IF A FIRM ACCTURAL LOSS FOR THE ASST-YEAR 2017-18 ,ITR FILING FOR U/S 44AD OR WITHOUT AUDIT?
11 Replies
sowmya
(audit assistant)
(228 Points)
Replied 15 May 2017
can you plz provide further details like turnover for the year to get a clear idea
sowmya
(audit assistant)
(228 Points)
Replied 15 May 2017
if turnover is < 2 cr then no audit u/s 44 AD is required
rama krishnan
(12239 Points)
Replied 16 May 2017
but the firm incurred loss...if the firm doesn't declare 8% or more u/s. 44AD, then accounts need to be audited
sowmya
(audit assistant)
(228 Points)
Replied 16 May 2017
even criteria of turnover even has to be considered for 44 AD
rama krishnan
(12239 Points)
Replied 16 May 2017
yes Sowmya mam I agree with you but tax audit is not mandatory only when the assessee declares 8% or more of his total turnover or gross receipts. but in the present case the assessee incurred loss and he is going to file loss return only. for that tax audit is compulsory. correct me if iam wrong
sowmya
(audit assistant)
(228 Points)
Replied 16 May 2017
Sub Section (1) of section 44AD reads as follows:
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.
Now the question arises as to: 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?
The answer will be: 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.
Now the question arises as to: 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?
The answer will be: 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 will be‘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.
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.
Now the question arises as to: 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?
The answer will be: 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.
Now the question arises as to: 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?
The answer will be: 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 will be‘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.
V Ramaratnam
(Chartered Accountant and Consulting Services in Chennai)
(4 Points)
Replied 16 May 2017
can you plz provide further details direct taxation, and indirect taxation
Vaibhav Agarwal
(19 Points)
Replied 16 May 2017
For clear suggestion can you please tell the exact figure so that we can conclude your query.
mail at: vaibhavagg095 @ gmail.com
Sunil Sharma
(CMA & CS)
(584 Points)
Replied 16 May 2017
Question of Audit come only when the TO exceeds 2cr and it's below that no requirement of audit.
@ Rama Krishnan as explained by Ms.Sowmya 8% is to be considered from the total turnover as an income or profit and tax calculation is done accordingly that's is what presumptive taxation States well explained the above mentioned section
@ Rama Krishnan as explained by Ms.Sowmya 8% is to be considered from the total turnover as an income or profit and tax calculation is done accordingly that's is what presumptive taxation States well explained the above mentioned section
Sunil Sharma
(CMA & CS)
(584 Points)
Replied 16 May 2017
* missed in my comment
as being in loss already there will not be any audit
as being in loss already there will not be any audit
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