SC on Radia Tapes – unscrupulous elements have used corrupt means to secure favours from Govt. officers

1) The first report submitted by Supreme Court on Nira Radia Tapes has pointed out seventeen matters of criminality or irregularity. Out of these matters, following eight matters are prima facie indicative of Deep-rooted malaise in system exploited by private enterprises in connivance with Govt. officers and others:

1. Supply of low floor buses by Tata Motors to Govt. of TN;
2. Appointment of Chairman of Pipeline Advisory Committee;
3. Allotment of coal blocks to ADAG group;
4. Allotment of iron ore mines to Tata Steel, favours shown to RIL by DG Hydrocarbons;
5. Fudging in subscriber base by Reliance Communication;
6. Touts and middlemen in aviation sector;
7. Market manipulation; and
8. Hammering of stocks of Unitech.

2) The conversations between Ms. Nira Radia and her associates suggests that unscrupulous elements have used corrupt means to secure favours from Govt. officers who appear to have acted for extraneous considerations;

3) CBI directed to make an inquiry on these eight matters and to submit a report within 2 months. Report based on conversations related to corruption or malpractice in judiciary (item No. 8 of the first report) should be referred to Chief Justice of India for consideration and an appropriate action;

4) In its second report, the SC has categorized suspected calls into six categories dealing with corruption in raid/survey by IT officials, CA working as tout of ITO, etc. CBI directed to make an inquiry on these matters also and to submit a report within 2 months. Team appointed by SC to scrutinize remaining Nira Radia tapes - RATAN N. TATA V. UNION OF INDIA (2013) 38 taxman 200 (SC)

TAXATION ENTRIES FOR VAT,EXCISE,SERVICE TAX AND TDS

TAXATION ENTRIES FOR VAT,EXCISE,SERVICE TAX AND TDS

Sometimes people have good idea about the taxation they know very well the provisions of tax and effectively compute the tax liability monthly/quarterly/half-yearly or yearly basis as the case may be. But at the time of making journal entries for such tax liabilities or payments they gets confused. This article through an light on making journal entries on these aspects. Let’s start:-

I  Value Added Tax

The organizations engaged in Sale and purchase transactions have to pay Vat liability. When they purchase material Vat is paid on purchases and when they sell material Vat is collected on material.

Vat paid on purchase of material-Input

Vat paid on Sale of Material-Output

Output amount is adjusted with the input and the balance is paid to the department. Entries to be made are:-

At the time of Purchase of Material

Purchase Dr………….

Vat Input Dr……………

To Creditors……………………

At the time of Sale of Material

Debtors Dr……………….

To Sales………………………….

To Vat Output…………………..

At the time of Adjustment

Vat Output Dr………………..

To Vat Input……………………………..

To Vat Payable (If Output>Input)………………………………

At the time of Payment

Vat Payable Dr…………………………..

To Cash/bank

II  Service Tax

Organizations engaged in providing services are supposed to pay service tax and following entries are made:-

When services are received:-

Expenses Dr………………………

Service tax Input Dr………………

To Party

When services are provided

Debtors Dr……………………

To Revenue………………………

To Service tax Output……………

At the time of Adjustment

Service tax Output Dr…………….

To Service Tax Input…………………….

To Service tax Payable……………………….

At the time of Payment

Service tax Payable Dr………………….

To Cash/bank…………………………………….

As you can analyze the entries for Vat and Service tax are almost same. Entries for excise duties too are on same parlance with a minor difference. Let’s check out what are those differences.

III        Excise Duty

At the time of Purchase

Purchase Dr……………..

Central Excise Input Dr………..

Education Cess Input Dr……………….

Secondary and Higher Education Cess Input Dr.

To Creditors

At the time of Sale

Debtors Dr…………….

Manufacturing Duty (Basic+Education Cess+Secondary & higher education cess) Dr.

To Central Excise Output …………………..

To Education Cess Output…………………..

