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Compulsory audit for partnership firm

Vaitheeswaran C (6 Points)

09 August 2016

Dear All,

Plz let me know whether an Audit is compulsory for the following datas of a Partnership Firm:

Buisnees Type : Commission

Gross Receipt/Yr : 2.5 Lakh

After deducting some standard expenes and partner's remuneration ( Rs.1.5Lakhs + Interest), P&L account shows net loss. Kindly clarify.

-Vishan

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7 Replies

CA MANISH BINDAL (CHARTERED ACCOUNTANT ) (535 Points)
Replied 10 August 2016

In case of partnership Firm where profit is less than zero, then there will be no liability for tax audit u/s section 44AD but if profit is more than zero but less than 8% of turnover. Liability of Tax audit will be arise

Prathik Lenin (Chartered Accountant) (60 Points)
Replied 10 August 2016

A partnership firm is considered as a spearate person/assessee for the pursposes of Tax audit u/s 44AB of the Income Tax Act 1961. Where an assessee carrying on business, if his total sales, turnover or gross receipts, as the case may be exceeds one crore rupees in any previous year is required ot get his accounts of such previous year audited by an accountant.

I am assuming that the commission which you have shown is the only receipts of the business and it is of the previous year 2015-2016, in that case tax audit is not applicable.

Also, for determining the limit of gross receipts you won't deduct the expenses.

Further, filing returns is mandatory for partnership firms even if audit is not applicable . (otherwise you won't be able to setoff the losses.)

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Prathik Lenin (Chartered Accountant) (60 Points)
Replied 10 August 2016

Just to add to Mr Manish's view, 44AD is not appliable to a person earning income in the nature of commission or brokerage or a person carryying on any agency business

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CA MANISH BINDAL (CHARTERED ACCOUNTANT ) (535 Points)
Replied 10 August 2016

Thanks prathik ji, Let me correct my point refer above 44AD is not applicable in case of Agency, Commission Income.

Hence with the provision contained in Section 44AB. You are not required to Tax Audit.

Vaitheeswaran C (6 Points)
Replied 11 August 2016

Thanks for giving proper reply for my queries. The end result is no need for tax audit but filing IT return is advisable for my case. Ok. With respect to section 44AD, for any other cases it is applicable only when showing the net profit as atleast 8% from total turnover and pay tax. No deduction allowed except partner's remuneration in case of partnership firms. If we are not ready to show atleast 8% profit then audit is required(section 44AB). If audit is required then book of accounts need to be maintained then only auditors can audit (section 44AA). Then there is no value for section 44AD here. I think we should not see anything thru the prism of section 44AD. Kindly correct my opinion....

monika (audit assitent) (459 Points)
Replied 12 August 2016

but section 44AD not aplied in commision business

Vaitheeswaran C (6 Points)
Replied 12 August 2016

Thanks madam. But that's why I queried as other cases (not my case). I raised doubt why always CAs looking thru section 44 AD even when the tax audit required (section 44AB) and for full filing this one has to maintain books of accounts (section 44AA)...Plz correct whether one has to do as per section 44AA & section 44AB or only section 44AD....Both these should not be mingled.....am i right....