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TAX AUDIT SECTION 44AB

CA. BIJENDER KR. BANSAL (ACA, B.COM) (8148 Points)

12 August 2010

X is a sole proprietor. F.y 09-10= Turnover 45 lakh F.y 08-09= Turnover 39 Lakh F.y 07-08= Turnover 50 lakh He has paid a royalty of Rs 35,000/- to a company on march 25, 2009 without deducted TDS. Question is Tax audit u/s 44AB is applicable in this case in FY 2009-10 & Disallowance U/s 40(a)(ia) is applicable in the case or not?

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19 Replies

Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 12 August 2010

TDS provisions in case of an individual is applicable if the individual is liable for audit u/s 44AB in the previous year. In the given case the assessee is not liable for audit u/s 44AB in F. Y. 2008 - 09 and hence TDS provisions are not applicable in F. Y. 2009 - 10. Hence exepense not disallwoable u/s 44AB.

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CMA. CS. Sanjay Gupta ("PROUD TO BE AN INDIAN") (114230 Points)
Replied 12 August 2010

Agree with Aditya Ji. Disallowance Not applicable since tax audit is not applicable in Fy 2008-09.

CA. BIJENDER KR. BANSAL (ACA, B.COM) (8148 Points)
Replied 12 August 2010

Tax audit will be applicable in FY 2008-09 becasue in last previous year 2007-08 turnover is more than 40 lacs.

Tax audit will not be applicable in FY 2009-10 even if its turnover exceeds Rs. 40 lac because previous year 2008-09 turnover is below 40 lacs.

Whether i am right sir ?????????????

Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 12 August 2010

For tax audit u/s 44AB the turnover of the year is to be seen and if turnover for the financial year exceeds Rs. 40 lakhs that year is liable for audit not the next year.

Previous year tax audit applicability is to be seen only in case of applicability of liability to deduct TDS and not for tax audit.

SO ur second post is wrong.

(Guest)

Originally posted by : Aditya Maheshwari
	TDS provisions in case of an individual is applicable if the individual is liable for audit u/s 44AB in the previous year. In the given case the assessee is not liable for audit u/s 44AB in F. Y. 2008 - 09 and hence TDS provisions are not applicable in F. Y. 2009 - 10. Hence exepense not disallwoable u/s 44AB.

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Bhavin Bhadra (Job) (174 Points)
Replied 12 August 2010

Dear all,

For tax audit applicability limit of Rs. 40Lakh turnover is to be considered so Tax audit will be applicable in the F.Y. 2007-08 and F.Y. 2009-10.

TDS Provisions in case of propreitor are applicable only if there is tax audit or last year tax audit had been applicable. Therefore, in this case Royalty payment of Rs. 35000/- will be subject to TDS provisions.

ajithasai (m.ajitha) (95 Points)
Replied 13 August 2010

TDS provisions in case of an individual is applicable if the individual is liable for audit u/s 44AB in the previous year

thank you

regards,

phe9oxis,

CA SURENDRA KUMAR RAKHECHA (Practising CA at Surat) (26263 Points)
Replied 13 August 2010

Agree with CA Aditya's reply.

Dharmendra Jha (Asst. Manager Finance) (100 Points)
Replied 13 August 2010

Agree with Aditya Sir.

(Guest)

Hai..............

Good morning............

Welcome to this forum.....

The fifth revised edition of the Guidance Note on Tax Audit under section 44AB of the Income-tax Act, 1961 incorporates all the amendments made till date including those made by the Finance Act, 2005. It also explains the requirements of the newly introduced Statement of Particulars to be annexed to Form 3CD. The portion relating to appendices have been revised and enlarged extensively to make the Guidance Note a fully comprehensive document on tax audit.

HIGHLIGHTS OF THE FIFTH REVISED EDITION

1. Detailed guidance for determining turnover in the case of transactions in shares and securities.

2. More examples added to illustrate gross receipts.

3. Principles enshrined in a number of Auditing and Assurance Standards incorporated.

4. List of Accounting Standards updated.

5. Applicability of Accounting Standards to Small and Medium Level Enterprises explained.

6. Form NO.3CD – Significant additions.

Clause Additions

8 Reference to the Part B of the new annexure to Form No.3CD in regard to nature of business.

9 Amendments in Rule 6F incorporated

13 Thoroughly updated

14 Portion relating to adjustment of actual cost of plant and machinery for the purposes of claiming depreciation under the Income-tax Act in respect of CENVAT Credit claimed and allowed under the Central Excise Act, - revised.