To Secondary & higher education cess Output……………

To Sales (Including excise duty amount)…………………………………………………..

As per the guidance note of ICAI excise duty is added in Sales amount and in the financial statements shown by way of deduction from Sales figure. So corresponding figure of excise duty is recorded by name of manufacturing duty to nullify the impacts of duplication in records.

IV   Tax Deducted At Source

While making payments TDS is deducted as per the applicable provisions and such deducted tds is deposited with the department.

At the time of deducting TDS

Expenses Dr……………

To TDS Payable………………….

To Party………………………………

At the time of deposit of amount of TDS

TDS Payable Dr………………………

To Cash/Bank………………………………………

In Similar way entries for TDS deducted on income to be recorded.

At the time of booking of income

Party Dr…………………….

TDS deducted………………………

To Revenue receipts……………………………….

At the time of receipt of Income

Bank/Cash Dr………………………..

To Party……………………………………..

Hope now you get the idea of making journal entries of tax related transactions. Please comment on the article if you like or not. Thanks.

Urban land held as part of Industrial undertaking ceases to have its independent character for wealth tax purposes

Scope of section 2(ea) does not include 'urban land' but once land so held is part of industrial undertaking or factory, it ceases to have independent character as an urban land; it would be part of industrial undertaking

A. The revenue required the assessee to show cause as to why value of land, shown in the balance sheet won’t be to be included in his taxable wealth. The assessee explained that impugned land was not includible in taxable wealth as the same constituted integral part of factory;

B. The AO made addition of the value of impugned land in the net wealth of assessee by observing how could an assessee sell the land over which a factory building was situated or the land which was being used for business purposes;

C. The Commissioner of Wealth Tax (A) (CWT(A)) deleted the impugned addition. Aggrieved AO filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The scope of section 2(ea) does not include 'urban land' but once the land so held is part of the industrial undertaking or factory it ceases to have the independent character as an urban land. It would be part and parcel of the industrial undertaking or factory;

2) The mere fact that a part of land, which was held as factory, was sold by the assessee as a piece of land would not change the character of asset in the hands of the assessee;

3) There could be situations in which a part of factory land might be sold as 'land' but as long as it was a part of the factory, it couldn’t have any other character in the hands of the assessee than factory as such;

4) A vacant piece of land, even if it can be sold as 'land', as such, continues to be a business asset as long as vacant land is an integral part of factory. Therefore, the land sold was a part of the factory premises and order of CWT(A) was to be upheld – DY.CIT V. HSIL LTD. (2013) 38 taxman 45 (Kolkata - Trib.)

Relying Upon the Work of an Internal Auditor under AAS 7

Relying upon the work of an internal auditor is the auditing standard 7, it tells us the limit of external auditor’s dependence on the internal auditor. We know that internal auditor is the part of management team, so it is sure the decisions in the opinion of internal audit report will be affected by management. By considering these points, external auditor has to depend on the work of an internal auditor.

Here are some rules regarding this in this AAS 7

• Both internal auditor and external auditor’s target is same. Both want to see correct accounting information which is given through management’s financial statement. Both collect evidence for capturing frauds and errors in accounting data. So, as per simple rule, external auditor should keep faith on the information and opinion which is provided by an internal auditor. External auditor should not increase his tension by creating doubts on the reports which are provided by internal auditor. He should faith that internal auditor and his identity are just drops of rain whose aim is to clean the rock of company. No one can faith, how can drops clean the rock but it is the truth because these rain drops are fallen by God’s order and they do not do any jealousy with each other. Like this, external auditor should keep his behavior with internal auditor. He should love to internal auditor and in the refund, he will get love.

• By loving deeply with internal auditor, he should not forget his duty. He is auditor; he should check every fact’s truth. External auditor should not faith in internal auditor’s report by closing his eyes.  He should check it one by one. It is true, internal auditing decreases the work of external auditor but internal auditor is also human being. So, there is the chance of mistakes in it. If external auditor does not satisfy from the reports of internal auditor, external auditor can start to work of auditing from beginning by checking each transaction and events of business.

