LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Audit u/s 44ad

NEHA PATEL (Assistant Article) (62 Points)

26 November 2015

A firm making loss so i want to know that if it's required to audit U/S 44AD?

Reply
Follow
Share

15 Replies

Piyush Tanwar (Assistant Manager - Accounts) (1432 Points)
Replied 26 November 2015

since there is no income, therefore it does not exceed the maximum amount not chargeable to tax and so the second condition mandating tax audit u/s 44AB r/w section 44AD is not satisfied and therefore the assessee is not required to get the accounts audited u/s 44AB.

Thanx & Regards

Piyush Tanwar

M - 9717468521.

NEHA PATEL (Assistant Article) (62 Points)
Replied 26 November 2015

Thank You !!!

CA Mohit Kumar (accounts,taxation) (855 Points)
Replied 26 November 2015

Agree with piyush,it is right

1 Like

CA Amit Prakash Sharma (Chartered Accountant) (92 Points)
Replied 26 November 2015

Audit is compulsory if you are showing profit less than 8%. Even in case of loss audit is compulsory.

1 Like

Karthik.V.Kulkarni (Chartered Accountant) (594 Points)
Replied 26 November 2015

Sorry to disagree. But even though you have loss and your total income from all sources exceeds max limit not chargeable to tax then you need to get your accounts audited. But your total income includes only loss then you need not get your accounts audited. As yours is a firm it is liable for AMT u/s 115jc and as per those provisions tax shall be paid at 18.5% so if even after amt there is loss then no tax audit is required. But if as per calculation of amt your firm has profit and is positive then you shall be liable for audit u/s 44ab rw sec 44ad. But only if the adjusted total income as per 115jc is less than income as computed u/s 44ad. It is not a simple matter so pls take a call on full facts of the case.

1 Like

Karthik.V.Kulkarni (Chartered Accountant) (594 Points)
Replied 26 November 2015

But above all the firm should be engaged in business.. not in profession or earning commissiob or agency business.. and certain other conditions.. so if the business is an eligible business and assesse is an assesse then only all the above will be applicable.

1 Like

Miss Rinkal (Student) (1304 Points)
Replied 27 November 2015

@ Neha Patel:

Please clarify the following facts:

(1) Is the firm a business firm or a professional firm?

(2) Is the said firm earning in the nature of commission or brokerage income?

(3) Is the business firm carrying an agency business

Now as per Sec 44AD rw Sec 44AB, tax audit is mandatory if both the conditions are satisfied:

(1) The said eligible assessee has declared income below the 8% of the turnover

(Income can be positive or negative. I.e profit or loss. Even loss is referred as income only)

AND

(2) The assessee's total income exceeds the maximum amount which is not chargeable to income-tax,

(I.e. For individual and HUF, If total income exceeds the basic exemption limit. In case of firms, since there is no basic exemption limit, therefore any income chargeable to tax)

1 Like

Ashok J (CA Final) (880 Points)
Replied 28 November 2015

after reading 44 ad once again i understood if profit is less than 8 percent AND total income exceeds bel audit is mandatory...... But my question is in case i hv suffered loss am i not allowed to c/f n set offf next yr????

Ashok J (CA Final) (880 Points)
Replied 28 November 2015

Actually last yr i hv filed a normal return declaring loss...t/o less than 1 cr n loss....no audit....i hv set offf the loss cy..

Miss Rinkal (Student) (1304 Points)
Replied 28 November 2015

@ Ashok J:

Please quote the entire facts in order to analyse whether tax audit is applicable or not?

Raival Sharma (student) (28 Points)
Replied 28 November 2015

AGREED WITH PIYUSH

Tony John (Chartered Accountant) (6085 Points)
Replied 28 November 2015

As per Section 44AD, any deduction allowable under the provisions of Sec 30 to 38 shall be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.

Brought forward losses are governed by Section 72. Hence it can be set off with profits declared u/s 44AD. But unabsorbed depreciation being covered in Section 32 shall not be allowed to be set off with profits declared u/s 44AD.

Tony John (Chartered Accountant) (6085 Points)
Replied 28 November 2015

@ Neha Patel

It is not mandatory to have books of accounts audited u/s 44AB if an eligible asssessee incure losses during the previous year.

For Section 44AB to apply to a 44AD eligible assessee, two conditions are to be satisfied:

1. The profits declared u/s 44AD are below prescribed limits.

2. Total income exceeds the maximum amount which is not chargeable to income tax.

If both the conditions are satisfied, Sec 44AB shall apply to an eligible assessee u/s 44AD. Hence if a firm (assuming it is eligible assessee u/s 44AD) incurs a loss, it is not subject to mandatory audit u/s 44AB since it has not satisfied the 2nd condition mentioned above.

naresh_ca (Post Articleship) (39 Points)
Replied 28 November 2015

the turnover is the crtiria , so if the Turnover is less than 1 Crore it should report at least 8% or more profit if not so, then it should get its books audited u/s 44AB