• Apr
  • 25
  • 2012

Meaning of Turnover or sales for Tax Audit u/s. 44AB

Amit Bajaj Advocate

A person is required to get his accounts audited u/s 44AB if  turnover of  business exceeds Rs 60 Lakhs (100 Lakhs from A.Y. 2013-14) , or In case of Profession Gross Receipts  exceed Rs 15 Lakhs (25 Lakh from A.Y. 2013-14).
In case of business what should be the meaning of turnover/sales? Should it be Gross sales or net sales? Should it include VAT, Sales tax or excise duty? The meaning of turnover/sales for the purpose of tax audit is discussed as follows:

In the “Guidance Note on Terms used in Financial Statements” published by ICAI, “the expression “Sales Turnover” has been defined as: “The aggregate amount for which sales are effected or services rendered by an enterprises. The term ‘gross turnover/sales’ and ‘net turnover/sales’ are sometimes used to distinguish the sales aggregate before and after deduction of returns and trade discounts”

In the statement issued by ICAI on the companies (Auditors’ Report) Order 2003 the word ‘turnover’ has been defined as under-

“The term ‘turnover’ for the purposes of this clause may be interpreted to mean the aggregate amount for which sales are effected or services rendered by an enterprises”

Whether sales tax and excise duty to be included in the sales/turnover: In our opinion same should be included even if Assessee is have not included the same in Profit and Loss account and shown the same as current Liability.

Section 145A of the Income Tax Act,1961  states that purchase , sale and inventory shall be valued by taking into account  the amount of any tax, duty, cess or fee . An extract of section 145A is as follows:

145A. Notwithstanding anything to the contrary contained in section 145,

(a) 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 be

(i) in accordance with the method of accounting regularly employed by the assessee; and

(ii) further adjusted to 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.

Explanation.For the purposes of this section, 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.


Therefore , in my opinion ,  maintaining accounts of excise duty VAT separately is not correct in terms of section 145A of the I T Act. In that sense , for determining the meaning of the word “sales turnover” VAT or excise duty should also be considered for purpose determining  the  criteria for getting accounts audited u/s 44AB of the I T Act.

Sales of Scrap: Sales of scrap shown separately under the heading “Miscellaneous Income” will have to be included in the turnover.

Luxury Tax: Similarly a luxury tax collected by a hotelier also a trading receipt in his hand- Pandyan Hotels Ltd. v. CIT [2004] 266 ITR 172 (Mad.)

Trade Discount: Trade Discounts can be deducted from sales. Trade Discounts are generally allowed in the sales invoice, therefore the discount allowed in the sales invoice will reduce the sale price and therefore can be deducted from the turnover.

Cash Discount: Cash Discount otherwise than that allowed in a cash memo/sales invoice is in the nature of a financing charge and a revenue receipt and is not related to turnover. Hence the same should not be deducted from turnover.

Commission on sales: Commission on sales included in the sales payable to the consignee/third person should not be deducted from the figure of turnover for the purpose of section 44AB.

Sales Returns: Price of goods returned should be deducted from the figure of turnover even if the returns are from the sales made in earlier years.

Sales proceeds of fixed assets: Sales proceeds of fixed assets would not form part of turnover for the purpose of section 44AB since the fixed assets are not held for resale.

Sales proceed of any investment: Sales proceed of any property held as investment in property will not form part of turnover for the purpose of tax audit. Similarly sale proceeds of any shares, securities and debentures etc. which are held as investment will not form part of turnover. However if shares, securities, debentures, etc are held as stock in trade, the sale proceeds there from will form part of turnover for the purpose of tax audit.

The Views expressed are only Personal Views based upon my studies and interpretation of law.

Sandeep Kanoi

25 Responses to “Meaning of Turnover or sales for Tax Audit u/s. 44AB”

  1. Nitin says:

    Just Want to know

    if I having 1) Salary Income Rs.17,00,000.00
    2) Professional Income Rs. 8,00,000.00
    3) Sales T.O. Rs.30,00,000.00

    so above case should i Came in Audit, I want also know is salary Income also part OR Calculate in Professional T.O.

    Thx

  2. Hitesh says:

    What is the audit limit for F.Y-2012-013.for proprietor firm.

  3. Anup Kumar Joshi says:

    dear sir

    We just registered as vat authority. and before registering we are not taken vat on sales then can we calculate the vat liability on whole year sale or after vat registration. Thank you

    Yours Faithfully

    Mr. Anup Kumar Joshi

  4. Tulika says:

    Hello Tax Guru,

    I run a firm as a Proprietor.
    We charge Service tax in our billing. We are registered as a ‘MARKET RESEARCH AGENCY’ in our service tax registration.
    Stats:
    Employee Count- 9
    Turnover- 36 Lakh(including Service tax)
    Services Provided- Links to Online surveys for performing market research on our clients products

    In the nature of our business, are we required for Tax Audit under Section 44 AB
    as a business(requiring tax audit above Rs 1 Crore) or profession(requiring tax audit above Rs 25 Lakh).

    Thanks.

