Vendors (Creditors) Ledger Scrutiny

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Consideration of important points while vendors ledger scrutiny.

A) Creditors having opening debit / credit balance and no transaction during the period.

a) Date since the balance is outstanding (Debit / Credit) is to be analyzed

b) It is to be checked that whether the Debit Balance is due to Advance payment for supply of Material or due to excess payment to the party or due to debit note raised for shortage of material / quality defect or any other reason.

c) If the debit balance is due to advance payment for Supply of Material – To check whether material is not received or material is received but invoice is yet to be booked

d) If the debit balance is due to excess payment made / or due to debit note raised, the reason for non realization of the said amount


a) Uniform General Ledger (GL) head is to be debited based on the nature of expenses / purchases

b) Proper deductions of TDS / PT / PF / WCT etc are to be made as applicable.

c) Aforesaid deductions are to be accounted (credited) to correct account head

d) Possibility of double booking of invoices is to be kept in mind. The same can be test checked by keeping in mind the invoice no. / equal amount for 2 or more invoices etc.

e) Possibility of Double payment is also to be kept in mind e.g. advance payment is made to the party and subsequently full payment is also made to the party or payment is made to the party and debited directly to the expenses account and another payment is released by debiting to party account

f) Excess payment are also to be noticed i.e. payment made without deducting the TDS etc. or without deducting the debit note amount etc.

g) Any Transfer entry from one vendor to another vendor is to be supported with the confirmation letter from the party.

h) Any Advance payment made during the year but bill for the same is not yet booked are to be analyzed in order to ascertain whether Material is yet to be received or invoices are yet to be booked.

i) In case of Vendors to whom monthly fixed payments are made for Rent / Maintenance / Consultancy services etc., their agreement is to be verified. If any sudden increase is noticed in the account, the documentary evidence for the same is to be verified.

j) Payment made for regular bills but payment put on hold for old bills – reasons for the same is to be evaluated whether any quality problem or any other reason.

k) Any substantial amount (debit / credit) written off during the year – document / approval to be checked specially in case of debit balances written off.


Checklist and Guideline for Excise Audit ( Internal & External)

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Checklist and Guideline for Excise Audit.
Excise Audit is very important in organisations where excise is applicable.
Excise auditor need to check various factors while auditing such as examine the controls and procedures for accounting and claim in respect of Cenvat on eligible inputs - particularly examine the cases where Cenvat could not be claimed due to various reasons i.e. non-eligible items, loss of documents etc.

ChecklistHow to check
Identify all the account balances appearing in the Trial Balance / Financial Statements relating to Excise / Cenvat Checked from the excise Reconciliation Statement
Verify the returns / relevant records to ensure that the balances in books reconcile with the returns - in case the balances do not reconcile, ask the client for an appropriate reconciliation which should be examined in detailER-1 return is to be compared with the account balances ER-5 Annual return of information relating to principal inputs ER-6 Monthly return of information relating to principal inputs ER-7 Annual installed capacity statement
Examine the controls and procedures for accounting and claim in respect of Cenvat on eligible inputs - particularly examine the cases where Cenvat could not be claimed due to various reasons i.e. non-eligible items, loss of documents etc.In certain clients, data in respect of Cenvat not claimed on inputs may not be readily available, which may be a management letter issue for strengthening the overall control over accounting in respect of Cenvat
Examine the credit for Cenvat in respect of Capital Goods - the same is to be taken @50% in the first year and the balance amount in the next year. Also ensure that cost of the asset is capitalised in the books net of such Cenvat and depreciation is claimed on the net amount only.In cases where Cenvat on capital goods is claimed by the client, but the same is under dispute with excise authorities, it is suggested that a disclosure for contingent liability may be considered for the amount claimed
Review whether duties payable on clearance of finished goods has been paid within the stipulated time period i.e. 5th of the next month respectively.If there are any delays in payment / adjustment of excise duty dues, interest would be payable by the client @ 24%
In respect of materials sent outside the factory premises for further processing / repairs etc. examine the records maintained and obtain a list of such cases as on the cut-off date i.e 180 days. Reconcile the same with the duty paid on removal thereof, amount of reversal, and final benefit availed when the goods after processing received into factory. Records maintained by company in respect of material removed from the premises without paying duty on the condition of material would be come with in 180 days after the removal from the premises
Test-check a few cases of material receipts to ensure that the material receipt register (at the gate / stores) contains record reference of Cenvat documents. Also examine the normal time lag between receipt of material and availing of Cenvat credit.Abnormal delays in availing Cenvat credit may be a management letter issue and may offer opportunities for advising the client for streamlining the processes.
Review the daily factory production, despatch and stock records and reconcile the figures with those reflected in the excise returns as well as the financial statements.(Review Of DSA)
Obtain a list of all pending disputes / claims with the excise authorities and status thereof, with the amount involved. Reconcile the payments made under protest with the book balances.


