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Special audit for fiscal 2007

October, 27th 2009
The income-tax (I-T) department has served a notice to DLF Ltd, Indias largest developer by market value, asking it why its accounts for assessment year 2007-08 (fiscal 2007) should not be subjected to a special audit by an independent auditor. In February, tax authorities had ordered a special audit of DLFs accounts for assessment year 2006-07 (fiscal 2006) on suspicion it may have understated sales to lower its tax liability. The audit report recommended that the tax department reassess around Rs1,200 crore as additional income. A senior I-T official said companies are typically given about a month to respond to a show-cause notice, which allows a firm to state its point. The service fee for the special audit would be borne by the taxpayer, he added, asking not to be named because of the sensitivity of the issue. The I-T department calls for a special audit when officials assessing a companys tax returns suspect the tax liability has been understated, he said. In May, DLF said in a notification to the Bombay Stock Exchange (BSE) that it had appealed against the findings of the special audit report on its 2006-07 accounts. If the order were not reversed, DLF might have to pay Rs300-400 crore as contingent liability, it had said in the notification. A DLF spokesman termed the new notice a routine follow-up. The due legal process is on, and our appeal on last years assessment is sub judice in the I-T department. DLF is sure of its facts and figures, which will be duly considered in the appeal. DLF made an initial share sale to the public in mid-2007. Earlier, when the first special audit was ordered, it had said that in fiscal year 2005-06, it had revised its accounting standards as prescribed by the Institute of Chartered Accountants of India from Indian GAAP (generally accepted accounting principles) to the percentage of completion method. This led to DLF realizing an additional profit of Rs314 crore for 2005-06 and taxable income of Rs334 crore. As a stand-alone entity, DLF had paid a tax of Rs114 crore on this, it had said. On Monday, DLFs shares fell more than 5% on BSE to close at Rs430.10.