• External auditor should review the system of internal control. To know the system is important because if there is the weakness in it, then, there is chance of mistake in it. External auditor should check the qualification of employees of internal audit department. If external auditor will assure regarding the technical competence of these employees, then external auditor can rely on the information which are provided by internal audit department.

• External auditor will have the option of sample test of work of internal auditor. If sample test is as per the standards of external auditor, external auditor can rely on these work and include in the part of his audit work. 

Full Disclosure Principle

As per full disclosure principle, accountant should disclose all the information in his made financial statement. No accounting information will be concealed because it may be risky for interested parties of accounting information.

Company should give clear detail of current loan taken; it will be helpful for creditors. In the balance sheet, all assets and liabilities are shown what are existing in the business at their correct book value; it will be helpful for investors to assess the financial position of business. As per this principle, businessman, management and accountant should not use window dressing and accounting loopholes for misleading users through wrong financial statements.  

It is also duty of Auditor to check whether financial statements have been fully disclosed or not. For this,

a) He will check whether profit and loss account and balance sheet have been made on the required format as company act 1956.

b) If there is case against company for paying any contingent liabilities, accountant should disclose it in the footnote of balance sheet.

c) Accountant should also adopt the consistency concept. He should use same inventory valuation method, depreciation method and other method. If he changes in any method, he should disclose it in the footnote of financial statement.

d)  If company has invested his money in share market, mutual funds, Gold and real estate and other products whose each day’s are disclosed by different newspaper. On this basis, accountant must disclose the current market value of their investment in the footnote. For example, today price of Gold (10 gram) is Rs. 29000 but two months ago, it was Rs. 34000 per 10 gram. It means, if any company who invested Rs. 50,00,000, two months ago in the gold, now, its value is just Rs. 42,64,705. From this, fact, investors gets useful information that value of asset of company has decreased with Rs. 7,35,294. It means, its share capital will decrease with same amount. So, if there is the chance of more decreasing in the value of Gold, investor can take the important decisions to sell the shares of same company. But, it can only possible if company will disclose all information very clearly and honestly.

e) If management think, due to changes in the politics, income tax rates will change and its effect will on the financial statement, all these effect on profitability should be disclosed very clearly in the footnotes. 

f) If company is working in foreign country or countries  he should disclose the effect of changes in Forex rate on the financial statements. 

g) If there is big effect of inflation on each items, company can make additional financial statements in which all inventories, assets and other financial information will be shown on the basis price level changes level. 

‘Equipment’ includes Ship and charter fees thereof is ‘royalty’; HC refers to Sec. 43(3) to define word ‘equipment’

‘Equipment' includes ship, fee paid for use of ship to be considered as royalty under sec. 9(1)(vi). Meaning of the word ‘plant’ as defined under Sec. 43(3) would be relevant to determine meaning of the word ‘equipment’.

The aggrieved assessee appealed against order of Tribunal holding that the payment made for taking ship on time charter basis would constitute ‘royalty’ as defined under Section 9(1)(vi)(b) of the Income Tax Act (‘the I-T Act’). Assessee contended that the ship was not equipment and, consequently, there was no question of use or right to use of any equipment which could be construed as ‘royalty’.

