Regarding Income Tax Audit

Dear Abhinav

Before answering your query, I am making a few assumptions as follows:

a. Your client is an “eligible assessee” under Sec.44AD and is not specifically eligible under Sec.44AD(6).

b. She/he is carrying on an “eligible business”.

Now based on these assumptions, there can be two cases:

Case 1

Your client had opted to offer income u/s 44AD(1) @ 8%/6%, as the case maybe in any of the preceding years. If so, he has 2 options as follows:

Option 1 – He can offer income @ 8%/6% under Sec.44AD(1) irrespective of his actual profit. If so, he does not have to maintain books as per Sec.44AA(2)(iv) and also need not get his books audited as per 1st Proviso to Sec.44AB.

Option 2 – He can opt not to offer income under Section 44AD(1), then as per Sec. 44AD(4), he will have to maintain his books (Sec.44AA(2)(iv) read with Sec.44AD(5)) and also get his books audited (Sec.44AB(e)) provided total income of such assessee is above exemption limit.

Case 2

Your client has not opted to offer his business income under Sec.44AD(1) in any of the preceding years.

If so, following are the consequences:

a. He has to maintain books of accounts only if his gross turnover, in any one of the preceding 3 financial years, is above Rs.25 Lakhs (this limit is Rs.10 Lakhs if the assessee is a person other than individual/HUF) or his total income is above Rs.2.5 Lakhs (this limit is Rs.1.2 Lakhs Lakhs if the assessee is a person other than individual/HUF) – as per Sec.44AA(2)(i) read with 1st and 2nd Proviso to Sec.44AA(2).

b. He has to get his accounts audited only if his Gross Turnover exceeds Rs.1 Crore during the current year in question – as per Sec.44AB(a).

So, if your client falls under this Case 2, he need not get his books audited as his sales does not exceed Rs.1 Crore.

Regards

Ajay