Tax Audit – Section 44AB – Applicability, Due Date, Forms & Penalty

Due date of filing Income tax return for assessee who are liable to get their books of accounts audited is 30th September of the Assessment year. Since the due date is nearing, lets get some points refreshed on section 44AB related to Tax Audit.

1. Compulsory Tax Audit

Who has to get his accounts audited under Income Tax Act compulsorily:

1. A Person carrying on business is required to get his books of account compulsorily audited u/s 44AB If the total sales, turnover or gross receipt in business for the previous year relevant to assessment year  exceeds Rs. 1 Crore but business whose gross turnover/receipt does not exceeds Rs. 2 Crore are eligible to take benefit of Presumptive Scheme under section 44AD.

2. A person carrying on profession is required to get his books of account compulsorily audited u/s 44AB, if his gross receipts in profession for the previous year relevant to the assessment year exceeds Rs 50 lakh

3. A person covered u/s 44AE, 44BB or 44BBB is required to get his books of account compulsorily audited u/s 44AB if such person claims that the profits and gains from the business are lower than the profits and gains computed under these sections (irrespective of the turnover)

4. A person covered under Section 44AD is required to get his books of account compulsorily audited u/s 44AB if such person claims that the profits and gains from the business are lower than the profits and gains computed in accordance with the provisions of section 44AD(1) and if his income exceeds the maximum amount which is not changeable to tax (i.e basic exemption limit).

However if the total turnover exceeds Rs 2 crore in any previous year, in case of the assessee declaring income u/s 44AD ,the assessee is required to get his accounts Audited U/s 44AB (wef A.Y 2017-18).

5. A person covered under Section 44ADA is required to get his books of account compulsorily audited u/s 44AB if such person claims that the profits and gains from the Profession are lower than the profits and gains computed in accordance with the provisions of section 44ADA(1) and if his income exceeds the maximum amount which is not changeable to tax (i.e basic exemption limit).Tax Audit Limit for Professionals Increased to 50 Lakhs

2. Forms and due date for Income Tax Audit

Forms No. 3CA, Form No. 3CD in case of person who carries on business or profession and who is required by or under any law to get his accounts audited and Form No. 3CB and 3CD, in case of a person who carries on business or profession but not being a person referred to above.

Due date for getting the books audit and filing of return in both the above cases is the due date of furnishing return u/s 139(1) i.e 30th September of the relevant assessment year. Form 3CD is been revised vide Notification 33/2018 dated 20.07.2018 (effective from 20.08.2018)

3. Audit under any other law 

In case where the accounts are required to be audited by or under any other law(as in the case of companies and cooperative societies), it is sufficient if accounts are audited under such other law before September 30 of the assessment year and the assessee obtains before the said date, audit report as required under such law and also a report of audit from a chartered accountant in the audit forms under Income Tax Act i.e Forms No. 3CA, Form No. 3CD

4. No penalty u/s 271B if audit report furnished within due date but return filed after due date

If the assessee gets his account audited u/s 44AB and furnish the said report as required,than penalty u/s 271B shall not be levied though the return of income is filed after the due date specified u/s 139(1).

5. Quantum of Penalty for failure to get accounts audited within due date 

If any person fails to get his accounts audited as required under the provisions of section 44AB before the due date u/s 139(1), the AO may impose penalty which may be a sum equal to one-half percent of the total sales, turnover or gross receipts subject to a maximum of Rs. 1.5 Lakh.

5. Section 44AB applicable to only business Income

Section 44AB provisions are applicable only in the case of business/profession income. It is not applicable in respect of other incomes-Thai Constructions v. State of Maharashtra[2009] 184 Taxman 52 (Bom.).

Turnover in case of  broker: Transactions by a share broker of sale or purchase of shares on behalf of parties cannot amount to ‘sale turnover or receipt’ of share broker himself within the meaning of section 44AB-CIT v Hasmukh M. Shah[2003] 85 ITD 99 (Ahd.)

6. Work-in progress does not constitute ‘turnover’ within the meaning of section 44AB

Value of work in progress in case of the assessee engaged in construction of shop/flats would not constitute ‘turnover’ within the meaning of section 44AB-CIT v B.K Jhala & Associates [1999] 69 ITD 141 (Pune).

(Author – Amit Bajaj Advocate, Bajaj & Bajaj Advocates, 128, Sangam complex, Milap chowk, Jalandhar City (Punjab), Email: amit@amitbajajadvocate.com, M +919815243335)

(Republished With Amendments)