Vat entry in accounts

No Accounting Treatment is not correct

1) When purchase

Purchase A/c ..........Dr

Vat receivable A/c .......Dr

             To Party A/c

2) When Sale

Party A/c .............Dr

         To Sale A/c

          To Vat Payable

3) At the time of Vat payment

     Vat Payable A/c ........Dr

                To Vat Recivable

                 To Bank (In case of excess Vat Payable)

The accounting treatment followed by the entity is not proper for recording the transactions relating to VAT.  Please refer to the Guidance Note given below.  Refer pages 249 onwards for the treatment of VAT Paid & Collected:

https://220.227.161.86/23635research13.pdf

The treatment followed by the firm is not correct and i also satisfy with second one .

When I questioned the company about their accounting treatment, they replied that they are doing this accoording to provisions of section 145A of Income Tax act which says that "the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head “Profits and gains of business or profession” shall include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation."

The section also says that "any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment."

Please explain the relationship between section 145A and the accouting treatment and also the significance of section 145A. 

 Yes , This is write ans.. bcz we are generally using this entry in our firm.......