TAX AUDIT-APPLICABLE FOR ADVANCES RECD

Hi Mr Bangad,

Yes, tax audit u/s 44AB would be called for. The words "total sales, turnover or gross receipts" deployed in Section 44AB take care that cases like yours don't get left out of compulsory tax audit. Don't go by what the ICAI Guidance Note on Tax Audit says. It has no legal legs to stand on. How you account for an item of income or a receipt—-whether you show it as a liability or treat is item of P & L account--has absolutely nothing to do with the determination of quantum of turnover u/s 44AB. Accounting Standard 9 is subservient to the following Lucknow Tribunal judgement:[The assessee, a construction firm, filed return without the tax audit report under section 44AB. The assessee's contention was that he was following the mercantile system of accounting and, hence, section 44AB was not applicable as in the relevant year it received only advances for booking flats from customers and there were no receipts, sales or turnover as required under section 44AB. The Assessing Officer, however, rejected the assessee's explanation and imposed penalty for not getting accounts audited. In appeal preferred by the assessee, Commissioner (Appeals) deleted the penalty. In department's appeal against the order of the Commissioner (Appeals), the Tribunal upheld the penalty imposed by the Assessing Officer. The Tribunal held that the assessee was under an obligation to get accounts audited under section 44AB. The Tribunal held that each and every word used in any statute has its importance and is used by Legislature after a lot of deliberations. The words used in section 44AB: `total sales', `turnover' or `gross receipts' have been used specifically and the scope of the words `gross receipts' is quite wide, otherwise Legislature would have stopped after using the words `sales' or `turnover'. Further, these advances were having an element of profit. The amount was to be adjusted towards the cost of flats booked by each customer and the amounts will have an element of construction cost as well as profit, which might be bigger in proportion when whole of the cost is realized.-- Dy. CIT v. Gopal Krishan Builders [2004] 91 ITD 124 (Lucknow) (SMC)]Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "VISHNU BANGAD" wrote:>> Dear> Kindly give your openion on the issue relating to tax audit applicability.> > One of our client engaged in construction activity, he has received advance agsint sale of flat/shop to the tune of rs.3 crores but sale is not taken place. Sale is recognise at the time of possession of flat/shop.> My query is wheather Tax Audit is applicable to said client.> > CA V.N.Bangad>