New section 43A inserted by the Finance Act, 2002 – Legal position at variance with AS 11 – Tax Auditor’s duty explained.

Mandatory depreciation and additional depreciation – Tax Auditor’s duty explained.

17(f) Implications of the new section 40(a)(ia) in regard to inadmissible expenses like interest, commission or brokerage fees for professional services etc. where tax has not been deducted at source or after having been deducted has not been remitted to the Government – explained.

Tax auditor’s duty in respect of STT explained.

21 Significance of amendments made by Finance Acts, 2001 and 2003 explained.

27 Tax auditor’s duty vis-à-vis TDS and E-TDS explained.

New annexure to Form No.3CD Detailed guidance to the members.

Price of the publication 250.

Arrangements will be made to despatch copies to all the Regions/Branches immediately on receipt of the copies.

Have a nice day......

Thank you for sharing with us.....

regards ,

phe9oxis.

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CA Atul (Tax Manager) (294 Points)
Replied 13 August 2010

Compulsory Audit - Whether the provision is applicable to commission agents, arahtias, etc. 1. Section 44AB, as inserted by the Finance Act, 1984, casts an obligation on every person carrying on business to get his accounts audited, if his total sales, turnover or gross receipts, as the case may be, exceed Rs. 40 lakhs in any previous year relevant to the assessment year commencing on 1-4-1985 or any subsequent assessment year. 2. The Board have received representations from various persons, trade associations, etc., to clarify whether in cases where an agent effects sales/turnover on behalf of his principal, such sales/turnover have to be treated as the sales/turnover of the agent for the purpose of section 44AB. 3. The matter was examined in consultation with the Ministry of Law. There are various trade practices prevalent in the country in regard to agency business and no uniform pattern is followed by the commission agents, consignment agents, brokers, kachha arahtias and pacca arahtias dealing in different commodities in different parts of the country. The primary necessity in each instance is to ascertain with precision what are the express terms of the particular contracts under consideration. Each transaction, therefore, requires to be examined with reference to its terms and conditions and no hard and fast rule can be laid down as to whether the agent is acting only as an agent or also as a principal. 4. The Board are advised that so far as kachha arahtias are concerned, the turnover does not include the sales effected on behalf of the principals and only the gross commission has to be considered for the purpose of section 44AB. But the position is different with regard to pacca arahtias. A pacca arahtia is not, in the proper sense of the word, an agent or even del credere agent. The relation between him and his constituent is substantially that between the two principals. On the basis of various Court pronouncements, following principals of distinction can be laid down between a kachha arahtia and a pacca arahtia: (1) A kachha arahtia acts only as an agent of his constituent and never acts as a principal. A pacca arahtia, on the other hand, is entitled to substitute his own goods towards the contract made for the constituent and buy the constituent’s goods on his personal account and thus he acts as regards his constituent. (2) A kachha arahtia brings a privity contract between his constituent and the third party so that each becomes liable to the other. The pacca arahtia, on the other hand, makes himself liable upon the contract not only to the third party but also to his constituent. (3) Though the kachha arahtia does not communicate the name of his constituent to the third party, he does communicate the name of the third party to the constituent. In other words, he is an agent for an unnamed principal. The pacca arahtia, on the other hand, does not inform his constituent as to the third party with whom he has entered into a contract on his behalf. (4) The remuneration of a kachha arahtia consists solely of commission and he is not interested in the profits and losses made by his constituent as is not the case with the pacca arahtia. (5) The kachha arahtia, unlike the pacca arahtia, does not have any dominion over the goods. (6) The kachha arahtia has no personal interest of his own when he enters into transaction and his interest is limited to the commission agent’s charges and certain out of pocket expenses whereas a pacca arahtia has a personal interest of his own when he enters into a transaction. (7) In the event of any loss, the kachha arahtia is entitled to be indemnified by his principal as is not the case with pacca arahtia.

Kalpesh Chauhan, (Tax Assistant (Accounting Technician CA FINAL CS PROF. PROG. B.Com)) (8311 Points)
Replied 15 August 2010

Guidance Note on Tax Audit Under
Section 44AB of the Income-tax Act, 1961

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Attached File : 1_230announ1178.pdf downloaded 1 times

Pankaj Gulati (Tax Advisor) (81 Points)
Replied 15 August 2010

the royalty was paid in fy 8-9 and the TO in fy 8-9 was 39 lac, hence this individual (i.e. prop) was not falling within the provisions of section 44AB. Thus royalty paid is an allowable expense even if no TDS was deducted on it.