Treatment of Exchange Fluctuation from Income Tax point of view

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As we know today’s world is dominated by globalization in which geographical boundaries of business houses has spread beyond its countries also. As a consequence of which, exchange fluctuation in currencies is becoming one of the major concern for importers & exporters. Therefore it is vital to know the treatment of these exchange fluctuations from the income tax point of view.

As we all of us aware that in running business there are usually two types of expenditure one is revenue and other is capital. Hence, exchange fluctuation also affects only these two accounts which are discussed one by one below.

1. Revenue Account:
Under Revenue account foreign exchange fluctuations are on an account of debtors for exports, creditors for purchases and expenses payable etc. Gain on Fluctuations of these accounts will be recognized on accrual basis under head profit and gains of business or profession. Similarly, loss on fluctuation is also allowed on accrual basis under section 37(1).
The above principal has been enunciated in case of CIT VS Woodward Governor India (p) ltd wherein Supreme Court has observed as follows:
The word ‘expenditure’ is not defined in the Act. The word ‘expenditure is, therefore, required to be understood in the context in which it is used. Therefore, the expression ‘expenditure’ used in section 37 may include ‘loss’ also even though the said amount has not gone out from pocket of the assessee. Any difference, loss or gain arising on conversion of the said liability at the closing rate, should be recognized in profit and loss account for the reporting period.

2. Capital Account
Under capital account fluctuations are on an account of foreign currency loan taken to acquire fixed capital asset, foreign capital issued abroad. Gain on Fluctuations of these accounts will be capital receipt which has no tax treatment. Similarly, loss on fluctuation will be a capital loss which has no tax treatment i.e. it is neither allowed to set off nor allowed to carry forward. In simple words, it’s a dead loss.
The above principle has been enunciated in case of Sutlej Cotton Mills VS CIT wherein Supreme Court observed as follows:

The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by him, on conversion into another currency, such profit  or loss would ordinarily be a trading profit or loss if the foreign currency is held by the assessee on revenue account or as a  trading asset. But, if on the other hand, the foreign currency held as a capital asset or as fixed capital, such profit or loss would be of capital nature.
Similarly in case of CIT VS Jagatjit Industries Ltd (Delhi.) it was held that Share capital is a capital account and therefore gain/loss on foreign exchange fluctuation on share capital is a capital receipt/capital loss.  

  3. Section 43A Capitalization of Expenses. (An Exception to Capital Account Treatment)
The provisions of section 43A of the Act deal with the treatment of foreign exchange fluctuation in respect of loan borrowed in foreign currency for acquiring assets from outside India for the purpose of business or profession. 

Section 43A is a non-obstante clause which overrides all the other provisions of the Act and the tax treatment prescribed in this section has to be adopted irrespective of the method of accounting followed by the taxpayer.

The conditions required to be satisfied for attracting the provisions of section 43A of the Act are as follows:

  a. The taxpayer should have acquired an asset from outside India;

  b. The increase or reduction in the liability should be in relation to the cost of asset or towards repayment of money borrowed, including interest, specifically for acquiring the asset; and

  c. The increase or reduction in liability is at the time of making the payment. 

The increase or decrease as stated above shall be adjusted towards:

  1. Actual cost of the depreciable asset as defined in section 43(1) of the Act;

  2. Amount of capital expenditure as referred to in section 35(1)(iv) (for scientific research related to business of the taxpayer)

  3. Cost of acquisition of a capital asset for the purpose of section 48. (Non-depreciable assets)  

The provisions of section 43A of the Act provide for making adjustments to the cost of assets / expenditure only in relation to exchange gain / loss arising at the time of making payment. It therefore refers to realized exchange gain / loss. The treatment of unrealized exchange gain / loss is not covered under the scope of section 43A of the Act. 

Further, where the whole or any part of the liability is not met by the taxpayer but directly or indirectly by any other person or authority, the liability so met shall not be taken into account for the purpose of this section. The section also provides that where the taxpayer takes a forward contract for repayment of the loan with an authorized dealer, the rate specified in the contract would be added to or deducted from the cost of the asset. 

A Co. acquires a capital asset in foreign currency for US $ 10,000 in Financial Year FY 2011-12 (1 US $ = INR 50) which is fully financed by a foreign currency loan. Subsequently the loan is repaid in 2 equal installments in FY 2012-13 (1 US $ = INR 45) and FY 2013-14 (1 US $ = INR 58). 

Initial cost of the asset = 10,000X50 = INR 500,000

Adjustment in FY 2012-13 = 5,000X(50-45) = INR 25,000 which would be reduced from the cost**

Adjustment in FY 2013-14 = 5,000X(58-50) = INR 40,000 which would be added to the cost**

**As per Supreme Court in case of Arvind Mills Ltd held that actual cost referred to in section 43A should be read as “Actual Cost minus depreciation allowed till date”   


Application procedure for fresh IEC (Import Export Code)

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IEC Applications can be submitted in three ways :

1. Filing application Online
2. Application can be submitted in person at office of Zonal
     Jt.DGFT(CLA),New Delhi.
3. Complete application can be sent to our office by post.
    Guidelines for filing online application are given at DGFT        website.

1. How to submit application
Application can be submitted in person by Authorised Representative of the Company at the R & I counters in the office on any working day between 10.00am to 1.00pm Or It can be sent by post/courier. The procedure for submitting IEC application using option 2 & 3 are given below:

2. Mandatory documents with application for IEC
A. For Fresh IEC(Para 2.9 of Handbook of Procedure Vol.I 2009-14):-
1. Covering letter.
2.Authority Letter with photograph authorizing the employee who will be submitting the application at the counter.
3. Application Form (ANF-2A, Part A, B & D) to be filled in and all pages to be signed by the applicant.
4. Application must be accompanied by documents as per details given below:
3.1.1 Bank Certificate as per the Proforma (Part B) in the application. The Banker must certify:-
(a) The details of the a/c including the nature of a/c, the a/c number with date from which the account is maintained by the applicant firm,
(b) Registered/official address of the firm, and
(c) Photograph of the applicant.
The signing official of the Bank must put his/her official name seal with designation and E-mail ID.
3.2(a) In case of Limited companies (both Private and Public Ltd.):
(i) Extract of Board of Resolution in favour of the applicant.
(ii) Memorandum of Association along with Certificate of
(iii) Form 32 in case of change of Directors and Form 18 in case of change of Registered office-wherever applicable.
(b) In case of Partnership firm:
(i) Notarized Partnership Deed showing date of formation of the firm.
(ii) No Objection Certificate from other Partners/HUF.
3.3 Self certified copy of Permanent Account Number Card (PAN Cardboth sides) issued by Income Tax Department. The application for IEC to be made only after obtaining the PAN from the Income Tax Department.
3.4 Two passport size photographs of the applicant.
3.5 Self addressed envelope with Rs. 30 postal stamp.
3.6 Demand draft/Pay Order for Rs. 250/-
B. For Duplicate IEC:-
Please refer Para 2.9 and 2.14 of HBP(Vol.I)-2009-14(updated on 23.8.2010).
Documents to be submitted:-
1. All documents as applicable for fresh IEC
2. In addition, an affidavit as per Appendix 24. (Click here for Format)
3. Copy of FIR
4. Demand draft/Pay Order for Rs. 200/-
C. For modification of existing IEC:-
1. Application form Part A, C & D to be filled in and all pages of the application to be signed.
2. Proof of change of name/address/branches/constitution of Ltd. companies etc.(Form 32/Form 18)
3. Fresh Bank certificate certifying the detail of the bank A/c, registered address, and photographs of the applicant in case of change of applicant(whose photo is to be affixed in the IEC)
4. Demand draft/Pay order for Rs. 1000/- for modification of existing IEC in name, constitution, address is made within 90 days from such change then no fee is required to be paid.

3. Fees:
? Rs. 250/- for Fresh IEC
? Rs. 200/- for duplicate IEC
? Rs. 1000/- for modification of existing IEC in name, constitution & address, if the application is submitted after 90 days from such change. (If application is submitted within 90 days no fees is charged for modification in IEC).
The amount should be in the form of Demand Draft/Pay order from any designated bank in favour of Zonal Joint Director General of Foreign Trade, (CLA), New Delhi. Treasury Receipt from the following designated Central Bank of India branches is also accepted ? Udyog Bhawan, New Delhi – 110011
? 10, Community Centre, Lawrence Road, Delhi-11035
? 18/4, Asaf Ali Road, New Delhi – 110001
? 55, Madhubani, Nehru Place, New Delhi-110019.
C. Counter Assistance:-
The staff at the IEC counter will check the documents as per the check list, which need to be filed by him/her. If the documents are not sufficient, then he/she will return the application there and then.

4. Processing of Application
The application can be submitted at the counter in person at the office or it can be sent through Post/Courier. An acknowledgement in form of a receipt having File Number is generated on receipt of application. The file number is used for any correspondence/query regarding the IEC application submitted to the office. The application is then sent to IEC section where it is processed. If the application is found complete in all aspects (as per requirements prescribed) an IEC is generated, or else a deficiency letter stating the nature of deficiency is prepared and sent to the applicant. Replies are awaited in cases where deficiency letter is issued and after due compliance by the applicant the IEC is allotted.

