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

  1. 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.???

  2. 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

  3. 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.

  4. 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.

  5. 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

  6. 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

  7. 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

  8. achin says:

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

  9. Parveez Ahmad says:

    Can an audited financial be in Rupees or in Lacs of Rupees also?
    And without PAN card can we file FORM 3CB and FORM 3CD?

  10. Nimai Sadhan Seal says:

    Our Turnover Below 1 Croce after charging Partners’ Remuneration Rs 219000/-Profit but before allowing partners’ remuneration 749000/- so we libities U/S.44Ab Please sent As early As possiable

    Thanking

  11. sairam says:

    Dear sir,

    I need the format for CA Certificate for annual turnover and net loss and profit.

    Will someone please help me for getting this.

  12. Mr. Baban says:

    Thanks for Guidance about I.T. Act U/s.44Ab regarding loss in business. It was cleared the confusion to get the books audited or not.

  13. Sandeep says:

    Dear all
    I am salaried and do intermittent F&O .I suffered major losses in last year options trading and my turn over is very much less than one crore.
    Do i need to get CA attestation done and fill ITR4 or just ITR 2 will suffice.

  14. G SREENIVASACHARYA says:

    assessee is having income < 1crore
    can he declare more than 8% profit without books of accounts
    Is there any compulsion to declare higher of actual profit which is more than 8% and
    Is it necessary to maintain books of accounts in the above case

  15. Mahesh says:

    A partnership Firm Having Turnover RS. 90 lacks, for FY 2014-15, and having a depreciation of RS 1312228/ results in a Net loss of Rs. 612715/-(Depreciation loss ) Is it mandatory required to Audit the accounts as its not having income more than 8% ?

    or it will get the benefit of not to get the Accounts to be audited as its having income below the limit specifid by the ACT.

  16. S S Subramanian says:

    I am trading both in FO and Cash segment. In the cash segment I take deliveries and keep the shares and sell them for STGG or LTGG. In the FO segment I have incurred only loss. My question is how to report the loss ITR4. In ITR4 I am not allowed to make negative entriesin Gross Receipts for business as in FO inly the negative or postive entries have to be added to make for turnover. In case if I say I am not maintaing account I can make negative entries in Gross Profit in 53 item. Can any body advise how should go about?

  17. DHARMESH GUPTA says:

    I am running a partnership firm since 1986,last year My firm earned a nett profit of Rs.31056/-after allowing salary to patners Rs.2,70,000/-&intt-on-capital-Rs.318000/-on a turnover of rs-57.00lacs.If we disallow intt&sal.to parttners paid in p&l a/c to the tune of 588000/-in coloumn 23of itr-5-i.e.any addition u/s 28-44Da&allow the same figure as any other deduction allowed &show the np-shown in p&l-a/c u/s 44AD COLOUMN OF COMUTATION OF INCOME SECHEDULE &PAY THIS ITAX U/S 44AD-SEPRATELY SHOWN IN THIS SECTION MAKING ASSUMPTION THAT THE FIRM HAS ONLY THIS ELIGIBLE BUSINESS AM I RIGHT BY MY VERSION seeing the seenerio of defective itr-5-since the inception of this section or not.I aasume this shall be assessed as a income deemed income u/s 44ad.to the tune of 31056/-or not.

  18. kunal says:

    My propritorship havin turnover 89 lakhs but acutal net profit is 387000/- which is taxable income also having 30000/- interest income shall i applicable for tax audit u/s 44ab

  19. Vinita says:

    Hi,
    I had applied for ITR-4 return via my CA firm as i have salary income and F&O trades (turnover less than 1 crore). The CA has given his e-mail address in the return form. So when 139(9) notice was sent in March 2014 with Error32 – (“Assessee has claimed loss under the head “Profits and gains of Business or Profession”; however, he has not filled Balance Sheet and Profit and Loss Account and has not got the books of account audited”), i did not receive it. It only came to my knowledge in Dec 2014. I contatced the CA firm and they said they did not receive any notice.
    Now they are saying you have missed the audit deadline. (Firstly when they filed my return, they said audit was not necessary,then they did not intimate me about IT rectification mail and now they say that audit is required when deadline has passed. They say that earlier it was a mistake committed by them)
    My question is: Is audit required and will i have to pay for their fault? I have all the evidences that i was in constant touch with them and they only informed me about audit just few days back.

    Post Script: Consequence of failure to carry out tax audit in time (S. 271B)
    If an assessee fails to procure tax audit reprot within prescribed time AO can levy penalty of an
    amount being lower of ½% of Turnover or gross receipts or Rs. 1,50,000/- (wef 1.4.11, earlier
    Rs. 1,00,000/-). However if failure is for reasonable cause penalty is not to be levied. S.273B

  20. Lakshmi Thangaraj says:

    In the case of two proprietary concern with same proprietor each having turnover less than one crore and one unit showing more than 8% profit and another unit is loss is tax audit is enough for loss unit

  21. Pratik Anand says:

    Mr. Ajay,

    There is no clause in 3cd, that you can fall in.

