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.

(The author is a CA in practice at Delhi and can be contacted at: E-mail: capratikanand@gmail.com, Mobile: +91-9953199493)

Author Bio

Qualification: CA in Practice
Company: Pratik & Associates
Location: New Delhi, New Delhi, IN
Member Since: 10 Jun 2017 | Total Posts: 53
Pratik Anand is the founder of youronlinefilings.com, an online startup for business registrations, annual business compliance services, Tax filings, book keeping, legal consultancy etc. He is a Chartered accountant by profession and has special flair and expertise in the area of direct Taxation. H View Full Profile

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52 responses to “Loss return & turnover less than 1 crore- No audit U/s 44AB”

  1. Gautam says:

    Dear Sir/Madam.

    In case of partnership firm current year (A.Y.2018-19) profit is more then 8% of total turnover and after set off of carry forward of previous year loss my net total income become nil. Should booked of account is required to get audit or not.

  2. RATTAN LAL says:

    SIR,
    I AM RUNING A AUTOMOBILE WORKSHOP, TURNOVER 19 LACS INCULDING SALE AND SERVICE, AND I HAVE A LOSS OF RS.40000.00, IS TAX AUDIT MANDATORY FOR ME.

    PLEASE GUIDE ME

  3. Rahul says:

    In Speculative Loss in trading whether the audit is compulsory???
    If it is liable for the audit than the turnover should be more or less than Rs 1cr.???

  4. Swaran Soni says:

    Hi Mr. Pratik
    Greetings! I am also a CA and appreciate your analysis and interpretation of this most talked about and controversial section. I definitely find lot of merits in your views . I compliment you on your views affirmed with clarity and conviction.
    However, this view should hold good for an Firm having no other income from any other source other than the loss under all the businesses and turnover less than Rs. 1 crore.
    However, for the benefit of Individuals mainly in side business like F&O/ Intra-day trading, I would request you to clarify this section for an Individual also, as I can feel lot of doubts from the comments to your article.
    You will do a great service by clarifying the case of an individual having less than Rs. 1 crore turnover with business/ speculative business loss; but having other incomes like salary, rental, interest etc more than the basic exemption limit. Such clarification will prove quite useful for many individuals.
    Regards
    Soni

  5. Deepak jain says:

    I am an individual and do some stock trading in day trading and F&O. For the year 2014-2015, I incurred a loss of around 10 lakh rupees. I submitted ITR iV, as per the process.

    I am yet not sure of how turnover is calculated in such cases, where day trading or speculative trading is done. Does it meaning the total buy and sell value of shares/derivatives or as I read somewhere, it is the aggregate of differences, which I interpreted as total of profit and loss in transactions.

    I have received a notice from IT dept and am getting a sense that I have forgotten to submit the audited report, which could be the reason for the same. Please suggest.

  6. franklings says:

    I have some queries regarding income tax.

    1.If a proprietor running GTA by road and his gross turnover is 30 lakhs per year , which

    includes 30 % exempted items and 70 % abatement.can he show his turnover after deducting

    abated and exempted amount from 30 lakhs. I am not mixing service tax and income tax.That

    is 630000/- . if his profit below 8 % of the total receipts :i e below 240000/- is it is

    necessary to audit his firm and maintain the account books?I am not mixing service tax

    and income tax.

    if he has other personal incomes like pension, house rent etc of 250000/- then account

    keeping is mandatory ? Audit is mandatory or not?.

    if there is total 30 lakhs total credited in my bank account and I am declaring 9 lakhs

    only as business turnover , the rest of the amount is not actual income since i am

    running GTA (hiring only), not owner of vehicles.

  7. franklings says:

    I have some queries regarding income tax.

    1.If a proprietor running GTA by road and his gross turnover is 30 lakhs per year , which

    includes 30 % exempted items and 70 % abatement.can he show his turnover after deducting

    abated and exempted amount from 30 lakhs. I am not mixing service tax and income tax.That

    is 630000/- . if his profit below 8 % of the total receipts :i e below 240000/- is it is

    necessary to audit his firm and maintain the account books?I am not mixing service tax

    and income tax.

    if he has other personal incomes like pension, house rent etc of 250000/- then account

    keeping is mandatory ? Audit is mandatory or not?.

    if there is total 30 lakhs total credited in my bank account and I am declaring 9 lakhs

    only as business turnover , the rest of the amount is not actual income since i am

    running GTA (hiring only), not owner of vehicles.

    please clarify

  8. abhishek says:

    sir i have a question that a partnership firm files return u/s 44AD taking income 8% of turnover but after allowance of interest to partner profit becomes loss.than assessee required to get audit and maintain books of accounts

  9. minal jain says:

    sir my share trading loss in 17000 rs and turnover around 5 lakh, and other income 180000 ( including fd interest and other business of dress matarial ) , so my total income is below 250000 should i need to audit, because i received notice under 139(9) of defective return plz sir urgent

  10. achin says:

    IF ANY PERSON WANT ANY TYPE INCOME TAX RETURN PAN CARD SERVICE TAX REGISTRATION LIC INSURANCE LAST SIX YEAR ITR CALL-8273980693

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