CA Pratik Anand
The recent CBDT circular on extension of due date for assessees required to get their accounts audited u/s 44AB has brought to light many things. Once such thing is the implication for assessees having having turnover less than Rs. 1crore and having Net loss from business.
Many of us were in the belief that those assessees having loss from business and having turnover less than Rs. 1 crore are required to get their accounts audited U/s 44AB r/w section 44AD but that is not the case.
Sub Section (1) of section 44AD reads as follows:
(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”.
Sub section (5) of section 44AD reads as follows:
(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.
Simultaneous reading of sub sections (1) and (5) brings to light the following points:
♠ The profits of an assessee engaged in eligible business under the head ‘Profits and gains from business and profession shall be deemed to be equal to 8% of the total turnover of the asessee or such higher amount as may be claimed by the assessee.
Ques: What if the profits of an assessee engaged in eligible business are actually less than eight percent of the turnover or gross receipts of the business?
Ans: If an assessee claims that his profits and gains from eligible business are less than 8% of the gross receipts and whose total income exceeds the maximum amount not chargeable to tax, the asseessee shall maintain the books of account as prescribed U/S 44AA and get them audited under section 44AB of the Act.
Here the catch lies in the words ‘and whose total income exceeds the maximum amount which is not chargeable to income-tax’
Since the words start with ‘and’ therefore both the conditions need to be fulfilled for an assessee to be required to get his accounts audited u/s 44AB.
Ques: What are the conditions to require the assessee to get the accounts audited in case the turnover is less than Rs. 1 crore from eligible business?
Ans: 1) The assessee should keep the books of account as prescribed under 44AA and the profits claimed as per those books of account shall be less than 8% of the gross receipts or turnover of the business.
♠ The second condition in order to mandate tax audit u/s 44AB is that the total income of the assessee should exceed the maximum amount not chargeable to tax under the Income Tax Act’1961.
Now let us consider the case of a partnership firm which is engaged in eligible business as per section 44AD and whose turnover is say Rs. 80 lacs in the preceding Financial Year 2013-14 and which shows Net loss from business of Rs. 50,000/-.
Is this firm required to get the accounts audited under section 44AB read with section 44AD of the Income Tax Act’1961?
The answer is ‘No’ because if we read section 44AD carefully, the audit is required where profits are less than 8% of the gross receipts or turnover and the income exceeds maximum amount not chargeable to tax.
Since, the firm is taxed at an income starting from Rs. one, therefore the maximum amount not chargeable to tax is nil.
In case of loss, since there is no income, therefore it does not exceed the maximum amount not chargeable to tax and so the second condition mandating tax audit u/s 44AB r/w section 44AD is not satisfied and therefore the assessee is not required to get the accounts audited u/s 44AB.
Therefore, in case of assessees other than companies, professionals, assessees having agency business (Those on whom section 44AD is not applicable) having turnover less than Rs.1 crore and showing loss from business shall not be required to get the accounts audited U/s 44AB if they do not have any other income other than income from eligible business and the due date for such assessees shall be 31st July of the Assessment Year and not 30th September.
Therefore such assessees should file the return of income by the 31st July of the Assessment Year without audit report as the loss will not be carried forward due to late filing of the Income Tax Return after the due date.
Hope you find the above information relevant and useful in your daily practice.