Amit Bajaj Advocate

A person is required to get his accounts audited u/s 44AB if  turnover of  business exceeds Rs 60 Lakhs (100 Lakhs from A.Y. 2013-14) , or In case of Profession Gross Receipts  exceed Rs 15 Lakhs (25 Lakh from A.Y. 2013-14).
In case of business what should be the meaning of turnover/sales? Should it be Gross sales or net sales? Should it include VAT, Sales tax or excise duty? The meaning of turnover/sales for the purpose of tax audit is discussed as follows:

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. The term ‘gross turnover/sales’ and ‘net turnover/sales’ are sometimes used to distinguish the sales aggregate before and after deduction of returns and trade discounts”

In the statement issued by ICAI on the companies (Auditors’ Report) Order 2003 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”

Whether sales tax and excise duty to be included in the sales/turnover: In our opinion same should be included even if Assessee is have not included the same in Profit and Loss account and shown the same as current Liability.

Section 145A of the Income Tax Act,1961  states that purchase , sale and inventory shall be valued by taking into account  the amount of any tax, duty, cess or fee . An extract of section 145A is as follows:

145A. Notwithstanding anything to the contrary contained in section 145,

(a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head Profits and gains of business or profession shall be

(i) in accordance with the method of accounting regularly employed by the assessee; and

(ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.

Explanation.For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment.

Therefore , in my opinion ,  maintaining accounts of excise duty VAT separately is not correct in terms of section 145A of the I T Act. In that sense , for determining the meaning of the word “sales turnover” VAT or excise duty should also be considered for purpose determining  the  criteria for getting accounts audited u/s 44AB of the I T Act.

Sales of Scrap: Sales of scrap shown separately under the heading “Miscellaneous Income” will have to be included in the turnover.

Luxury Tax: Similarly a luxury tax collected by a hotelier also a trading receipt in his hand- Pandyan Hotels Ltd. v. CIT [2004] 266 ITR 172 (Mad.)

Trade Discount: Trade Discounts can be deducted from sales. Trade Discounts are generally allowed in the sales invoice, therefore the discount allowed in the sales invoice will reduce the sale price and therefore can be deducted from the turnover.

Cash Discount: Cash Discount otherwise than that allowed in a cash memo/sales invoice is in the nature of a financing charge and a revenue receipt and is not related to turnover. Hence the same should not be deducted from turnover.

Commission on sales: Commission on sales included in the sales payable to the consignee/third person should not be deducted from the figure of turnover for the purpose of section 44AB.

Sales Returns: Price of goods returned should be deducted from the figure of turnover even if the returns are from the sales made in earlier years.

Sales proceeds of fixed assets: Sales proceeds of fixed assets would not form part of turnover for the purpose of section 44AB since the fixed assets are not held for resale.

Sales proceed of any investment: Sales proceed of any property held as investment in property will not form part of turnover for the purpose of tax audit. Similarly sale proceeds of any shares, securities and debentures etc. which are held as investment will not form part of turnover. However if shares, securities, debentures, etc are held as stock in trade, the sale proceeds there from will form part of turnover for the purpose of tax audit.

The Views expressed are only Personal Views based upon my studies and interpretation of law.

Read Other Articles from Advocate Amit Bajaj

(Author – Amit Bajaj Advocate, Bajaj & Bajaj Advocates, 128, Sangam complex, Milap chowk, Jalandhar City (Punjab), Email:, M +919815243335)

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34 responses to “Meaning of Turnover or sales for Tax Audit u/s. 44AB”

  1. R.N.Maharwal says:

    If assessee maintains books on exclusive method than the amount of output tax will not form part of turnover. Setion 145A says that the tax will be included for the purposes of determining taxable income. For the purpose of section 44AB or 44AC, net sales will be the gross turnover. AS-2 also mandate this.

  2. zingle says:

    can sale be treated as income? please narrate sales and income as per IT Act Law

  3. abdul hasib says:

    Thank you sir

  4. kirti thakkar says:

    sale proceeds from business excludes capital gain on sale of fixed assets u/s 44AB . i need supreme court case laws on above mentioned topic . plz reply

  5. RAKESH TANEJA says:

    let me know by trading of delivery amounting to rs 58 lacs and speculative trade of 2 lacs and future trade of 1 lac i have a profit of 110000( one lac ten thousand only) and capital gain long term of 2 lacs. As the amount of profit is less then 8 % of turnover . does my account qualify for audit

  6. jignesh says:

    the gross turnover of sales was 63 lacs & net turnover was 59 lacs in the financial year 2011-12. whether assessee is liable for vat audit.

  7. jignesh says:

    Is vat tax & cst Tax part of sales turnover for vat audit. Gross turnover was 63 lacs & net turnover after deducting vat & cst is 59 lacs. is vat audit applicable

  8. Jimit shah says:

    Sales 40 lacs
    purchases 2 crores
    whether 44 ab applicable

  9. sheetal says:

    Dear Sir,

    My expenses are 3.53 Cr for Financial Year 2013-14 n my gross receipts are only 6 Lacs. Should my accounts are come under Audit U/s 44AB.

  10. Nitin says:

    Just Want to know

    if I having 1) Salary Income Rs.17,00,000.00
    2) Professional Income Rs. 8,00,000.00
    3) Sales T.O. Rs.30,00,000.00

    so above case should i Came in Audit, I want also know is salary Income also part OR Calculate in Professional T.O.


  11. Hitesh says:

    What is the audit limit for F.Y-2012-013.for proprietor firm.

  12. Anup Kumar Joshi says:

    dear sir

    We just registered as vat authority. and before registering we are not taken vat on sales then can we calculate the vat liability on whole year sale or after vat registration. Thank you

    Yours Faithfully

    Mr. Anup Kumar Joshi

  13. Tulika says:

    Hello Tax Guru,

    I run a firm as a Proprietor.
    We charge Service tax in our billing. We are registered as a ‘MARKET RESEARCH AGENCY’ in our service tax registration.
    Employee Count- 9
    Turnover- 36 Lakh(including Service tax)
    Services Provided- Links to Online surveys for performing market research on our clients products

    In the nature of our business, are we required for Tax Audit under Section 44 AB
    as a business(requiring tax audit above Rs 1 Crore) or profession(requiring tax audit above Rs 25 Lakh).


  14. SHAZAD says:

    What is the audit limit for current year it 60 Lakh of 100 Lakh

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