The High Court held in favour of revenue as under:

1) The consideration paid for use of the industrial, commercial and scientific equipment is ‘royalty’ in view of clause (iva) of Explanation 2 to Section 9(1)(vi) of the I-T Act. The word ‘equipment’ is not defined under Section 9, however, the word ‘plant’ has been defined under Section 43(3). In view of Section 43(3), the word ‘plant’ is widely defined to include a ship;

2) In absence of any definition of ‘equipment’ under the I-T Act and considering the business of the foreign enterprise, the definition of ‘plant’, as including ‘ship’ would be appropriate for understanding the scope of the expression ‘equipment’;

3) ‘Plant’ includes every tool, apparatus, equipment or machinery, not limited to machinery used in tool. Thus, with the inclusive definition of plant embracing within its fold so diverse a matter from a ship to a book, or medical equipment, every tool, apparatus, ‘plant’ includes all equipments used by an assessee for carrying on his business;

4) The word ‘equipment’ construed in the light of Section 9(1)(vi) extends the normal meaning of the word to cover even those specified categories of machinery or plant that would themselves not be construed within its plain and ordinary meaning. As rightly pointed out by the Revenue, the only limitation that one may read into the word ‘equipment’ would be that which is specifically excluded;

5) In context of Section 9(1)(vi)(b), the presence of the word ‘any’ preceding the word ‘equipment’, clearly points out the need for construing ‘equipment’ widely, so as to embrace every article employed by the employer for the purposes of his business. ‘Equipment’, by whatever name called either as an apparatus or as plant or machinery, so long as they are employed for the purposes of one’s income, the same shall stand covered by clause (iva) of Explanation 2;

6) Therefore, in absence of any word of limitation other than what was explicitly provided for, we do not find any legal necessity of reading a limitation on the word equipment. Thus, ship being a plant, an equipment with which the ship owner operates the business and commercially exploits it for earning the income from chartering of ship, the payment thereof would be clearly in nature of ‘royalty’ - Poompuhar Shipping Corporation Ltd. V. Income-tax Officer, International Taxation - II (2013) 38 taxman 150 (Madras)

Materiality Principle

Materiality principle is the principle of basic accounting which gives us the direction for making better financial statement. As per the material principle, accountant should include all the items in the financial statements which affect the users for taking their important decisions. As per this principle, there is no need to show all insignificant and irrelevant items in the financial statement.


Benefit of Using Material Principle 

1. With this principle, our financial statement shows only important items and our users can use it easily without wasting time for searching important information. 
2. Accountant can help of this principle for making financial statement fastly because it gives freedom to merge small and unimportant items with important items for bringing material results.

Examples of Materiality Principle 

For showing the examples of material principle, we have to explain that it is on the business which will fix whether an item is material for him or not. We can also compare it with human nature. There are lots of tensions which effect different person with different way. For one person, it is immaterial because that one person is so positive and live in the today life. For other person, it may be material because that other person is so negative and he will be living his future life by taking future tensions day and night. Like this, accountant has decide whether item is material for his company or not. 

1. For example, a person came the office for meeting with any company's employee. Accountant will give one glass of milk. It cost is few cents. It is immaterial, it is better to record it in rough page and show total cost of milk of month as single entry in cash book when you will pay the monthly bill. 

2. A company whose debtor has paid $ 400 million. This is so material if he do not give his debt of $ 400, it will lose of capital which invested by shareholders. But because he paid this big amount one time, he had given $ 1000 less. So, to show this loss as bad debt is total immaterial because we have other options also. We can show it cash discount by merging it annual cash discount. 

3. A small company has paid for tools, it will be his fixed asset but a large company who buys tool every month and again buys tool for next month, to show tools as fixed asset for large company will totally immaterial. For, large company, we can easily close the account by transferring annual tool expense in profit and loss account's debit side because large company is using tool and for keeping update the machine, it is necessary to buy new tools every month. 

Accounting Period Principle

As per accounting period principle, we divide whole period of business organization in to twelve month period. End of every twelve months, we make our financial statements. These financial statements show the performance and financial position.

It will be helpful for users of accounting information because they can compare it previous twelve month’s financial profitability and financial position. On this basis, it will be very easy for them for taking important decisions. For example, investors can sell the shares, if he finds that profitability of company is decreasing very fastly in twelve months and if he finds that financial position has become very weak.

