Replied 05 January 2010

KUMARSATISH IS RITE, ICAI HAS CLARIFIED THAT FOR 44AB ALL TAXES WILL BE INCLUDED IN THE TURNOVER..

(Guest)

I agree with Ashok, it does not form part of turnover

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Priyanka (Chartered accountant) (371 Points)
Replied 05 January 2010

in general terms, turnover must include amount billed to your clients. net plus service tax is just a bi-farcation of a bill raised. turnover is total turnover including service tax, TDS , vat etc. your client is liable to audit be sure of that.

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 06 January 2010

Ofcoarse its included... I mean, the gross reciepts undoubtedly include the service tax too.. The language of 44AB specifically says :- total sales, turnover or "Gross Reciepts" and not the "Net Reciepts"...

So, service tax has to be considered and thus assessee becomes liable u/s 44AB for TAX AUDIT....

Varun (Student) (82 Points)
Replied 06 January 2010

in sec 44AB a person is liable for audit if it's gross receipts exceeds 40lacs and this include all the indirect taxes on sales or services

Ashok J (CA Final) (880 Points)
Replied 06 January 2010

Hi Santosh!!!!!!! 'Turnover' for the purposes of Sec 44AB includes any tax charged on Sales/Services as the case may be...therefore if Actual sales may be less than 40 lacs but if VAT/Service tax added to the same and if it exceeds 40 lacs the assessee is LIABLE FOR TAX AUDIT U/S 44AB

CASE LAWS

1. CHOWRINGHEE SALES BUREAU V/s CIT 87 ITR 542

2. PANDYAN HOTELS 266 ITR 172

IM SORRY ........MY EARLIER REPLY WAS WRONG.......Thanks for your question which made clear my confusion as well.........

Bimal Thacker (Proprietor) (762 Points)
Replied 06 January 2010

Dear all I think its all depends on accounting policy followed by the assessee. If you accounting sales in gross i.e. including service tax, then it is consider as turnover for 40 lakhs . However if you are accounting service tax on sales as service tax payable and not grossing up in your books of account as sales then it will not consider in turnover.

The term sales and turnover have not been defined under the Income Tax Act. Go through the the defination given in various publication of ICAI- Guide to company audit, Statement on amendment to Schedule VI of the co's act, Statement on CARO 2003issued by the institute. Also go through the joint opinion of Shri N.A> Palkhiwala and Shri B.A. Palkhivala.