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AUDIT U/S 44AB

HITESH (CA STUDENT) (50 Points)

22 September 2009

01) If Purchase is more than 2 Crore and Sale is only 18 lacs than the Tax Audit Under Section 44AB is applicable or not?

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17 Replies

CA Devanshi Gandhi (Ajani) (FCA DISA Mcom CIFRS & LLB) (9058 Points)
Replied 22 September 2009

HITESH (CA STUDENT) (50 Points)
Replied 22 September 2009

Originally posted by :CA Devanshi Gandhi
"	no	"

But Why, what is the meaning of Turnover?

Krutesh Patel (ACA) (727 Points)
Replied 22 September 2009

Yes. as per guidline of ICAI turnover means purchase if it is more than sales.

Ratan Deep Saxena (Asstt Manager (Accounts & Finance)) (2998 Points)
Replied 22 September 2009

tax audit will not be applicable.

Rajeev (www.rkmco.com) (985 Points)
Replied 26 September 2009

44AB not attracted , the words which are used are sales , turnover , receipts .

If purchase above 40 lakhs was the intention of the legislature , the words " payment" also had to be added along with receipts.

krutesh , kindly provide me with the guidance note of the ICAI which states that .The term turnover is defined in guidance note as sales turnover . Pls dont mislead , thanks

HITESH (CA STUDENT) (50 Points)
Replied 26 September 2009

Thanks Uday Kiran

Rajeev (www.rkmco.com) (985 Points)
Replied 26 September 2009

uday Kiran , Pls note that the case law provided by you is not in relation to normal purchase turnover . its in relation to turnover relating to trading of shares i think .

it should be noted by all that t/o in trading of shares is defined differently by guidance note itself .

In all businesses other than trading of shares , turnover wont mean purchase turnover .

Uday atleast read the case law before posting .

DR GAURAV GUPTA FCA, FCS, LL.B (COMPANY SECRETARY) (1046 Points)
Replied 28 September 2009

IN GENERAL BUSINESS TURNOVER MEANS ONLY SALES SO IF SALES IS LESS THAN 40 LAC THEN NO TAX AUDIT IS REQUIRED

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Sunil (Trader) (2611 Points)
Replied 28 September 2009

Do not forget that your purchase will finally be reflected as a closing stock along with sales etc. I think you should audit. It is a receipt of materials after all. If you receive advance payment that is also counted.

Rajeev (www.rkmco.com) (985 Points)
Replied 29 September 2009

NO sunil , i think your interpretation is wrong , Purchases above 40 Lakhs and Advances above 40 lakhs dont attract 44AB .

Sunil (Trader) (2611 Points)
Replied 02 October 2009

Rajeev,

If Sales, Turnover and gross receipts of business exceeds 40 lakhs then there is audit. Advance money against future sale is a receipt and therefore counted for Section 44AB. If you treat the advance as a loan you will have to repay the loan by a/c payee's cheque or draft only. Section 269T does not allow you to repay a loan by invoicing. Read Section 269T carefully for other than companies. If you treat advance as a loan, no problem. If you treat it as an advance for future sales of materials that willbe adjusted by invoicing, it is your RECEIPT and included in the turnover.

If your purchase is 2 crores for capital account, I do not see a problem. However if it is for your stock in trade a purchase of 2 crore is a RECEIPT of something that is a revenue item. Therefore it is includible only if it is a closing stock item. If it is not a closing stock item and is sold, it cannot be counted twice as it is already in the sales turnover.

As the word receipt is not defined anywhere you will have to take the various dictionary meanings. Therefore please test meanings and definitions from everywhere and satisfy yourself that the purchases should not be falling under receipts. After all you are signing a delivery challan for receipt of something that is a revenue item and will be a part of your turnover in future.

anoop (chartered accountants) (38 Points)
Replied 02 October 2009

Dear hitesh,

as per income tax act 1961:

44AB. Every person,

(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds forty lakh rupees in any previous year ; or

(b) carrying on profession shall, if his gross receipts in profession exceed ten lakh rupees in any [previous year; or

(c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under [section 44AD or section 44AE or section 44AF] [or section 44BB or section 44BBB], as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any ^51a[previous year,]] ⁵²[***]

in above turnover include purchase also so Definitely yes and you can take help of given below case law

The expression turnover in sec 44AB denotes purchases or sales. Therefore if his purchases exceed he is liable for 44AB audit

CIT v VIJAY MAHESHWARI (HUF) [1997] 228 ITR (st.) 157 (SC)

Sunil (Trader) (2611 Points)
Replied 02 October 2009

Thats it. Good job Uday. The only reason I elaborated is that whatever it is the transaction has to be counted only once. If purchase of Goods is 19 lakhs and Sold for Rs. 22 lakhs after value addition, the turnover or sales is only 22 lakhs and not 41 lakhs, because the purchase of goods cannot be counted twice (independtly as well as a component of sales). Therefore the closing stock test is applicable. Say someone buys goods worth 2 crores and says that 1.8 crore is destroyed,still it will be under audit if he claims loss. It is under audit even if you receive from insurance company. therefore you must first test all facts and then decide if the limit of 40 lakhs is crossedor not before determining NOT TO DO THE AUDIT.