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Audit of Accounts – Sec 44AB

U.C Date : 25 Apr 2016

The following persons are required to get their accounts audited by a practicing Chartered Accountant –

(a) A person carrying on business If the total sales, turnover, gross receipts exceeds Rs. 1 crore in the relevant year. If a person files his return under section 44AD and his turnover is more than 1 crore even then he is not required to conduct audit if he not falls in point (d) below.
(b) A person carrying on profession The total gross receipts exceeds rs. 25 lakh during the relevant year. From financial year 2016-17 this limit is raised to Rs. 50 Lakhs.
(c) A person covered under section 44AE, 44BB, 44BBB If such person claims his profit to be lower than the profits computed under these sections in the relevant  year or any preceding year. (Turnover is irrelevant here)
(d) A person covered under section 44ADA If such person claims that the profits are lower than the profits computed under this section and if his income exceeds the maximum amount not chargeable to tax in relevant year or any preceding year.
(d) A person covered under section 44AD If such person claims that the profits are lower than the profits computed under this section and if his income exceeds the maximum amount not chargeable to tax in relevant year or any preceding year.

A confusion has been created when the limit under section 44AD is increased to Rs. 2 crore. It is now clarified by department that assessee with turnover of more than rs. 1 crore but less than rs. 2 crore and filing return under section 44AD is not required to conduct audit under this section. Press Release – 20th June 2016

In the current scenario the audit report is not required to be furnished along with the return of income, but is required to get it before the due date of furnishing return of income under section 139(1).

The audit form no. 3CB is used and statement of particulars in form no. 3CD are to be prepared.

If the person is required to get his accounts audited under any law, then such audit is sufficient if accounts are audited under such law before due date under section 139(1) and form no. 3CA is to be used instead of 3CB.

Determination of turnover for purpose of audit under section 44AB in case of speculation business, shares trading, futures/options trading.

Penalty under Section 44AB

If any person who is required to get his audit done under this section but fails to do so before the specified date shall be liable to penalty under section 271B of 0.50% of the turnover/gross receipts subject to a maximum penalty of Rs. 1,50,000.

However, