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Audit Compulsory or not For Partnership Firm

virag (Account and Tax consultant) (115 Points)

19 September 2022

Hello All,

One of our clients, is a partnership firm having turnover of Rs.30 lacs in Saree Retail business.They are showing profit of Rs.15k against turnover.

Is it compulsory for them to do an audit to show this profit or switch over to presumptive taxation ?

Please guide us on it.

Thanks,
Virag Shah.

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20 Replies

Eswar Reddy S (CFO- at NHTF) (58270 Points)
Replied 19 September 2022

Minimum 8% (240,000/-) profit should be shown in ITR.

So in this case profit 15k is less than 8% of turnover.
Hence Audit is required

9 Like

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virag (Account and Tax consultant) (115 Points)
Replied 19 September 2022

Thanks for the answer.

They have been submitting returns for 15 years without audit and no single query raised by the Income tax department.

Is that any other provision for the same for non audit ?

Thanks
Virag

CA Aakarsh Jain (CA) (10431 Points)
Replied 19 September 2022

Audit is not required at all since turnover is less than 1 cr. It doesn't matter that the profit is less than 8%.

4 Like

Eswar Reddy S (CFO- at NHTF) (58270 Points)
Replied 19 September 2022

Turnover is not alone the criteria for tax audit.

Even profit % also the criteria.

While filing ITR , it will ask for tax audit. Else the ITR will be defective u/s 139(9)

7 Like

CA Aakarsh Jain (CA) (10431 Points)
Replied 19 September 2022

Yes Eswar, Turnover is not only the criteria but in virag case audit is not required as he haven't filed his previous returns in sec 44AD.

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virag (Account and Tax consultant) (115 Points)
Replied 19 September 2022

Thanks for the answers, Friends.

What should I have to do ?

As we have another case, they have started a partnership firm for computer parts and repairs having a turnover of 35 lacs with a net profit of 20k.( They are maintaining books of accounts)

So as per Aakarshbhai reply we don't have to go for audit as turnover less than 1 cr.

Please advise.

CA Aakarsh Jain (CA) (10431 Points)
Replied 19 September 2022

Yes virag we don't need to go for audit if our turnover is less than 1 Cr. But if have filed our return as per section 44 AD (Presumptive Basis) and now opting out before 5 years from 44AD then if you show profit less than 8% you need to do audit.

1 Like

Eswar Reddy S (CFO- at NHTF) (58270 Points)
Replied 19 September 2022

If Audit is not applicable then by default it's come under presumptive Taxation rules and you must declare the 8%/6% profit do avoid tax sudit

6 Like

CA Aakarsh Jain (CA) (10431 Points)
Replied 19 September 2022

It is nowhere written that if audit is not applicable then by default presumptive taxation rules applicable. Read the sections first eswar. Don't give wrong advices.

3 Like

virag (Account and Tax consultant) (115 Points)
Replied 19 September 2022

Noted.

For both cases they have not filed tax returns under presumptive taxation in earlier years, so we are not going for audit till turnover doesn't exceeds 1 crore.

Please acknowledge the same.

Many thanks to all for your time.

Thanks,
Virag.

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CA. ANKIT PANDYA (CA) (682 Points)
Replied 19 September 2022

Agreeing with the View of CA Aakarsh Jain. No Audit required in the above cases. Just to add to the above Views:

1. If CASH receipt and payments are up to 5% of the total receipt and payments transaction respectively, then the Tax Audit will be applicable only if turnover / gross receipts from business exceeds Rs.10 Crores.

2. As per the changes in the Budget of 2016, businesses with turnover up to Rs.2 crores can opt for presumptive taxation scheme. Earlier this limit was Rs.1 crore.

3. So, If the income of assessee exceeds the maximum exemption limit (i.e. 2 Crores) and he has opted for the Presumptive scheme in any of the last 5 previous years but does not opt for the same in current year, then only in that case Tax Audit becomes applicable.

1 Like