There is lots of confusion in mind of professional or accountant that when they have to get their client account audited due to different slab under section 44AB and 44AD?

As per section 44 AB every person require to get their account audited from accountant in following condition

(a) Total sales or 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 “five crore rupees” had been substituted; or]

Every person require to get their account audit if total sales or turnover or gross receipts exceed or exceeds 1 CR or 5 CR( if condition fulfill). However, the term “sale”, “turnover” or “gross receipts” are not defined in the Act and therefore the meaning of the aforesaid terms has to be considered for applicability of the section.

The CGST Act, 2017 define aggregate turnover means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess;

In the “Guidance Note on Terms used in Financial Statements” published by ICAI, “the expression “Sales Turnover” has been defined as: “The aggregate amount for which sales are effected or services rendered by an enterprises.

In the statement issued by ICAI on the CARO the word ‘turnover’ has been defined as under-

The term ‘turnover’ for the purposes of this clause may be interpreted to mean the aggregate amount for which sales are effected or services rendered by an enterprises”

Now there is question what to be include or exclude from the figure of sale for the purpose of Section 44AB?

In my opinion until the CBDT clarifies its stand on this matter, it appropriate to take turnover without Amount of GST and As per Definition of aggregate turnover in The CGST Act, 2017 excludes Central tax, State Tax, Union Territory Tax, Integrated Tax and Cess.

Discount on sale which is shown in invoice can be deduct from the amount of sales or turnover as they are shown in invoice and same allowed under GST.

Sales return can be deducted from sales or turnover as per “Guidance Note on Terms used in Financial Statements” published by ICAI used the word SALES ARE EFFECTED so in my opinion sales return can be deducted from sales even if sales not related to current year.

What if assesse have more than one business we have to consider each business as separate business and turnover for 1 cr or 5 cr available for each business?

Turnover under Section 44AB is assessee wise not business wise, As per the language of section we have to calculate turnover of all business altogether means if assessee have more than one business than we have to count limit of 1 cr or 5 cr aggregating turnover from all businesses.

While consider transactions in Cash for the purpose of higher turnover limit  we have to consider only cash sale and cash payment ?

Proviso to this section says that if all our receipts during the previous year in cash does not exceed 5 % of total receipt and all our payment during the previous year in cash does not exceed 5 % of total payment, than the limit for compulsory audit is RS. 5 CR.

Now there is a point which we all have to keep in mind that the Proviso has used the word receipts and payment so it not only include sale or purchase or expenses its include all receipts and payment irrespective of nature.

(b) carrying on profession shall, if his gross receipts in profession exceed fifty 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 44AE or section 44BBor 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 previous year; or

Section 44AE is about computation of income on estimated basis in case of taxpayer engaged in the business of plying, leasing or hiring trucks

Section 44BB is about computation of income on estimated basis in case taxpayer, being a non-resident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils.

Section 44BBB is about computation of income on estimated basis in case taxpayer, being a foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government.

(d) carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year; or

(e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,

To understand this point, first we have to understand the Section 44AD(4). Section 44AD(4) stated that if any eligible assessee declares profit as per section 44AD in a particular assessment year and then he declares profit lower than 8%/6% in any 5 consecutive years subsequent to that assessment year, than he will not be eligible to claim benefit of section 44AD for five consecutive subsequent assessment years.

Let’s take an example. an assessee claimed benefit under section 44AD for A.Y. 2018-19 , 2019-2020 and 2020-21 now in A.Y. 2021-2022 he declared income lower than 8%/6% ,than he will not  be eligible to claim benefit of section 44AD for subsequent five consecutive assessment years that is A.Y. 2022-2023 to 2026-2027.

In the above circumstances, respective assessee has

To maintain books of account as per section 44AA (irrespective of income or turnover), if his total income exceeds the exemption limit

And

He will have to get his books of account audited under section 44AB (irrespective of income or turnover) if his total income exceeds the exemption limit. This is applicable even if he declares income from business higher than 8% or 6% as applicable in the year he fall under section 44AD(4).

Due date for getting books audited/submission of audit report and form no.

Different taxpayers Audit From No. Statement Particulars Due Date for getting books audited and for uploading audit report
In case of a person who carries on business or profession and who is required by or under any law to get his account audited Form No. 3CA Form No. 3CD One month prior to due date of furnishing return of income under section  139(1)
In case of a person who carries on business or profession but not being a person referred to above Form No. 3CB Form No. 3CD One month prior to due date of furnishing return of income under section  139(1)

Time limit for filling return of income under section 139(1) is 31st October.

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Disclaimer: The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. All Content in the article is the information of a general nature and does not address the circumstances of any particular individual or entity.

Author Bio

Qualification: CA in Practice
Company: RATHOD MUNDRA & CO.
Location: Surat, Gujarat, IN
Member Since: 23 May 2020 | Total Posts: 2

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2 Comments

  1. Ankur Khabani says:

    Dear Vishal ji,

    Time limit for Tax Audit for the FY 2019-20 is 31st October whereas Time limit for filling return of income under section 139(1) is 30th Nov. 2020 and not 31/10/2020.

    1. Vishal Mundra says:

      Dear Ankur Ji,
      Thanks for your attention and agreed the time limit for filling return of income for F.Y. 2019-20 is 30 NOV. 2020 (which is Extended due To COVID-19) but i have written this article not specifically for one financial year.

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