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Tax audit

Rahul Verma (CA-Final) (484 Points)

01 September 2015

Dear Colleagues Have some doubt, kindly resolve As per 44AB, If turnover exceeds Rs 1 Cr. Then person (Firm) liable to get tax audit u/s 44AB. Also a firm can adopt itself under 44AD by showing profit of 8% of total/gross turnover. By adopting this there is no liability on company to get tax audit u/s 44AB. Also firm who claims that his profits and gains from the eligible business are lower than the 8% and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to get them audited and furnish a report of such audit as required under section 44AB. So my question is A firm having total turnover:- 50 Lacs Net Profit :- Nil or Loss Now whether the firm is liable to get its books audited under sec 44AB????

Rahul

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4 Replies

Sultan Mohiuddin (Practicing Chartered Accountant) (56 Points)
Replied 01 September 2015

Yes, If the firm is unwilling to comply u/s AD it should subject itself under audit u/s 44AB.( as specified in the act - 44AB(d)). Refer the link below.

https://www.incometaxindia.gov.in/_layouts/15/dit/Pages/viewer.aspx?grp=Act&cname=CMSID&cval=102120000000041399&k=&IsDlg=0

Amit Bavishi (Student) (1086 Points)
Replied 02 September 2015

Yes, firm is required to be audited. Audit is to be conducted in two cases : 1. Turnover more than limit (1 crore or 25 lakhs) 2. If Profit as per IT Act (Not Accounting Point of view) is less than 8% of Turnover. In your case, firm is not required to be audited bcoz turnover is less than 1 Crore But since profit is nil i.e less than 8% of turnover, the firm is required to get audited.

Anup A Deshpande (Freelancer) (77 Points)
Replied 04 September 2015

If business income is the only source of income then Tax audit is not applicable in your case

Anup A Deshpande (Freelancer) (77 Points)
Replied 04 September 2015

Answers given by others are not entirely correct. Because they are missing one crucial point i.e. section 44AD(5)

See what section says

...

"44(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and WHOSE TOTAL INCOME EXCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TAX, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and GET THEM AUDITED AND FURNISH A REPORT OF SUCH AUDIT AS REQUIRED UNDER SECTION 44AB."

Now, lets apply it to your case, assuming its eligible business, we know that T/O is less than Rs 1 Crore and firm is showing profit less than 8% of T/O (either equilibrium or loss). But that is not the only condition mentioned in sec 44AD(5). From the information given by you it appears that there is no other income. So Firm's Total Income doesnt exceed Maximum amount not chargeabe to tax which is Re 0 in case of Firm since Tax applies from Re 1.

Therefore if there isnt any other source of income thus Total Income doesn't exceed "no tax limit" and consequently Tax Audit is NOT APPLICABLE

I hope it solves your query