Increase in turnover limit for Tax audit applicability whether free from complexity? What are the twists involved in it?

Turnover limit for tax audit increased to Rs.10.00 crores. Whether beneficial provision? What are the twists involved in it?

Let us try to understand the complexity involved it the said provision and things to be taken care by the assessee.

Section 44AB of Income tax Act, 1961:

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 one crore rupees in any previous year

[Provided that in the case of a person whose—

(a)  aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount; and

(b)  aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment,

this clause shall have effect as if for the words “one crore rupees”, the words “ten crore rupees” (for AY 2021-22 and onwards) had been substituted;

“Provided further that for the purposes of this clause, the payment or receipt, as the case may be, by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt, as the case may be, in cash.”.

So the condition mentioned in proviso if fulfilled the assessee will not be required to get its accounts audited.

What are the things to be taken care from the side of the assessee:

– For an assessee who is required to get its books of accounts audited under any law, the due date of filling of Return of income for him will be 31st October of the next year.

– For an assessee who is not required to get its books of accounts audited under any law, the due date of filling of Return of income for him will be 31st July of the next year.

Now an assessee having turnover upto Rs.10.00 crores, while determining whether he is required to get its books of accounts audited or not have to carefully verify the above conditions. He has to verify:

– Out of total receipts 95% or more is through banking channel and those which are received through cheques or Demand drafts, whether the same is account payee cheques or DDs and

– Out of total payments 95% or more is through banking channel and those which are paid through cheques or Demand drafts, whether the same is account payee cheques or DDs

– The assessee has to keep proper record of receipt and payment through cheques or DD that those are accounts payee cheques or DD. Because at any stage of assessment or verification it will the assessee who will be required to prove that these transactions were through Account payee cheques or DD

– What happen if an assessee to be at a safer side gets its accounts audited without verifying the above conditions?

The above conditions are mandatory requirements i.e. if those conditions are fulfilled then there is no requirement of getting books of accounts audited.

If an assessee eventhough not required, still get its books audited there is no ban on it. But in that case also its due date for filling of Return of income will remail 31st July only and not 31st October.

So many a times the professionals and assessee do not take care of these proviso and gets the books audited and thinks that since the books are audited so due date of ROI will be 31st October automatically.

Its not like that and by this may cause damage to the assessee if it is not required to get books audited and if has filed ROI after 31st July. The damages may be:

i. It may suffer interest u/s 234A

ii. If tax is payable, late fees may be leviable u/s 234F

iii. If there are losses to be carried forward, it will not be allowed

iv. Certain exemptions u/s 54 to 54F allowed only if return is filed within due date

So simply by getting books audited (even if not liable) may cause above damages to the assessee.

On the other hand the assessee (having turnover uptp Rs.10.00 Cr) on the basis of assumption that 95% or more receipts and 95% or more payments are through banking route so audit is not required, is now required to verify further that receipts or payment which are through cheuqes or drafts are account payee cheques or account payee drafts. In case of bearer or crossed cheques the same will b treated as through cash so it will not be considered for 95% criteria. So in such situation there may be requirement of getting books audited and if assessee fails to get the same audited he may be liable for penalty for non compliance of audit provision.

Suggestions to Banks:

As discussed earlier that it will be the responsibility of the assessee to prove that receipts or payments through cheques or DD are account payee. Now if bank statement all the banks have difference mechanism for recording entry. In statement some banks shows name of party in statement, some shows clg. (clearing). So it is not possible to identify from statement whether it is account payee or otherwise.

So RBI should come up with a standard data entry system for all banks. There should be a mechanism / tab at the time of making entry in banking software to select whether a transaction is through RTGS / NEFT / Account payee cheque / etc. and whatever option selected should be reflected in the statement provided to the customer. This will make things easy in compliance and will be a reliable document before any government authority.

At the end it is the professionals who has to guide their clients properly so as to avoid any such damage to their clients.

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