10 May 2017
Dear Sir, There is a firm providing services like Software development, website development, etc. In A.Y 2017-18, there is a loss of 141,000. Remuneration paid to partners is 230,000. No interest on capital is paid as the firm is dissolved with effect from 01.04.2017. There are few expenses debited to P/L which will be disallowed as per Income Tax. The amount disallowed is 40,000. Now my question is: Whether audit will be applicable for A.Y 2017-18 ? Will partners remuneration up to the limit of 150,000 be allowed ? As per amendment for A.Y 2017-18, partners remuneration is to be excluded just for the calculation of 8% of profit ? Will tax audit be applicable in the above case ?
10 May 2017
Yes, Tax audit applicable if minimum 8% of turnover not declared. Maximum Rs.150000/- allowed partner remuneration. Balance will be disallowed.
10 May 2017
Thanks for your response !!! But how will be calculation of 8% be undertaken ? Also, for Tax Audit , two conditions are needed to be fulfilled: 1. Profit less than 8% and 2. Amount chargeable to tax should be greater than maximum exemption limit. If no tax is payable, then will tax audit be applicable ?
11 May 2017
No tax audit is not applicable in the instant case. Proviso to section 44AD makes it compulsory to get the books of accounts audited as per section 44AB only if the profit determined is below 8% of the turnover and the total income is not below the exemption limit. In the instant case, since the firm has incurred losses (excluding partners remuneration), tax audit is not mandatory.
11 May 2017
Loss is incurred after giving remuneration to partners. So if partners remuneration would not have been paid, loss wouldnt have been incurred
12 May 2017
From 01/04/2017, proviso to sect. 44AD(2) is omitted w.e.f. 01/04/2017 (AY. 17-18 onward), In case of firm, deduction u/s. 40(b) (Int. + remuneration to partners by firm), will not be allowed to firm in computing the firms deemed profit and gains. Firm will be under obligation to get accounts audited u/s. 44AB r.w. sect. 44AD to claim deduction of int. and/or remuneration to partners. in query loss is only after considering deduction of remuneration paid to partners. Unless accounts are audited remuneration or int. to partners will not be allowed as deduction. Why int. can not be paid till 31.03.2017 when firm stood dissolve from 01/04/2017, subject to above.
12 May 2017
You said that deduction u/s 40b will not be allowed to firm in COMPUTING THE FIRMS DEEMED PROFITS AND GAINS. Agreed. But then how to calculate the deemed profits. Can you please give me a rough computation of income ? Turnover is Rs. 400000. Also which section will be available 44AD or 44ADA ?
CAclubindia
