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conditions for tax audit u/s 44AD

nandkishore (student) (54 Points)

23 May 2011

(This message is specifically to Mr. pratik who replied to me on the above topic).

Under Section 44AD, a person may not be under an obligation to get the accounts audited u/s 44AB merely because he claims that his income is less than 8% of the turnover. The obligation arises only in case his total income exceeds basic exemption limit besides income from business as mentioned above is claimed at less than 8% of the turnover or gross receipts as the case may be.

This is not the case so for business income under section 44AE, 44BB and 44BBB. In this case, the assessee is required to get his accounts audited u/s 44AB if he claims income from business to be lower than amount estimated to be income under that sections, no matter his total income exceeds basic exemption limit or not.

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Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 23 May 2011

There is a provision in Section 44AD.

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 as 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."

From the primary reading it comes to our understanding that the person whose income is less than the basic exemption limit need not maintain books of accounts irrespective of the Net Profit Ratio. But the intention of law here may be as below. I am explaining it with the help of an example.

Suppose the turnover of XYZ Traders is Rs. 19 Lakhs. 8% applied to it u/s 44AD comes to Rs. 1.52 lakhs. In such case, even if the assessee claims his income to be below Rs 1.52 lakhs he need not maintain books of accounts and also need not get books of accounts audited.

Suppose in another case ABC traders has a turnover of Rs. 50 lakhs and he claims net profit of Rs. 1 lakh, it merely 2%. The whole purpose of the section will get defeated. Here the presumptive profit will come to Rs. 4 lakh. Then why will the department allow his not to get his books of accounts audited.