  5. SHAZAD says:

    What is the audit limit for current year it 60 Lakh of 100 Lakh

  6. gangaram chandwani says:

    Has turnover limit for financial year ending 31-03-2013 for vat audit been increased from rs60L to rs1crore in Maharastra ?

  7. YUVRAJ RANA says:

    I AM HAVING GAMEZONE WHOSE TURNOVER IS AROUND 7 TO 8 LACS
    DO I NEED CA SIGNED AND STAMP BALANCE SHEET

  8. mahesh says:

    purchase is Rs. 65 Lakh and sales is Only 38 Lakh , balance is in stock will it require to Tax 
    Audit?

  9. SUSANTA PRE says:

    what is the limit of vat audit?

  10. dattatreyahg says:

    Cant a question like this be answered by people in ministry of finance who made these budget provisions so that ambiguities are removed right at this stage and litigations are minimised? I am sure every tax payer would like to have such clarity coming from authentic source. If need be,additional staff can be earmarked exclusively in the ministry to deal with such queries. Why should others waste their time and effort to INTERPRET what is in the minds of those who made these provisions? They will also be happy as it provides greater employment / promotional opportunity for civil servants. I am saying this after seeing hundreds of queries appearing in these columns which still beg unambiguious answers over years.(EX: ppf,tds etc). If this is not possible,or atleast till this is made possible,Administrators of this column may put all such queries together and refer them to ministry of finance at the correct level ,get authentic answers and disseminate those answers to the public.This will avoid INTERPRETATIONS and provide authentic answers in the true spirit of solving /reducing problems of those who are affected . Otherwise these columns will be of no value at all..

  11. MANOHAR CH L , TAX CONSULTANT says:

    In my opinion inclusion of VAT element for the purpose of TO u/s44AB is not correct as it is reimbursed in nature and will not form part of Trading or Profit & Loss A/c aswell. Your kind attention is drawn toward Guidance note on ” HOW TO A/C VAT ” issued by ICAI where in the above fact is clear. 

  12. VIJAYAN G says:

    if an individual is doing on line day  trading business in shares and has no other sales, will he be covered under tax audit . 

  13. C.Veerabhadram says:

    Whether entire Conveyance allowance given to physically disabled by the Central govt. is exempted u/s.10(14) of the I.T.Act if it is used totally and exclusively for the purpose i.e. exclusively for discharging his official duties in attending office from home and back.
    Whether special allowance granted to CRPF and other police forces who were engaged in maovadi dominated areas by the state govt/central govt are exempted or not as per I.T.Act.

  14. shubhneet gugnani says:

    sir i just wanted to ask a case study which goes like this…

    Suppose i own a company A and i am doing a number of projects individually , in a partnership, and also in joint ventures…

    all individual projects are accounted together by me, but in the partnership and joint ventures have their accounts maintained seperately and even the tax is submitted seperately for them..

    sir my question is that can we include the partnership firms and joint ventures turnover in our primary company that is A’s turnover valuations..??

  15. satish says:

    The 145A states
    145A. Notwithstanding anything to the contrary contained in section 145,
    (a) 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 be
    (i) in accordance with the method of accounting regularly employed by the assessee; and
    (ii) further adjusted to 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.
    further adjustment…so I feel it is to be done in computation of income where as 44AB is depends on actual turnover as in books…like valuation of inventory accounting standard does not allow the cess duty to be included in value of stock but IT act requires the same…so many companies value the stock as per AS and in computation of income adjust the impact of any duty cess. So VAT should not form part of turnover if the same is credited to liability account (books are maintained (system of accounting).

  16. Bhavesh says:

    Pl. answer me
    Scrap sales will form part of sales for VAT Purpose ? = Yes / No

  17. Mohit Agarwal says:

    While calculating turnover, vat should not be included because it is a liability of the assessee to collect vat from the customers and then pay to the State Government, vat is not an income of the assessee.

  18. Chintan says:

    it gives better clarity.thanks

  19. sai says:

    what is the meaning of turnover for the purpose of tax audit & vat audit

  20. sajid says:

    what is the meaning of turnover for the purpose of tax audit

  21. jayesh says:

    I have 50,00,000 of rental income and sales turnover of 40,00,000 for the year 2009-10
    Am i required to get my accounts audited.

  22. Chandrakant says:

    Yes, T. O. i.e gross receipt Or gross payment exceed threshold limit/even any advance paid or received also to be included in T.O./Fixed asset sold or purchase during the period is also included.

  23. Chandrakant says:

    Yes, T. O. i.e gross receipt Or gross payment exceed/even any advance paid or received also to be included in T.O.

  24. Hitesh Thakkar says:

    My Quation is
    1-My Sales Include Vat Rs.41,59,232
    2-In Sales Vat Rs.2,59,220
    3-In Trading A/c Sales:-Rs.39,00,012
    4-My Purchase Rs.39,25,330
    5-In Trading A/c Purchase:-Rs.3812300
    6-Should be i m came in Audit ?

  25. BARATHIDASON says:

    What constitutes T.O. when a person is dealing in shares.

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