Income Tax Return Is Different From Average Annual Financial Turnover Document: Gauhati High Court Explains

“The primary purpose of reporting Annual Turnover is to provide a clear picture of a company's revenue-generating capacity. It is often a critical criterion for assessing a bidder's financial strength in tender applications. An Income Tax Return serves to comply with tax obligations and inform the government about the taxpayer's financial status, ensuring accurate taxation based on total income,” Justice Michael Zothankhuma held.

The grievance of the petitioner (an MSME) in this case was that its bid for empanelment as manufacturer and supply of handloom was disqualified on the ground that it did not submit ITR for three previous years, as prescribed under Clause 13(h) of the e-Tender Notice (NIT).

Clause 13(h) of the NIT provided that ITR and annual audited report for the last 3 financial years should be submitted.

The issue before the Court was whether the above said documents would come within the ambit of “Average Annual Financial Turnover”.

The question was essential since Clause 3(e) of the NIT exempts MSME from eligibility criteria of having not less than Rs. 50 Lakhs average annual financial turnover during the last three years.

Petitioners claimed that ITR is proof of Annual Financial Turnover, thus being an MSME it is exempted in terms of Clause 3(e).

The High Court however held that Average Annual Financial Turnover would have to be considered to be different from an Income Tax Return and the exemption given under Clause 3(e) to MSEs does not include within its ambit the ITR.

It reasoned that Clause 3(b) of the NIT, relating to the eligibility criteria of the bidders, shows that besides the Average Annual Financial Turnover, the income tax returns are also to be submitted along with the audited/certified balance sheet.

“Clause 3(e) of the NIT provides for the exemption of submitting turnover…Clause 3(e) in the opinion of this Court, does not exempt the petitioners from filing Income Tax Returns,” it said.

Coming to the difference in the two, the High Court observed,

“Annual Turnover refers to the total revenue generated from the sale of goods or services during a financial year before deducting any expenses. It is a measure of business activity and operational performance. It is focused solely on the sales and revenue generated in the normal course of business. It does not factor in expenses, taxes, or other financial liabilities. Annual Turnover may be reported using different accounting methods (cash or accrual basis) based on the company's accounting policies, but it must be consistent with generally accepted accounting principles.

An Income Tax Return is a formal document filed with the tax authorities that reports income, deductions, and taxes owed for a given financial year. It encompasses various sources of income, including but not limited to turnover. An Income Tax Return includes comprehensive financial details such as total income, allowable deductions, tax credits, and the final tax liability. It may also reflect income from investments or other non-operational sources. Income Tax Returns require adherence to specific tax regulations and formats prescribed by the tax authorities, which may include the inclusion of various forms and schedules.”

Accordingly, the Petitioner's plea for exemption was dismissed.

Appearance: Advocate B. Sharma for Petitioner; Govt Advocate R. Dhar and Advocate DK Nath for Respondents

Case title: M/S Chayanika Handloom Products And Anr v. State Of Assam And 12 Ors

Case No.: WP(C)/4258/2024

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