Amit Bajaj Advocate

A person is required to get his accounts audited u/s 44AB if  turnover of  business exceeds Rs 100 Lakhs , or In case of Profession Gross Receipts  exceed Rs 50 Lakhs. In case of business what should be the meaning of turnover/sales? Should it be Gross sales or net sales? Should it include GST? 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 CARO 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 GST to be included in the sales/turnover: In our opinion same should be included even if the Assessee has 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:

“For the purpose of determining the income chargeable under the head “Profits and gains of business or profession”,—

 (i) the valuation of inventory shall be made at lower of actual cost or net realisable value computed in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145;

(ii) the valuation of purchase and sale of goods or services and of inventory shall be 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 or services to the place of its location and condition as on the date of valuation;

(iii) the inventory being securities not listed on a recognised stock exchange, or listed but not quoted on a recognised stock exchange with regularity from time to time, shall be valued at actual cost initially recognised in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145;

(iv)  the inventory being securities other than those referred to in clause (iii), shall be valued at lower of actual cost or net realisable value in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145:

Provided that the inventory being securities held by a scheduled bank or public financial institution shall be valued in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145 after taking into account the extant guidelines issued by the Reserve Bank of India in this regard:

Provided further that the comparison of actual cost and net realisable value of securities shall be made category-wise.

Explanation 1.—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.

Explanation 2.—For the purposes of this section,—

(a) “public financial institution” shall have the meaning assigned to it in clause (72) of section 2 of the Companies Act, 2013 (18 of 2013);

(b) “recognised stock exchange” shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43;

(c) “scheduled bank” shall have the meaning assigned to it in clause (ii) of the Explanation to clause (viia) of sub-section (1) of section 36.”


Therefore , in my opinion ,  maintaining accounts of GST 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” GST 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.

(Author – Amit Bajaj Advocate, Bajaj & Bajaj Advocates, 128, Sangam complex, Milap chowk, Jalandhar City (Punjab), Email: amit@amitbajajadvocate.com, M +919815243335)

Read Other Articles from Advocate Amit Bajaj

(Republished With Amendments)

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43 Comments

  1. VINOD KUMAR GUPTA says:

    The Author, Sir I am not agreeing with your opinion in regard of valuation of closing stock. It is always depend upon the procedure on which you have booked your sales and purchases in books of account.

  2. Sunder says:

    Turnover does not include GST whether or not it is accounted for separately in the P & L a/c just because of accounting treatement . Even the GST law sales so at several places under the GST aVT. Therefore it is wrong to say Turnover includes GST

    1. Ramesh Kumar Thakur says:

      Whether GST to be included in the sales/turnover:
      In our opinion same should be included even :

      What is the value of your opinion. “Under Avoidance of Double Taxation .Tax not be included in GTO”

    1. M.PURUSHOTHAMA REDDY says:

      your business activity comes under tax audit, because you declaring net profit below 8% on turnover. Hence, yours is tax audit case

  3. Hiralal chaudhari says:

    my client is jio recharges distributors. he is earn 1000000/- Gross commission on recharges including retails commission. His supply unders gst is 1,10,00,000/- Is he liable for Audit u/s 44AB? Which is his turnover unders it act?

  4. R.N.Maharwal says:

    If assessee maintains books on exclusive method than the amount of output tax will not form part of turnover. Setion 145A says that the tax will be included for the purposes of determining taxable income. For the purpose of section 44AB or 44AC, net sales will be the gross turnover. AS-2 also mandate this.

  5. kirti thakkar says:

    sale proceeds from business excludes capital gain on sale of fixed assets u/s 44AB . i need supreme court case laws on above mentioned topic . plz reply

  6. RAKESH TANEJA says:

    let me know by trading of delivery amounting to rs 58 lacs and speculative trade of 2 lacs and future trade of 1 lac i have a profit of 110000( one lac ten thousand only) and capital gain long term of 2 lacs. As the amount of profit is less then 8 % of turnover . does my account qualify for audit

  7. jignesh says:

    Is vat tax & cst Tax part of sales turnover for vat audit. Gross turnover was 63 lacs & net turnover after deducting vat & cst is 59 lacs. is vat audit applicable

  8. sheetal says:

    Dear Sir,

    My expenses are 3.53 Cr for Financial Year 2013-14 n my gross receipts are only 6 Lacs. Should my accounts are come under Audit U/s 44AB.

  9. 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

  10. 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

  11. 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.

  12. 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..

  13. 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. 

  14. 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.

  15. 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..??

  16. 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).

  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. 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.

  19. 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.

  20. 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 ?

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