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 Unless the CBDT clarifies its stand on this matter, it would be appropriate to ignore the amount of GST while calculating the gross turnover or gross receipts as Section 145A begins with “For the purpose of determining the income chargeable under the head “Profits and gains of business or profession” which makes this provision inapplicable for other purposes. Further Inclusion of GST within the turnover would have the cascading effect, and computation of presumptive also on the component of GST cannot be the intention of CBDT.
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  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: [email protected], M +919815243335)
(Republished With further Amendments)