  22. AJAY KUMAR JAIN says:

    my turnover is 45 lacs of trading concern and my profit is above 5 lacs. I want to get accounts audited. But which clause of section 44 AB will apply in form 3 CD. Please advise…

  23. sunil misra says:

    individual age 81 years, turnover 50 lacs,income 3.20 lacs,44Ad Applicable?

  24. ca upendra says:

    my query and need opinion :
    an AOP having turnover of Rs.5.00 cr(inclusive of branches) and getting a capital loss of investment to an extent of Rs.5.50 crores in one branch due to an accident which led to the closure of the entire business because of the local persons willful acts and events.Now my question is
    1. whether such loss can be set off from the income of the other branches or the AOP as a whole?
    2. To what extent and in how many years?
    3. What will be the probable consequenses from the I.T.Dept?
    Please reply

  25. T G SURESH says:

    Dear all,
    The above provisions of Sec 44 AD are applicable from AY 11 12. The current provisions of Sec 44 AE and the provisions of 44 AD existed upto 31st Ay 10 11 provided that 44 AA and 44 AB will apply if the income offered is less than the presumptive Income. There is no condition that income should be above the basic exemption limit. The effect of the above provision can be summarised as under :

    1. If the Income offered is 8 % or more – No 44 AA and 44 AB .

    2. If the Income offered is less than 8 % and Total income is below basic exemption limit ( including loss ) NO 44 AA and 44 AB
    In the both the above situations due date will be 31/7

    3. If the income offered is less than 8 % and the total income is above the basic exemption limit – 44 AA and AB will apply and the due date will be 30 Nov for Ay 14 15.
    For counting no of tax audit – the above will not be considered .
    In the case of Firms It is possible to take a view that 44 AA and 44 AB will apply if the income offered is below 8 % , since they don’t have basic exemption limit –

  26. T G SURESH says:

    Ever since 44 AD was made applicable to all businesses from AY 11 12 the above provisions exist. his provision is there for the last 4 years. . It is very surprising to note that this has been discussed as if it were a new provision. The effect of this provisions is
    1. If you offer 8 % or more – No 44 AA and 44 AB. due date 31 July
    2. If you offer Basic exemption limit 44 AA and 44 AB will apply – Due date will be 30 Nov
    3. If you offer < 8 % and < basic exemption limit No 44 AA and 44 AB – Due date 31St July – If return of Income is not filed by 31st July, carry forward of business loss will be lost.
    However, since Firms do not have basic exemption limit it is possible to take a view that it will be subject to 44 AA and 44 AB and the due date will be 30 Nov ( For Ay 14 15) .
    My view is that Income should be exceed the basic exemption limit for the relevant previous year and not any previous year.
    It is interesting to note that Sec 44 AD which existed before AY 11 12 and the other presumptive income provision of sec 44 AE provides that 44 AA and 44 AB will apply if the income offered is below the presumptive income.

  27. Abhishek says:

    Dear professionals,

    There is a important point to be noted that:
    An eligible assessee who claims that his profits and gains from the eligible business are 8% of the Gross receipts or turnover AND whose total income does not exceed the maximum amount which is not chargeable to income-tax, shall not 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.
    Which means BOTH points are to be satisfied to not to carry out Tax Audit.
    For Eg: An assessee has a turnover of Rs. 25 lakhs and declares net profit of Rs. 2 lakh which is exact 8% of turnover i.e if we declare any turnover below Rs. 25lakhs only then tax audit wont be applicable because only in such case we can satisfy both the provisions of Sec 44AB

  28. Sadashiv says:

    Sir,
    Information provided by you is definetely much useful

  29. Santosh Choudhary says:

    If a Pvt Ltd Company Having Turn Over 25 Cr. & Carry Over Losses 20Cr, also will we intitled for carry over Losses, filling return after 30.09.2014

  30. Shweta says:

    Income included loss as per definition of income u/s2
    and clarify

  31. Pravin Dwivedi says:

    Not agree with the view that in case of loss no tax audit is required in case of assessee covered u/s 44AD. Since Income includes Losses, certain assessee are liable to file mandatory return of income in case of losses. The Intent of law making tax audit u/s 44AB in case of profit less than 8% is to ensure avoidance of tax evasion. If the interpretation made by you is deemed correct, all people showing loss can escape the tax audit (otherwise covered u/s 44AD) which is not the intent of law and so perhaps may not sustain beyond ITAT. In numbse of cases it is held that Income include losses and so in case of partnership firm and Companies where minimum threshhold or emeption limit is not specified, negetive income alos to be considered and are case of mandatory tax audit.