5. Issue and Despatch of IEC
IEC allotment letter is sent through post at the registered office mentioned by the applicant in the application. Similarly deficiency letters are sent to applicant by post.

6. IEC application status available on the website of CLA
( )

7. The BIN (Business Identification Number) number generated by the customs
authorities can be viewed on:

8. Help contact
PBX No. Tel-011-23379111, 23379112, 23379113
e-mail :
Public Relation Officer - 23378740


Implementation of Investment Accounting in Tally ERP 9

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As you know in tally we don’t have an inbuilt feature that could be used to maintain the share transactions. Most of the traders depend upon boring spreadsheets or the statements issued by the brokers for computing capital gains. But tally or excel is like a plain paper you can draw out anything on it.

Similarly, stumbled upon this idea of using the inventory feature in tally for maintaining the stock transactions. 
We fell it is good for accounting. Here is what you have to do.

Make sure that ‘accounts with inventory’ is selected.
In case you already have created a company use alter [F3] feature on gateway of tally to alter.

a) Creating broker’s account: Here we will create a broker account, We can create this account either as a ‘Sundry Debtor’ or as a ‘Sundry Creditor’. Here I am creating it as a sundry creditor.

a) Similarly create “Sale of shares account” under “Sales Account” & “Purchase of Shares Account” under “Purchases Account”
b) Create “Brokerage & Other Charges Account” under “Direct Expenses”
c) Create “Bank Account” for payment/receipt of money to the broker.

Once the ledgers are done we will have to create the inventory masters.
a) First step in creating inventory masters is creating unit of measure i.e. Nos. The navigation path is as follows ‘Inventory Info.’ > ’Stock Items’ > ‘Units of Measure’ >’Create’
b) On creating Unit of Measure we can start creating Stock Items. 
The navigation path is as follows ‘Inventory Info >’Stock Items’ > ’Create’
You can similarly create any number of shares. Once creation of masters is done we can start passing the transactions.

a) To start with we will pass a purchase voucher
b) Next we will pass the sales voucher
c) This is how your Profit & Loss Account will look like

The gross profit discloses the capital gains one has earned.
This is only for the basic understanding of the readers.


What is Form 16B ? FAQ on Form 16B

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1. What is Form 16B?
Form 16B is the TDS certificate to be issued by the deductor (purchaser/buyer of immovable property) to the deductee (Seller of immovable property) in respect of the taxes deducted on the sale of immovable property and deposited into the Government Account.

2. Who can download Form 16B?
Only a purchaser/buyer, who is registered on TRACES as tax-payer can download Form 16B, using unique acknowledgment number generated while filing of Form 26QB (statement cum challan form).

3. From where will I get the Form 16B?
Buyer/ Purchaser of immovable property can download Form 16B after registering on TRACES as Tax Payer.
4. What is the procedure to generate the Form 16B?
Form 16B shall be generated by TDS-CPC on processing the Form 26QB (statement cm challan form) filed by buyer. Following are the steps to generate form 16B:
Buyer has to register on TRACES as Taxpayer.
Login to TRACES as tax payer and submit download request for Form 16B under ‘Downloads’ tab. File will be available under ‘Requested Downloads’ in ‘Downloads’ tab.
Form 16B will be generated in PDF file and password to open this file is date of birth of the buyer in ddmmyyyy format i.e. if the date of birth is 4th October 1976, password would be 04101976.

5. While downloading Form 16B from TRACES, Is there any restriction on the number of request that user can place?
There is no restriction on the number of requests that buyer/purchaser can place simultaneously for different Forms 16B pertaining to different sellers.

6. Can I download Form 16B without acknowledgement number?

7. I have lost 9 digit alphanumeric acknowledge number which was generated while filing form 26QB. Now from where can I get acknowledgement number to download form 16B?
It is advised to note down the acknowledgment number. However, in case if it is lost, the acknowledgement number is also be reflected in Part ‘F’ of Form 26AS of the buyer and Part ‘A2′ of Form 26AS of the seller.

8. Is there any provision in Income tax act 1961 or Income tax Rules 1962 format for Form16 B?
Form 16B is issued as per the provisions of Rule 31(1) of Income tax Rules 1962.

9. I have deducted TDS on property along with education cess. However, Only TDS on property amount is reflecting in Form 16B and not the amount of education cess. Why?
No surcharge and education cess is applicable while deducting tax on sale of property. Deductor/buyer is required to deduct only income-tax @1% on entire transaction amount. If surcharge and education cess is deducted, same will not reflect in Form 16B.