A Breif on Tax Audit u/s 44AB

By | October 17, 2012

Tax Audit under Section 44AB, Assessment Year 2013-14, above Rs 1 Crore/Rs. 25 Lakhs

Tax Audit threshold Limit

An Assessee is liable to get his Tax Audit done by a Chartered Accountant mandatorily, if in the previous year,

  • The Person is carrying on business and his Total Sales/Turnover exceeds Rs. 1 Crore (wef 1st April 2012); or
  • The Person is carrying on Profession, and his Gross Receipts exceed Rs. 25 Lakhs (wef 1st April 2012); or
  • The Person is carrying on business or profession and is covered under the provisions of section 44AD, 44AE, 44AF, 44BB or 44BBB and claims that his income from the said business is lower than the deemed profits and gains computed under the relevant section

The Due Date of filing of Income Tax Return of an Assessee liable to get his Tax Audit done under Section 44AB is 30th September. For all other assessee’s who are not liable to get their Tax Audit done under Section 44 AB – the Due Date of filing of Income Tax Return is 31st July.

Recommended Read: Income Tax Slabs

In case an Assessee is liable to get his Accounts audited by an Accountant under any other Law for the same accounting period, the assessee is not mandatorily required to get his audit done again and is only required to submit a report in the form mentioned below. However, if the Accounting Year is different from the Accounting Year for which the Audit was done under any other Act, the Tax Audit would be required to be conducted again as per the Income Tax Act (Circular No. 561 dated 22-05-1990 issued by CBDT)

Tax Audit U/S 44AB

As per Rule 6G, the following Forms are used while preparing a Tax Audit Report under Section 44ABForms for Tax Audit Report

  • Form 3CA – This Form is used in case where the Accounts of the business or profession of a person have already been audited under any other Law
  • Form 3CB – This Form is used in case where the Accounts of the business or profession have not been audited earlier.
  • Form 3CD – Statement of Particulars required to be furnished under Section 44AB for a person carrying on Business or Profession. The statement of particulars given in Form 3CD as Annexure contains 32 Clauses

Computation of Total Turnover for the purpose of Tax Audit

ICAI has through a Guidance Note clarified the following points:-

  1. Where a person is carrying on 2 Business/2 Professions – the total turnover of both the businesses shall be clubbed together and tax audit shall be liable to be conducted if the Total Turnover exceeds Rs. 1 Crore/ Rs. 25 Lakhs as the case may be.
  2. Where a person is carrying on business as well as profession and the Turnover of the business is Rs. 1.2 Crores and the Gross Receipts of the business is Rs 22 Lakhs. In such a case, ICAI has clarified through a Guidance Note that the Assessee is liable to get the Tax Audit done of both the business as well as profession because the Turnover from the business exceed the limit of Rs.1 Crore. However, if his Total Turnover was Rs. 95 Lakhs and Gross Receipts from business was Rs. 22 Lakhs, he would not be required to get his Tax Audit done.
  3. In case where a person has a total turnover of Rs. 98 Lakhs and has sold a Car for Rs. 4 Lakhs. In such a case, the total amount on adding up becomes Rs. 1.02 Crore i.e. above Rs. 1 Crore. Confusion arose whether the person is liable to get an audit done in this case and ICAI has clarified that the turnover will not include any amount on the sale of the fixed asset as it was held by the person for business use and not for the purpose of sale.

ICAI has further clarified that the amount received from the following items shall not be included while computing the Total Sales/Total Turnover/ Gross Receipts:-

  • Sale Proceeds of Fixed Assets
  • Sale Proceeds of Assets held as Investments
  • Rental Income
  • Income by way of Interest unless assessable as Business Income
  • Any expense which is reimbursable to the Agent by the Client

Penalty for Non Compliance of Section 44AB

Non Compliance of the provisions of this act shall attract Penalty under section 271B of the Income Tax Act. If any person required to get his audit done under section 44AB fails to do so before the specified date shall be liable for penalty of ½% of the turnover/gross receipts subject to a maximum penalty of Rs. 1,50,000

However, Section 273B states that no penalty shall be levied under section 271B if there is a reasonable cause for such failure. Some instances which have been accepted by the Tribunals/Courts as “Reasonable Cause” are:-

  1. Resignation of the Tax Auditor and Consequent Delay
  2. Death or physical inability of the partner in charge of the Accounts
  3. Labour Problems such as strikes, lock-outs for a long period
  4. Loss of Accounts because of Fire/Theft etc. beyond the control of the Assessee
  5. Natural Calamities

Revision of Tax Audit Report

Tax Audit Report cannot be revised under normal circumstances. However, in case the Accounts are revised in the following circumstances, the Audit Report can also be revised:-

  1. Revision of Accounts of a Company after its adoption in the Annual General Meeting
  2. Change in Law with Retrospective effect
  3. Change in Interpretation of Law (Eg: CBDT Circular, Notifications, Judgements etc.)

In case the Tax Audit report is revised, the Auditor shall state that it’s a Revised Report and shall also state the reasons for the same.

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