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CA. Gautham Raj’s

Reads.....
ACCOUNTS AND AUDIT | GST | INCOME TAX | COMPANY LAW

24th November, 2019

CA GAUTHAM RAJ | + 91 72078 96589 Reads.....

(flagship journal of MGRnCo.)
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ABOUT THE AUTHOR

M. Gautham Raj is a practicing Chartered Accountant holding degree in commerce.

His vast knowledge in Accounting, Auditing, Direct and Indirect Taxes, Company law
and other allied laws has lead him to start a weekly journal named “Reads.....”.
His objective with regards to the journal is to educate the Readers..... on various
provisions of the law and its applications and also to keep updated with the notifications, circulars
and amendments on weekly basis, which lead the Readers..... in compliance of the
law .
He is also the founder of firm M/s M Gautham Raj & Co. having office in Hyderabad.
Every feedback and responses shall be considered and shall be taken careof in the following issue of
the journal.
He can be reached at the following mail address: mgr_co@yahoo.com and
masaigauthamraj@gmail.com .

Happy Reading.....

TEAM

Reads.....

CA GAUTHAM RAJ | + 91 72078 96589 Reads.....

(flagship journal of MGRnCo.)
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Restriction of Input Tax Credit upto 20% - Accounts and
Audit Perspective
INTRODUCTION:

With reference to MOF vide notification no. 49/2019 - Central Tax dated 09th October, on
insertion of sub-rule (4) in rule 36 on Documentary requirements and conditions for
claiming Input Tax Credit. The sub rule is reproduced as follows:
"(4) Input tax credit to be availed by a registered person in respect of invoices or debit
notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section
37, shall not exceed 20 per cent. of the eligible credit available in respect of invoices or debit notes
the details of which have been uploaded by the suppliers under sub-section (1) of section 37".
Previously, in Sec 16 of CGST Act, 2017, the assessee was eligible for entire credit
however, With the insertion of the aforesaid rule, assessee shall be eligible to claim upto
20% of the eligible credit available in respect of invoices uploaded by the suppliers
through FORM GSTR 1.
However complexity arises in recording the transactions in the books accounts and its
auditing. The question arises as to whether the entire Input tax available in the books of
accounts shall be claimed as credit or to defer the same to the further period.
This article deals with the accounting and auditing aspects in compliance with the
aforesaid notification.
Considering the following example for accounting purpose-
Example: A taxpayer “R” receives 100 invoices (for inward supply of goods or services)
involving ITC of Rs. 10 lakhs, from various suppliers during the month of Oct, 2019 and
has to claim ITC in his FORM GSTR-3B of October, to be filed by 20th Nov, 2019.
Suppliers have furnished in FORM GSTR 1 80 invoices involving ITC of Rs. 6 Lakhs as on
the due date of furnishing of the details of outward by the suppliers.
Journal Entries:
a. Purchases made:
Particulars Debit Credit
a. Purchases a/c …Dr Xxx
GST Input a/c …Dr 10,00,000
To Creditors a/c xxx

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(flagship journal of MGRnCo.)
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b. While filing the GSTR 3B only Rs. 7,20,000/- is eligible to be claimed for that month
i.e( Rs. 6,00,000 + 1,20,000 (Rs. 6,00,000 * 20%)) and the balance of Rs. 2,80,000 is to
be deferred for the following period
Particulars Debit Credit
GST Deferred Input a/c …Dr 2,80,000
To GST Input a/c 2,80,000

Comments: It is better to transfer the input tax credit to separate account named deferred Input
credit than letting the balance accumulate in the GST Input account and finding it difficult to
reconcile the un-uploaded suppliers.
MATTER HAVING MOST SIGNIFICANCE
All significance has to be given to Sec 18(2) of CGST Act, 2017 that prescribes the time limit for
entitling the input tax credit, the same is reproduced as follows :
“A registered person shall not be entitled to take input tax credit under sub-section (1) in
respect of any supply of goods or services or both to him after the expiry of one year from the date
of issue of tax invoice relating to such supply”
Therefore, follow-up of the supplier shall also be one of the task to be marked in the
calendar for being entitling the remaining of 80% of the Input Tax Credit.

KEY AUDITING ASPECTS OF INPUT TAX CREDIT

As can be seen from the above, Current scenario for availing of input tax credit involves
more complexity and requires the assessment of the profile of the supplier not only with
regard to payment terms and the quality of the product but also with respect to the
compliance of the provisions of the law. Following are the key areas of judgements and
estimates that are required:
1. Invoice Validity: The requirement of payment on taxes only if indicated in the
invoice along with specified particulars. Also, confirm that all invoices where credit
has been taken are available for verification and preserved properly.
2. Review the nature of services and goods: The nature of expenses incurred to
ascertain GST impact and to assess GST credits. Any goods and services used in
furtherance of business are eligible for credit other than those are blocked All major
value of inputs, capital goods and services need to be identified.
3. Review of expenses liable for GST under RCM: Ensure whether the item falls
under the list prescribed u/s 9(4) of CGST Act, 2017, and ensure whether GST paid
on RCM has been availed as input tax credit in the following month return.

CA GAUTHAM RAJ | + 91 72078 96589 Reads.....