  32. ACA Pushpa Raj Dhakal says:

    provision of Sec 44AD and sec 44AB are different.

    tax audit is required irrespective of loss or profit if total income/receipts is exceeding the limit prescribed

    u/s 44AD, law has given certain relief for maintenance of books of accounts if total income/receipts are less than the prescribed limit u/s 44AB and profit is declared @ 8% of total income/receipts.

  33. Bhushan Meher says:

    Sir,
    In my opinion, the information provided by you is correct. It will definitely help the professionals in carrying their work.. Thanks for sharing! Keep sharing!!

  34. C A NARESHDHARIA says:

    Respected sir,
    we are regularly reading TAX GURU in this weak i read related my loss problem, so please guide me for above problem. qauestion : PARTNERSHIP FIRM first year buissness f.y.2013-14 (a.y.2014-15_ HAVING LOSS OF RS.12 LAC TURN OVER BELOW 1 CRORE we missed 31st july to filing the return so now we will file the return on 30 september with loss of rs.12 lac so loss will c/f for next year or not pl guide me thanking you –

    I opine that u have to audit the books of account & justify, certify the Loss and the file the return…

  35. C A NARESHDHARIA says:

    In case the taxable declared as Rs 1.50 lacs…then YES Tax Audit will apply…..Else u declare the taxable Business Income Rs. 6 lacs & above..then tax Audit in not applicable…

    I guess, the query is Solved..
    Ok…
    Thx

  36. GAGAN says:

    if company (Pvt. Ltd.) having turn over more than 25 crore with loss more than 10 crore what is due date?

  37. Pankaj Kumar Kundu, Advocate, Income Tax Bar Association, Calcutta says:

    I am afraid, this is not a correct observation.

  38. CA Keyur Kotadiya says:

    Sir,
    I have a private limited company who has loss which includes both business loss as well as depreciation loss and turnover not exceeds Rs. 1cr i.e. it does not have to get audited under section 44AB of the act.

    My question is whether due date of filling ITR is 30/09/2014 or 30/11/2014 in the said case ?

    Thanks in advance …

  39. K.K. SHANKAR, FCA says:

    Dear Sir,

    An assessee is having a turnovr of Rs. 75.00 Lakhs for the financial year 2013-14, he maintains books of accounts prescribed, his net profit of Rs. 1.50 Lakhs from the said business and that his only income is this. Whether he is liable for audit u/s 44 AB?

    Please clarify.

    • rajiv modi says:

      No, audit is not required because the turnover is less than 1 Cr. But Tax Dept. may ask for books of accounts (not necessarily). Thus keeping books of accounts is the right thing done.

  40. CA. Subhash Chandra Podder says:

    The information provided by you appears to be correct , definitely help us,but need to verify .
    CA. Subhash Chandra Podder, FCA,
    Kolkata
    28/09/2014

  41. mounica says:

    What does total income means here?

  42. SANJAY MORE says:

    Respected sir,

    we are regularly reading TAX GURU in this weak i read related my loss problem,
    so please guide me for above problem.
    qauestion :
    PARTNERSHIP FIRM first year buissness f.y.2013-14 (a.y.2014-15_
    HAVING LOSS OF RS.12 LAC
    TURN OVER BELOW 1 CRORE

    we missed 31st july to filing the return
    so now we will file the return on 30 september with loss of rs.12 lac
    so loss will c/f for next year or not

    pl guide me

    thanking you

  43. Naresh Dharia says:

    In case of Loss…(as the income is less than 8%)…to follow Tax Audit norms and accordingly due date will be 30/11…

  44. Krishna Shingare says:

    In TAR guidance note it is given that if income exceeds the maximum amount not chargeable to income-tax in any previous year.
    So it can be interpreted differently as assessee should not have income chargeable to tax in all the previous years.
    Content in TAR
    d. 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 44AD and he has claimed such income to
    be lower than the profits and gains so deemed to be the profits
    and gains of his business and his income exceeds the
    maximum amount which is not chargeable to income-tax in any
    previous year

  45. Rajiv says:

    Sir,
    The information provided by you is correct. It will definately help the professionals in carrying their work.

  46. V. Sivaraman says:

    I am afraid that the interpretation is wrong.
    The section reads: ‘and whose total income exceeds the maximum amount which is not chargeable to income-tax’
    Sec-5 defines the total income as all income what ever sources is received…..
    Hence if the total receipts of the business exceeds 2,00,000 for individual and in case of firm the first rupee, which if exceeds the 44AD will attract and the TAR will also attract.

  47. rajiv modi says:

    Sir, if turnover is less than 1 Cr. and profit less than 8% or even loss, then audit is not compulsory but one needs to maintain Books of Accounts in such circumstances.

  48. kunjbihari sharma says:

    Dear sir
    Please reply my question :
    1.If I have Loss of Rs 25000/-and other Income pertaining to Income from house property where I have got Rent recd. Rs.120000/- and I have Paid a loan interest to its Rs.125000/-,Can I get relief to conduct the Audit under section 44AA with under sectin 44AB?

    kunjbihari sharma

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