Opinion Of Eminent Legal Luminaries On Controversial Issues

How To Calculate Turnover For S. 44AD?

QUERY: ‘X’ is engaged in business of sale of liquor. His turnover is 40 lakhs during the financial year 2010-11. The turnover is inclusive of sales tax. Now for the purpose of section 44AD of the Income-tax Act, 1961 whether total turnover or gross receipt will include sales tax? Will it make any difference, if sales tax is credited separately.
ANSWER: Section 44AD, would be applicable for the assessment year 2011-12 if total turnover or gross receipt of ‘X’ does not exceed Rs. 60/- lakhs. For sake of consistency, ‘X’ should follow the same accounting policy from year to year.

The “Statement on the Amendments to Schedule VI to the Companies Act, 1956” issued by the Institute of Chartered Accountants of India, while discussing the disclosure requirements relating to “turnover” states as follows:

“In the case of invoices containing composite charges, it would not ordinarily be proper to attempt a demarcation of ancillary charges on a proportionate or estimated basis. For example, if a company makes a composite charge to its customer, inclusive of freight and dispatch, the charge so made should accordingly be treated as part of the turnover for purpose of this section. It would not be proper to reduce the value of the turnover with reference to the approximate value of the service relating to freight and dispatch. On the other hand, if the company makes a separate charge for freight and dispatch and for other similar services, it would be quite proper to ignore such charges when computing the value of the turnover to be disclosed in the Profit and Loss Account. In other words, the disclosure may well be determined by reference to the company’s invoicing and accounting policy and may thereby vary from company to company. For reasons of consistency as far as possible, a company should adhere to the same basic policy from year to year and there is any charge in the policy the effect of that change may need to be disclosed if it is material, so that a comparison of the turnover figures from year to year does not become misleading”.

Posted in Company Law, Income-tax

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