Opinion Of Eminent Legal Luminaries On Controversial Issues

Audit of accounts – Business – Profession -Tax Audit u/s. 44AD r.w.s. 44AB

QUERY: ABC partnership firm is engaged in retail business. It sale for F.Y. 2016-17 is Rs. 40/- lakhs. Net profit, before remuneration to partners, but after interest to partners is Rs. 1,40,000/-. The firm gives remuneration Rs. 1,50,000/- to partners and thus, there is a net loss of Rs. 10,000/- In this situation, are books of account of firm liable to Audit under section 44AD r.w.s 44AB?
ANSWER: From the above stated fact, it is clear that during the financial year 2016-17, a firm has incurred loss of Rs. 10,000/-, however, its turnover is less than Rs. 1/- crore, so a firm is eligible assessee under section 44AD of the Act.
So, it has to offer 8% of the total turnover. If it does not offer 8% of the turnover, then whether it will have to get accounts audit under section 44AD r.w.s 44AB?
Sections 44AB(d) and (e) provides that if a person carrying on the business claims that such income to be lower than the deemed profits and gains of his business under section 44AD and his income exceeds the maximum amount which is not chargeable to income tax, then such person has to get his books of account audited.
So to comply with this section, twin conditions have to be fulfilled, one is that he offers less than 8% of the turnover and his income exceeds the basis exemption limit.
In this case, his income is below the taxable limit i.e. loss, hence, he is not liable to get books of account audited.

Posted in Income-tax

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