44AB

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Elavarasi (Querist)

10 October 2019 TAX AUDIT U/S 44AB TURNOVER PLEASE EXPLAIN,
1)HAVING SALES RS.50L PLUS CLOSING STOCK RS. 65L, TOTAL RS. 115L
2)HAVING SALES RS.0, PURCHASE RS,3.5CR, SO SHOWING CLOSING STOCK RS.1.5CR

CA Prabhat Kumar Makhija

CA Prabhat Kumar Makhija (Expert)

11 October 2019 A person is required to get his accounts audited u/s 44AB if TURNOVER of business exceeds Rs 100 Lakhs, or In case of Profession Gross Receipts exceed Rs 50 Lakhs.
In the “Guidance Note on Terms used in Financial Statements” published by ICAI, “the expression “Sales Turnover” has been defined as: “The aggregate amount for which sales are effected or services rendered by an enterprises.

In simple terms, 44AB is based on turnover. It has nothing to do with purchases or closing stock.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

06 July 2024 Tax audit under section 44AB of the Income Tax Act, 1961 is mandatory for certain taxpayers whose turnover or gross receipts exceed specified thresholds. Here’s an explanation based on the scenarios you provided:

### Scenario 1:
1. **Sales: Rs. 50 lakhs**
2. **Closing Stock: Rs. 65 lakhs**

**Calculation:**
- **Total Turnover/Gross Receipts:** Sales + Closing Stock
- Total Turnover = Rs. 50 lakhs + Rs. 65 lakhs = Rs. 115 lakhs

In this case:
- The turnover or gross receipts amount to Rs. 115 lakhs (Rs. 1.15 crores).
- Since the turnover exceeds Rs. 1 crore (for business), tax audit under section 44AB is mandatory.

### Scenario 2:
1. **Sales: Rs. 0 (Nil)**
2. **Purchase: Rs. 3.5 crores**
3. **Closing Stock: Rs. 1.5 crores**

**Calculation:**
- **Total Turnover/Gross Receipts:** Purchase + Closing Stock
- Total Turnover = Rs. 3.5 crores + Rs. 1.5 crores = Rs. 5 crores

In this case:
- The turnover or gross receipts amount to Rs. 5 crores.
- Since the turnover exceeds Rs. 1 crore (for business), tax audit under section 44AB is mandatory.

### Explanation of Tax Audit under Section 44AB:
- **Applicability:** Tax audit under section 44AB is applicable to taxpayers whose turnover or gross receipts from business exceed Rs. 1 crore in a financial year.
- **Consequences of Non-Compliance:** Failure to get accounts audited as per section 44AB can attract penalties under section 271B of the Income Tax Act.

### Key Points:
- **Turnover Definition:** Includes sales, gross receipts, or turnover of business.
- **Threshold Limit:** For businesses, the threshold for tax audit is currently Rs. 1 crore for AY 2023-24 (FY 2022-23).

In both scenarios provided:
- Tax audit under section 44AB is mandatory due to the turnover exceeding Rs. 1 crore, even though sales may be nil or lower than the purchase or closing stock figures. It's crucial to ensure compliance with tax audit requirements to avoid penalties and ensure adherence to tax laws.

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