New Amendments in this principle of accounting:-

1. Now, every business organization must keep his accounting period 1st April to 31st march (Twelve months). All business organization which have different accounting period will adjust their financial statement data for showing their financial statement accounting to this period.

2. Every corporate which is registered in NSE or BSE, has to make their quarterly financial statement and has to publish it in the newspaper. At the end of three months, new income statement and balance sheet will become and will be publish in the newspaper for showing the trend to investors and other interested groups.

ITAT devises formula for claiming lease equalization charges – gap of annual lease charges and depreciation as per Income-tax Act

While allowing deduction on account of lease equalization charges, only difference between annual lease charge of leased assets and depreciation allowed on said leased asset under the Income-tax Act (the I-T Act) should be taken into consideration

The Tribunal held as under:

1) The concept of lease equalization charge could also be followed for the purpose of computing the total income under the I-T Act. However, the same has to be done with proper care and caution, otherwise it might result in absurdity and give misleading result;

2) In the instant case the relevant transactions were treated as finance lease transaction and, the depreciation allowed as per the rates prescribed in the I-T Act could be more than the depreciation claimed by the assessee at the rate prescribed under the Companies Act;

3) For example, the assessee might be entitled to claim depreciation at 100 per cent on the leased assets in the first year itself under the I-T Act whereas in the books of account, it might have claimed depreciation on the said leased assets under the Companies Act at the rate of 10 per cent;

4) In such a case if the annual leasing charge was equivalent to 30 per cent of the value of leased assets, the assessee would debit its profit and loss account by lease equalization charges to the extent of 20 per cent of the value of asset as per the guidance note issued by the ICAI;

5) If the lease equalization charges so debited were to be allowed as deduction while computing the total income of the assessee under the I-T Act in addition to 100 per cent depreciation already allowed, the assessee would get the deduction of 120 per cent of the value of asset in the first year itself and the very purpose of adopting the concept of lease equalization would be defeated. This would result in absurdity and give misleading results;

6) It was, therefore, necessary that while allowing deduction on account of lease equalization charges for the purpose of computing total income under the I-T Act, the difference between the annual lease charge of the leased assets and depreciation allowed on the said leased asset under the I-T Act should be taken into consideration - INFRASTRUCTURE LEASING & FINANCIAL SERVICES LTD V. DY.CIT (2013) 38taxman 40 (Mumbai - Trib.)

Money Measurement Principle

As per money measurement principle, we record the transactions and events which we can show in money. All the transactions and events which we can not measure in the money, we can not  record in our accounting books. Main benefit of this is to show accounting reports correctly and saving of time of users of such accounting reports.


For example, two employees started quarrel and both went to home with peaceful agreement. This is the event but we can not measure its effect in the money but due to quarrel, there is the loss of stock $ 20,000, this event's effect can be measured in the money. We know, there is big risk of loss of asset of company due to quarrel. So, One side, our closing stock will less with this loss and second side, it is the decrease of our capital. So, base of accounting record is that we can express this event in the money. There is no use of Rs. 20,000 stock due to quarrel. Like this, we record all the transactions and events if we show them in the money form. It will help us for taking important decision. Our accounting record now helps us to get Rs. 20,000 from employees through court. If there is only one employee is responsible whole Rs. 20,000 may be taken from him.

We record the raw material, finished stock, machines, furniture, building because we can say we have raw material of $ 300000, we have finished goods of $ 600000, we have machines of $ 600000. We have to pay the loan of $ 700000. All these assets and liabilities can easily measure in one common unit and its name is money. So, money measurement principle helps us to concentrate our record on all those transactions and events which we can measure in the money.

Personal Views

Some natural assets should be recorded and business has to take the social responsibility for caring all these natural assets. Business forgets the water, pure air which came from trees from its business places. Recently, as per social accounting, both social cost and social benefits are started to measure in money and on this basis, corporate business started to help for natural resources safety. 