(flagship journal of MGRnCo.)
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4. Review if payments made within stipulated time for taking credit: There is a time
limit for payment to vendors within 180- days. If it exceeds, ITC needs to be
reversed with interest, however an amendment for without interest reversal has
been proposed for amendment in the CGST Bill. On payment to the vendor is
made, the credit can be claimed back.
5. Review of debit notes and credit notes on sampling basis: This is to ascertain the
impact on ITC: To confirm that the credit be availed only if receiver/ customer had
reversed the credit.
6. Review of import documents, job work inward invoices, stock transfer inward
invoices, etc. Some of these may not be accounted in the system as they are not
financial entries but have an impact on ITC.
7. Review of goods issued free of cost or as samples: At times the value of such FOC
supplies may have to be included in the final supply at which time if the credit of
such FOC is lost it may not be competitive as credit in between has been lost.
8. Review of TRAN-1, TRAN-2 filed: This is to be confirmed with what was eligible
and if any excess availed to be reversed. If short availed disclosure could be made
as last date is over.
9. Claim do not exceed the eligible amount available: It is to be confirmed that the
remaining amount of credit (i.e. 80%). Also as per the clarification given by the
department, it is said that if the supplier has uploaded the invoices upto 83% of the
total invoices 100% of the credit can be claimed by the recipient. [ref circular vide F.
No. CBEC – 20/06/14/2019 – GST dated 11th November, 2019 point 5 case 1]

CA GAUTHAM RAJ | + 91 72078 96589 Reads.....

(flagship journal of MGRnCo.)
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SABKA VISHWAS (LEGACY DISPUTE RESOLUTION)
SCHEME, 2019

Ms. Nirmala Sitharaman, while presenting the Finance Budget on 05.07.2019 announce a
new scheme called as Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019. As there
have been more than Rs. 3.75 lakh crore blocked in litigations in service tax and excise.
And there is a need to unload this baggage and allow the business to move on. So that
this will allow a quick closure of these litigations.

A. Objectives
1. The scheme is a one time measure for liquidation of past disputes of Central Excise,
service tax and other laws prescribed, within 4 months from 1st September, 2019 (
valid upto 31st December, 2019).
2. This scheme provides that eligible persons shall declare the unpaid tax dues and
pay the same in accordance with the provisions of the scheme.
3. The scheme provides immunities including penalty, interest or any other
proceedings including prosecution to those persons who pay the declared tax dues.

B. Eligibility Criteria
Cases Covered Cases Excluded
A show cause notice or appeals arising out Cases in respect of excisable goods set forth
of a show cause notice pending as on 30th in the fourth schedule to the Central Excise
June, 2019. Act, 1944 (this includes tobacco and
specified petroleum products)
An amount in arrears Cases for which the tax payer has been
convicted under the Central Excise Act,
1944.
An inquiry, investigation or audit, where Cases involving erroneous frauds
the amount is quantified on or before 30th
June, 2019.
Voluntary Disclosure Cases pending before the settlement
commission.

C. Benefits

1. Total waiver of interest and penalty.

2. Not liable to pay any further duty, interest or penalty.

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3. Not liable to be prosecuted.
4. No final decision without personal hearing.

D. Releif available under the scheme

S. Releif available under Sec 123 of finance act
No. Tax dues relatable to Amount due <= 50 Lacs Amount due > 50 Lacs
Releif Tax Releif Tax
Payable Payable
1. 70% of the 30% of tax 50% of tax 50% of tax
Show Cause Notice/ Appeal tax dues dues dues dues
2 Show cause Notice for late fees or 100% of Nil 100% of Nil
penalty only late fees/ late fees/
penalty penalty
3 Inquiry, Investigation and Audit 70% of tax 30% of tax 50% of tax 50% of tax
pending against declarant dues dues dues dues
(Amount quantified in such
Inquiry/ Investigation)
4 Voluntarily Disclosed No relief 100% of No relief 100% of
tax dues tax dues
disclosed disclosed
5 Amount in arrears 60% of tax 40% of tax 40% of tax 60% of tax
dues dues dues dues

E. Restrictions on the amount payable under the scheme (Sec 130 of the
Finance Act)
1. The amount cannot be payable through ITC;
2. ITC cannot be payable of the paid amount;
3. Amount paid shall not be refundable;
4. Amount already deposited exceeds the amount payable, then the same shall not
be refunded.

CA GAUTHAM RAJ | + 91 72078 96589 Reads.....

(flagship journal of MGRnCo.)
 ..…
Non-Applicability of Sec 40A(3) of Income Tax Act, 1961 for tax
payer opting Presumptive Taxation

Since there was no payment in cash by the firm to the partners, rather the partners’
capital account was credited by the amount of expenditure paid by the partners on behalf
of the firm; therefore, the disallowance was to be deleted as the same was made without
bringing the necessary facts on record.

Assessee-firm had four partners which had incurred expenditure on behalf of the firm. It
debited the related expenditure account and credited the partner’s capital account for the
respective amount which they paid on behalf of the firm. AO treated the amount as
unexplained credit in the hands of the firm, which was deleted by the CIT (Appeals).
However, CIT (Appeals) treated this amount as in violation to section 40A(3) and thereby
confirmed the disallowance.

It was held that There was no payment in cash by the firm to the partners. Rather, the
partners’ capital account was credited by the amount of expenditure paid by the partners
on behalf of the firm. Thus, there was no payment to a particular person in excess of Rs.
20,000 in violation of section 40A(3). The disallowance was made without bringing the
necessary facts on record for which the onus was on the revenue. Therefore, disallowance
made by CIT (Appeals) by invoking the provisions of section 40A(3) was unsustainable.

Decision: In assessee’s favour.

Ref: DCIT v. Allied Infra Suppliers

CA GAUTHAM RAJ | + 91 72078 96589 Reads.....

(flagship journal of MGRnCo.)