The turnover of a proprietorship firm is Rs. 6.00 Lacs and the net profit is Rs. 25,000 i.e. less than 8%. Is tax audit necessary? Will tax audit be necessary if net loss is there is such a case?
Shreya Aggarwal (Student) (125 Points)
21 August 2011The turnover of a proprietorship firm is Rs. 6.00 Lacs and the net profit is Rs. 25,000 i.e. less than 8%. Is tax audit necessary? Will tax audit be necessary if net loss is there is such a case?
Anumanchipalli Sathikonda
(Tax Consultant)
(1349 Points)
Replied 21 August 2011
Ms.Shreya Aggarwal
Section 44AB(d) reads as under:
Every person
(d) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD and he has claimed such income to be lower than the profits and gains deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chageable to incometax in any previous year,
get his accounts of such prevous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by suh accountant and settting forth such particulars as may be prescribed:
Provided ....
Provided futher ...
Please note the words "and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year".
Hence you may act accordingly.
Best Wishes
Sathikonda
Devendra
(Chartered Accountant)
(4775 Points)
Replied 21 August 2011
Dear Shreya,
In your case, if you are opting to file the Income Tax Return by showing your Net Profit below 8%, then in such a case you shall have to get your Books of Accounts audited u/s 44AB. Also refer Section 44AD for further details.
Regards,
Devendra K
Tehsinkhan Pathan
(CA CMA DISA(ICAI) B.COM)
(3956 Points)
Replied 21 August 2011
NO , IN YOUR CASE , TAX AUDIT WILL NOT BE APPLICABLE......................
PLEASE READ THIS EXTRACT OF SECTION - 44AD MINUTLY :-
SECTION - 44AD(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
The assessee is bound to get the books of accounts audited, if the following two conditions are satisfied:-
His profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) i.e. his net profit is lower than 8% of turnover.
and
2 Whose total income exceeds the maximum amount which is not chargeable to income-tax.
Here see both the conditions are simultaneous and the assessee required to get his accounts audit only and only if his profits from the business u/s 44AD are lower than 8% of this turnover and further his total income is more than maximum amount which is not liable to tax.
Arjit Singhal
(Ca Final (New) Article Assistant Student )
(107 Points)
Replied 21 August 2011
No.. No requirement of audit...
As it is covered under exception of Section 44AD
vaibhav
(CA)
(49 Points)
Replied 21 August 2011
Yes audit is requried as in sec 44AD as rightly quated by Tehsinkhan pathan there has been recent amendment in this section which not only cover retial business by any other business such ' sale purchase of shares etc'.
Vishwas V Rao
( Chartered Accountant)
(239 Points)
Replied 22 August 2011
There is an ammendment wrt this section wef AY 11-12. As per the new ammendment audit is necessary if declared profit is below 8% of turnover.
MOHAMMAD RIZWAN CA-final
(rizwan)
(104 Points)
Replied 22 August 2011
in my opinion ..
in case of firm audited should be done.
but in case of individual firm if total income exceeds the taxable limit then audited should be done
CA PRASHANT KR MISHRA
(AS A MEMBER IN CA FIRM)
(249 Points)
Replied 22 August 2011
NO, TAX AUDIT IS NECCESSARY ONLY IF TURNOVER EXCEED 60LACS
NOTE THAT PERCENTAGE OF PROFIT IS NOT TO BE SEEN
Kamal Gupta
(kmlgupta58@gmail.com)
(23 Points)
Replied 22 August 2011
in my opinion....
audit is necessary in both the below cases:-
1. where the turnover of the assessee exceeds Rs.60 lacs
2.If he declare profit below 8% of his turnover
there is no such a language/provision that if income exceeds the taxable limit in such case audit is necessary
Shreya Aggarwal
(Student)
(125 Points)
Replied 22 August 2011
Thanks all. But we all are having different views here.
Sohil
(Learner)
(631 Points)
Replied 22 August 2011
Vishwas V Rao
( Chartered Accountant)
(239 Points)
Replied 23 August 2011
Till AY 10-11, 44AD was applicable for selected businesses, but from AY 11-12 onwards its applicable for all business except plying and hiring of trucks.
In 44AB there is a clause which says audit is required if profit declared is below the prescribed presumptive income.
So, now when you read 44AD and 44AB together it is clear and evident that a tax audit should be done when you declare a profit below 8%. And its not by choice, its compulsory.
Sohil
(Learner)
(631 Points)
Replied 23 August 2011
But vishwas my doubt as well as the answer to which i also need is.Section 44ad used to apply for some business earlier.Now in f.y.2011-2012 other business are allowed. BUt this section automatically applies or only whe one go for presumptive method.
Now say a person pays tax on say 12% of his profit in normal way(without using presumptive means) maintaining all books.Than its well and good.
Now all of a sudden say profit goes below 8% ,you people are suugesting that audit is necessary under said section.
But at first place if the person haven't opted for presumptive taxation means and profit is less than 8% say ,7% with all expenses included and books of account still maintained than why is audit necessary.
My personal feeling of this concept is if one has opted for presumptive taxation than audit is compulsory if profit shown is less than 8%.
You cant say when profit is more than 8% audit not necessary and once it goes below 8% ,section 44 applies and audit comes.
I have a personal feeling than when one opts for presumptive taxation than only this section applies.
This section is some sort of semi-amnesty declare at 8% and no deduction except 80c applies.And you cant be scrutinised.
DOwnside is of presumptive taxation is no losses can be booked.And if done account should be audited and almost compulsory scrutiny which looks an expensive bet when one is already in loss.
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