Using the Hyperlink Function in Excel

Hyperlinks can be used to link to other sheets, webpages or other files such as PDF’s from your Excel spreadsheet. If you are creating hyperlinks for many records though this will take a long time to set them up.

Excel provides a HYPERLINK function for creating hyperlinks in our spreadsheets. The real power behind this function is that it can be used to create dynamic hyperlinks.

We can create conditional hyperlinks by nesting them within an IF function, or create hyperlinks that can find the address to link to themselves by embedding Lookup or Text functions within them. This helps us to create automated and error resistant spreadsheets.

The HYPERLINK Function

The HYPERLINK function is written as;

=HYPERLINK(link_location, [friendly_name])

Link Location: This is the cell, file or webpage that you want to link to. A # symbol can be used when referencing a cell within the active workbook.

Friendly Name: This is the text used as the hyperlink text that users will click on. This information is optional, and if omitted the text used by the links destination will be used.

HYPERLINK Function Example

If you are creating a static hyperlink to another file you should use the Hyperlink button on the Insert tab. The HYPERLINK function is here for impressive dynamic links.

In this example we want to create a hyperlink in column C of our table of contents. The user can then click the hyperlink to jump to the sheet of the country entered in column B.

The formula below uses the CONCATENATE function to join together the hash symbol, the countries name from cell B3, and A1 preceded by the exclamation mark. By referencing cell B3, when copied, this function would take the user to the correct sheet.

=HYPERLINK(CONCATENATE(“#”,B3,”!A1″),”Go to Page”)

Sum the Total Duration for Tasks in MS Project

Microsoft Project uses the duration field to calculate the difference between the start and finish dates of a task. But what if you want to view the sum of all durations for a set of tasks?

Microsoft Project does not have a field to calculate the total durations for a set of tasks. However this can be easily accomplished by creating a custom field.

Create a Custom Field to Sum Task Duration

1. Click the Format tab under Gantt Chart Tools on the Ribbon.
2. Click the Custom Fields button in the Columns group.

3. Click the list arrow in the top right corner and select Duration as the type of field we want to create.
4. With Duration1 selected in the list of duration fields, click the Rename button below the list. Enter Duration Total as the name for the new field.

5. Click the Formula button
6. Click the Field button and select Duration and then Duration again from the submenu.

7. Click Ok.
8. A message appears warning you that because the field will be calculated by a formula, any existing data will be lost. Click Ok.

9. Select the Rollup option. Click the list arrow and change the function to Sum.
10. Click Ok to save and close the dialog box.

The field has been created. Now it needs to be inserted into the table.

Insert the Duration Total Column

1. Right mouse click on the column header to the right of where you want to insert the new Duration Total column.
2. Select Insert Column from the menu. Type “du” to scroll through the list quickly and select the Duration Total field.

Prevent Formulas Showing in the Formula Bar

Your spreadsheet formulas are always shown in the Formula Bar of Excel. This makes it easy to view and edit the formulas of a spreadsheet.

But what if we have created an Excel file and we do not want others to be able to view the formulas. Worksheet protection can be applied to hide the formulas from the Formula Bar.

Before you apply worksheet protection however, you will need to specify the cells in which the formulas will be hidden.

Format the Cells to Hide the Formulas

1. Select the cells where you want to prevent the formulas from being displayed.
2. Click the Dialog Box Launcher arrow in the corner of the Number group on the Home tab, or press Ctrl + 1.

3. Select the Protection tab.
4. Check the Hidden box and click Ok.

Apply Protection to Prevent the Formulas from being Displayed

Now that we have selected which formulas we would like to hide, we need to enforce this rule by protecting the sheet.

1. Click the Review tab on the Ribbon.
2. Click the Protect Sheet button.
3. The password is optional and its use depends on how restrictive you want to be. The list of checkboxes enables you to select what a user can or cannot do on this worksheet. Make the necessary changes and click Ok.

Now when you select a cell containing a formula. It will not be visible in the Formula Bar anymore.