HC/IN/9/Disputed Dues /11-12

Disclosure of Dues Disputed with various Authorities

Subject:
In the process of assessment as per the provisions of any of the applicable statute, there may arise a dispute between the Client and Government. In such case, it may be possible that the lower authority passes an order in favour of the Client. However, the Department may file an appeal against such order with a higher authority.

Queries raised:
Whether the amount under dispute is required to be disclosed as Contingent Liability as a foot note to the Balance Sheet? Whether the amount under dispute is to be disclosed under Clause 4(ix) (b) of the Companies (Auditors Report) Order, 2003 (CARO)?

Facts / Statute Applicable:

Para 25(b) of Accounting Standard 29 Provisions, Contingent Liabilities, Contingent Assets, issued by ICAI states that, In almost all cases it will be clear whether a past event has given rise to a present obligation. In rare cases, for example in a lawsuit, it may be disputed either whether certain events have occurred or whether those events result in a present obligation. In such a case, an enterprise determines whether a present obligation exists at the balance sheet date by taking account of all available evidence, including, for example, the opinion of experts. The evidence considered includes any additional evidence provided by events after the balance sheet date. On the basis of such evidence: where it is more likely that no present obligation exists at the balance sheet date, the enterprise discloses a contingent liability, unless the possibility of an outflow of resources embodying economic benefits is remote

Clause 4(ix) (b) of the Companies (Auditors Report) Order, 2003 (CARO) reads as follows: In case dues of Income Tax/ Sales Tax/ Service Tax/ Customs Duty/ Wealth Tax/ Excise Duty/ Cess have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned.

For Internal Circulation only

HC/IN/9/Disputed Dues /11-12

This clause requires that in case of disputed statutory dues, the amounts involved should be stated. As per the Para 64(e) of statement of CARO issued by ICAI interalia states that, there may be a situation that the appellate authority has decided a case in favour of the company but the Department may prefer to make an appeal to a higher authority. In such a case, there is considered to be no dispute until the time the Department makes an appeal to the relevant appellate authority.

Conclusion:
Based on the above, it is concluded that in the cases mentioned above, the disputed dues: Should be disclosed under Contingent Liability as a foot note to the Balance Sheet. It is the responsibility of the Auditor to disclose the disputed statutory dues under Clause 4(ix) (b) of the CARO.

For Internal Circulation only