Yesterday we wrote an article on my experience of E-filing of Tax audit report and received a very interesting question – Is there any need to file tax audit report u/s 44AD? I have analyzed the case and framed the following opinion:-
1. A proviso is added to rule 12(2) w.e.f. 01/04/2013 and the same is reproduced as under:-
Provided that where an assessee is required to furnish a report of audit under section 44AB, 92E and 115JB, he shall furnish the same electronically.
It is clear from the reading of the above that for the all the audits conducted u/s 44AB, the audit report is required to be filed electronically.
2. The audit conducted for the dealers covered by “u/s 44AD” who are not showing the required profit, is also conducted under section 44AB and it is evident from the provisions contained in section 44AB (d):-
Carrying on business shall, if the profit and gains from the business are deemed to be the profits and gains of such person under section 44AD and he has claimed such income to be lower than the profits and gains so deemed to be profit and gains of his business and his income exceeds the maximum amount which is not chargeable to income tax in any previous year
Get his accounts of such previous year audited by accountant before the specified date and furnished by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.
3. Section 44AD is a presumptive taxation and the provisions of audit are contained in section 44AB hence all such audits are conducted under section 44AB . No audit is conducted under section 44AD though it is provided in section 44AD that in certain circumstances the assessee has to maintain Books of accounts and get the accounts audit u/s 44AB.
4. Further the return form ITR-4 even in case of assessee covered under section 44AD requires the date of furnishing the audit report and this is a new feature which has been added in the form ITR-4 simultaneously with the addition in the rule 12(2) as mentioned above. If you try to generate the XML file even in case of assessee covered by section 44AD then it will show “error” sign. Though logically it is not very important but it certainly supports the opinion of the authors.
This is our opinion about E-filing of audit report in case of dealers covered under section 44AD who are not showing the required profit. There may be other opinion in this respect but why this confusion is created is being discussed below.
WHY THERE IS A CONFUSION
The Limit of Tax audit per practicing chartered accountant is 45 but the audits conducted for the dealers who are covered under section 44AD are not covered by this limit and there is a confusion when the Chartered accountant upload his 46th report there will be a automatic message that “ you are exceeding the Limit of 45” So if the CA is uploading the reports for the dealers covered under section 44AD he will face the same problem.
I think this is a unnecessary controversy because the Limit is fixed by the ICAI and not by the Government and further if there will be a mechanism then it will also take care of the audits of the dealers covered under section 44AD automatically considering the turnover of the assessee.
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CA Sudhir Halakhandi – CA Abhas Halakhandi
“Halakhandi”, Laxmi Market, Beawar-305901(RAJ)
Cell- 9828067256, E-Mail – sudhir@halakhandi.Com
Author Bio
what if in case of a company assassee if the turnover is less than the limit specified under section 44AB (e.i. 1 cr) but its net taxable income is less then 8% is it required to get tax audit & if yes under which section will it be conducted.
sir, so with what opinion at last are you end up? Below the limits efiling returns are not to be counted within the 45. audit is compulsory, fine with that. efiling is compulsory, its too fine. but the question, “is this compulsory to efile such returns with digital signature of a chartered accountant?”
Mr.Abhishek Bhathar,
There is a mention about the words “income exceeds the maximum amount not chargeable to tax. So if my income is less than the maximum limit of Rs.2,00,000/-, will it be covered under the tax audit?
Mr. Balamurugan
If your turnover from business u/s 44AD is 80 lacs. Then MANCT cannot be less than 8% of 80 lacs in the first instance, then he can show lower profit by conducting audit.
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it seems to be common question posed that in case of a partnetship firm whether the AUDIT signed by a particular partner should also be restricted to 45 or any one partner can sign the total number of audits the firm is entitled. if any note from the ICAI in this regard will help resolve the issue.
Mr.Shiva Khatry mentioned, ” (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.”
Suppose the eligible assessee carrying on business is having a turnover of Rs.80 Lakhs and his income is below the maximum amount which is not chargeable to tax (say, Rs.1,50,000), Will he still be required to get his accounts audited?
Dear Sudhir ji,
I am totally agree with you, in my opinion it is crystal that audit u/s44AD does not count in the prescribed limit of tax audit.
VINOD KUMAR GUPTA
ICAI CLARIFICATION REGARDING NUMBER OF AUDITS
Clarification for reckoning the “specified number of tax audit assignments” conducted under section 44AB of the Income-tax Act, 1961.- (13-12-2011)
Various statutes prevailing in India like DVAT,2004 requires the assessee to furnish an audit report in a form duly signed and verified by such particulars as may be prescribed under section 44AB of the Income-tax Act, 1961 i.e. Form 3CB/3CD. This had lead to the doubts as to whether such audits would be included in the ceiling of “specified number of tax audit assignments”.
Considering the same, the Council at its 311th meeting held on 8thand 9th November, 2011 clarified that audit prescribed under any statute which requires the audit report in the form as prescribed under section 44AB of the Income-tax Act, shall not be considered for the purpose of reckoning the specified number of tax audit assignments if the turnover of the auditee is below the turnover limit specified in section 44AB of the Income-tax Act, 1961. For instance audit under section 44AD, audit under DVAT, 2004 (for turnover between 40 to 60 Lakhs) etc. will not be considered for inclusion in the present limit of 45 audits.
– CA SUDHIR HALAKHANDI
The audit covered under section 44AD, shall be audited under sectiion 44AB, And the audit report of section 44AB has to be efiled. Therefore there should not be confusion in this regard
C A K C AGARWAL. ALLAHABAD
Sir,thank you very much. Further, I want to get clarification about the last few lines you have quoted.Whether there will be a mechanism which will make differentiation between audit u/s 44AD & audit crossing the turnover limit of Rs. 1.00 Crores ,so that audit u/s 44AD will not be counted in the count of 45.?Whether this has been confirmed ?
Agreed with Sudhir ji. Limit is a subject matter of ICAI and income tax act does not provide for any such ceiling. What it requires is a report from Chartered Accountant.
Sir,
Good day
I am very thankful that you are transacting knowledge.
My query on this issue that
Is there any notification or circular, for not inclusion of audit conducted for the dealers who are covered u/s 44AD in Tax limit of 45 audits
sir your submission, in this article, is that “Carrying on business shall, if the profit and gains from the business are deemed to be the profits and gains of such person under section 44AD and he has claimed such income to be lower than the profits and gains so deemed to be profit and gains of his business and his income exceeds the maximum amount which is not chargeable to income tax in any previous year”. Whereas as per wordings of Section 44AD(5), which is produced here, there is difference in last two lines;- (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.
Sir please clear the position.
Based on the Code for Nature of business, the schema should be designed to exclude the audits covered under 44AB(d).