Tax Audit Under Income Tax Laws

CA Brijesh Baranwal

In light of extension of last date for filing Tax Audit Report and Income Tax Return till October 31, 2019, it becomes pertinent to have a brief look on law and provisions related to Tax Audit under Income Tax compliance.

As per the combined readings of provisions of sections 44AB, 44AD and 44ADA of the Income Tax Act, 1961, every person carrying a business whose turnover exceeds Rs.1Cr./ 2 Cr. (as the case may be), or carrying on a profession whose gross receipts exceed Rs. 50 Lakh in the relevant assessment year, must get his/her accounts audited.

PROVISIONS RELATED TO SECTION 44AD

Benefits of presumptive taxation provided by Section 44AD can be availed by an Individual who is resident in India, a Hindu undivided family, or a Partnership Firm (Other than a LLP), whose turnover does not exceed 2 Cr. in the relevant financial year. In such case, tax audit will not be applicable.

1. Section 44AD are not applicable in following cases:

(i) If the Assessee is carrying on a profession as referred to in section 44AA (1). This is to say that he or she is in the profession of (a) legal, (b) medical, (c) engineering, (d) architectural, (e) accountancy, (f) technical consultancy, (g) interior decoration or in the notified professions i. e. (h) authorised representative, (i) film artist, (j) company secretary or (k) information technology.

(ii) The Assessee has earned income in the nature of commission or brokerage,

(iii) The Assessee has carried on any agency business,

(iv) The Assessee is in the business of plying, hiring or leasing goods carriages.

(v) The Assessee intends to claim deduction under sections 10A, 10AA, 10B, 10BA, 80HH, or 80RRB in the relevant assessment year.

The following activities have been specifically held to be business eligible to avail the benefits provided under section 44AD :

(i) Advertising agent

(ii) Clearing, forwarding and shipping agents

(iii) Couriers

(iv) Insurance agent

(v) Nursing home

(vi) Stock and share broking and dealing in shares and securities

(vii) Travel agent.

PROVISIONS RELATED TO SECTION 44ADA

Benefits of presumptive taxation provided by Section 44ADA can be availed by an Assessee who is carrying on a profession as referred to in section 44AA (1). This is to say that he is carrying on the profession of (a) legal, (b) medical, (c) engineering, (d) architectural, (e) accountancy, (f) technical consultancy, (g) interior decoration or the notified professions i. e. (h)  authorized representative, (i) film artist, (j) company secretary or (k) information technology, and whose gross receipts does not exceed Rs. 50 lakh during the relevant assessment year.

The following have been listed out specifically as professions under the provisions of section 44AA and notified there under (Notifications No. SO-17(E) dated 12.1.77, No. SO 2675 dated 25.9.1992 and No. SO 385(E), dated 4.5.2001):

(i) Accountancy

(ii) Architectural

(iii) Authorised Representative

(iv) Company Secretary

(v) Engineering

(vi) Film Artists/Actors, Cameraman, Director, Singer, Story-writer, etc.

(vii) Interior Decoration

(viii) Legal

(ix) Medical

(x) Technical Consultancy

(xi) Information Technology.

PENALTY FOR NON-COMPLIANCE OF TAX AUDIT

Penalty for non-compliance of the point no. 1 above is Rs. 1,50,000 or one-half % of the total turnover or receipts, as the case may be.

OTHER RELEVANT PROVISIONS RELATED TO TAX AUDIT

1. A trust/association/institution/NGO carrying on business may enjoy exemptions as the case may be under sections 10(21), 10(23A), 10(23B) or section 10(23BB) or section 10(23C) or section 11. A cooperative society carrying on business may enjoy deduction under section 80P. Such institutions/associations of persons are also required to get their accounts audited and to furnish such audit report for purposes of section 44AB if their turnover in business exceeds the specified limit.

2. Section 44AB does not make any distinction between a resident or a non-resident. Therefore, a non-resident assessee is also required to get his accounts audited, and to furnish such report under section 44AB if his turnover/sales/gross receipts exceeds Rs. 1 Cr./2 Cr. or Rs. 50 Lakh (for Professionals under section 44AA(1), as the case may be. This audit, however, would be confined only to the Indian operations carried out by the non-resident assessee since he/she is chargeable to income-tax in India only in respect of income accruing or arising or received in India.

3. Apart from the above, persons who claim to have net income below the specified percentage (6% (transactions through banking system), 8% (business) or 50% (for Professionals under section 44AA(1)), as the case may be, also need to get tax audit done before filing income tax return.

Disclaimer- This write up is only for awareness purpose and professional opinion may be required in specific cases depending upon the particular facts.

(The Author is a Mumbai based Practicing Chartered Accountant. In case of queries and suggestions, please contact. Mobile: 9312412020, Email:  cabrijesh@yahoo.co.in)