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Tax audit of sec. 25 company

CA Chandan Singh (Chartered Accountant) (49 Points)

12 June 2015

Whether a company registered under sec. 25 of company act liable for tax audit ?

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ARUL PRADEEP (ARTICLE ASSISSTANT) (175 Points)
Replied 12 June 2015

YES, if the turnover in business exceeds Rs. 1,00,00,000.

Guidance Note on Tax Audit u/s 44AB issued by ICAI may also be reffered as given below: Liability to tax audit - Special cases A question may arise in the case of an assessee whose income is not chargeable to income tax by reason of a specific exemption contained in the law or otherwise, as to whether he is required to get his accounts audited and to furnish such report under section 44AB.

Such cases may cover those assessees who are wholly outside the purview of income tax law as well as those whose income is otherwise exempt under the Act. It is felt that neither section 44AB nor any other provisions of the Act stipulate exemption from the compulsory tax audit to any person whose income is exempt from tax. This section makes it mandatory for every person carrying on any business or profession to get his accounts audited where conditions laid down in the section are satisfied and to furnish the report of such audit in the prescribed form. A trust/association/institution carrying on business may enjoy exemptions as the case may be under sections 10(21), 10(23A), 10(23B) or section 10(23BB) or section 10(23C) or section 11. A cooperative society carrying on business may enjoy deduction under section 80P.

Such institutions/associations of persons will have to get their accounts audited and to furnish such audit report for purposes of section 44AB if their turnover in business exceeds Rs.40 lakhs. But an agriculturist, who does not have any income under the head "Profits and gains of business or profession" chargeable to tax under the Act and who is not required to file any return under the said Act, need not get his accounts audited for purposes of section 44AB even though his total sales of agricultural products may exceed Rs.40 lakhs. It may be appreciated that the object of audit under section 44AB is only to assist the Assessing Officer in computing the total income of an assessee in accordance with different provisions of the Act. Therefore, even if the income of a person is below the taxable limit laid down in the relevant Finance Act of a particular year, he will have to get his accounts audited and to furnish such report under section 44AB, if his turnover in business exceed Rs.40 lakhs. The case of non-residents may be considered separately. Section 44AB does not make any distinction between a resident or non-resident.

Therefore, a non-resident assessee is also required to get his accounts audited and to furnish such report under section 44AB if his turnover/sales/gross receipts exceed the prescribed limits. This audit, however, would be confined only to the Indian operations carried out by the non-resident assessee since he is chargeable to income-tax in India only in respect of income accruing or arising or received in India.