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Tax Audit

santosh singh (CA final student) (26 Points)

21 September 2009

Whether a propritor firm can make sale to his proprietor?
......
Note - 1 If sale has been made by the proprietorship firm to his proprietor is Rs 42lacs and total sales of firm is Rs 62 lacs and Gross Receipts of proprietor is Rs 48 lacs.
Ques 1- What is the implication of tax audit u/s44AB of IT Act,1961?
Whether tax audit will be done only propritorship firm or only Individual partner or both?
Note - Proprietor is a Doctor and his proprietorship firm Manufactures medicine.

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9 Replies

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 22 September 2009

Dear Santosh,

Your question is bit weired.

One cannot earn income/book income/recognise revenue by selling the goods/produc/services to ownself.

I doubt accounting treatment of above transactions and so the tax Audit part.

Do let me know if you find any thing different from above.

thanks

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Max Payne (employed) (2569 Points)
Replied 22 September 2009

Please rephrase your question. Proprietorship firm? Individual partner?

Please give clarity and details.

Sunil (Trader) (2611 Points)
Replied 22 September 2009

Sale to proprietorship by proprietorship firm is a drawing (transfer from proprietorship to proprietor). As far as equity shares are concerned, if an individual converts his shares from business asset to personal asset, Capital Gain is Leviable and also vice versa. Regd. goods, you will have to read the provcisions as they come under transfer of goods act.

If you transfer your own goods to yourself, you will have to check if VAT is leviable and the value you have to use for the transfer. Sales Tax used to hammer individuals who used to buy on C Form and then use the goods for personal use.

What is the compulsion for you to do the sale this way to yourself. You will complicate your case much more. It depends on whether you are using the goods for personal use or just making book adjustment. Just leave it alone in the proprietorship if you are not using it.

Hardik Dave (IPCC and CS Professional(FINAL) Student) (15533 Points)
Replied 22 September 2009

Tax audi is best

Max Payne (employed) (2569 Points)
Replied 22 September 2009

Have to agree with much of what sunil said.

If there is no consideration received, then drawings are the substance of the transaction u dub as sale... but there is an aspect, that you must be making the sale at a marked up rate. This profit cannot be your income by being part of sales.. u cannot give income to yourself like Juzer pointed out.

You may have adverse reverse tax implications in VAT. Since u have worked out somehow that gross receipts are 48L, u will have to take the tax audit anyway.

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mahesh (propritor) (27 Points)
Replied 14 October 2009

anybody tele me Sale to proprietorship by proprietorship firm(transfer from proprietorship to proprietor).?

Sunil Liladhar Kotak (Manager (F & A)) (2025 Points)
Replied 14 October 2009

Originally posted by :santosh singh
"	Whether a propritor firm can make sale to his proprietor? ...... Note - 1 If sale has been made by the proprietorship firm to his proprietor is Rs 42lacs and total sales of firm is Rs 62 lacs and Gross Receipts of proprietor is Rs 48 lacs. Ques 1- What is the implication of tax audit u/s44AB of IT Act,1961? Whether tax audit will be done only propritorship firm or only Individual partner or both? Note - Proprietor is a Doctor and his proprietorship firm Manufactures medicine.	"

It will be shown as withdrawal in the Credit side of the Trading Account & generally shown at cost. i do not understand the need for doing so(i.e. accounting at cost plus profit)

Sunil