Many of us were in the belief that those assessees having loss from business and having turnover less than Rs. 2 crore are required to get their accounts audited U/s 44AB r/w section 44AD or those assesses having loss from profession and having professional receipts less than Rs 50 lakhs are required to get their accounts audited u/s 44AB r/w section 44ADA but that is not the case.
Sub Section (1) of section 44AD reads as follows:
(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession” :
Provided that this sub-section shall have effect as if for the words “eight per cent”, the words “six per cent” had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.
Sub section (4) of section 44AD reads as follows:
(4) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).
Sub section (5) of section 44AD reads as follows:
(5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable 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.
Sub Section (1) of section 44ADA reads as follows:
(1) Notwithstanding anything contained in sections 28 to 43C, in the case of an assessee, being a resident in India, who is engaged in a profession referred to in sub-section (1) of section 44AA and whose total gross receipts do not exceed fifty lakh rupees in a previous year, a sum equal to fifty per cent of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession”.
Sub Section (4) of section 44ADA reads as follows:
(4) Notwithstanding anything contained in the foregoing provisions of this section, an assessee who claims that his profits and gains from the profession 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 (1) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.
Simultaneous reading of sub sections (1), (4) and (5) of Section 44AD and sub section (1) and (4) of Section 44ADA brings to light the following points:
♠ The profits of an assessee engaged in eligible business under the head ‘Profits and gains from business and profession shall be deemed to be equal to 8% or 6% or 50% of the total turnover or gross professional receipts as per the case of the asessee or such higher amount as may be claimed by the assessee.
Ques: What if the profits of an assessee engaged in eligible business are actually less than 8% or 6% or 50% of the turnover or gross receipts of the business or profession?
Ans: If an assessee claims that his profits and gains from eligible business are less than 8% or 6% or 50% of the total turnover or gross receipts and whose total income exceeds the maximum amount not chargeable to tax, the asseessee shall maintain the books of account as prescribed U/S 44AA and get them audited under section 44AB of the Act.
Here the catch lies in the words ‘and whose total income exceeds the maximum amount which is not chargeable to income-tax’
Since the words start with ‘and’ therefore both the conditions need to be fulfilled for an assessee to be required to get his accounts audited u/s 44AB.
Ques: What are the conditions to require the assessee to get the accounts audited u/s 44AB read with section 44AD or Section 44ADA in case the turnover is less than Rs. 2 crore or Gross receipts are less than 50 Lakhs from eligible business or profession?
Ans: 1) The assessee should keep the books of account as prescribed under 44AA and the profits claimed as per those books of account shall be less than 8% or 6% or 50% of the gross receipts or turnover of the business/ profession.
♠ The second condition in order to mandate tax audit u/s 44AB is that the total income of the assessee should exceed the maximum amount not chargeable to tax under the Income Tax Act’1961.
Now let us consider the case of a partnership firm which is engaged in eligible business as per section 44AD and whose turnover is say Rs. 80 lacs in the preceding Financial Year 2020-21 and which shows Net loss from business of Rs. 50,000/-.
Is this firm required to get the accounts audited under section 44AB read with section 44AD of the Income Tax Act’1961?
The answer is ‘No’ because if we read section 44AD carefully, the audit is required where profits are less than 8% or 6% of the gross receipts or turnover and the income exceeds maximum amount not chargeable to tax.
Since, the firm is taxed at an income starting from Rs. one, therefore the maximum amount not chargeable to tax is nil.
In case of loss, since there is no income, therefore it does not exceed the maximum amount not chargeable to tax and so the second condition mandating tax audit u/s 44AB r/w section 44AD is not satisfied and therefore the assessee is not required to get the accounts audited u/s 44AB.
Therefore, in case of assessees other than companies, professionals, assessees having agency business (Those on whom section 44AD/ 44ADA is not applicable) having turnover less than Rs.2 crore or business receipts less than 50 lakhs and showing loss from business shall not be required to get the accounts audited U/s 44AB if they do not have any other income other than income from eligible business and the due date for such assessees shall be 31st July of the Assessment Year and not 30th September.
Therefore such assessees should file the return of income by the 31st July of the Assessment Year without audit report as the loss will not be carried forward due to late filing of the Income Tax Return after the due date.
Hope you find the above information relevant and useful in your daily practice.
(The author is a CA in practice at Delhi and can be contacted at: E-mail: capratikanand@gmail.com, Mobile: +91-9953199493)
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(Republished with Amendments by Team Taxguru)
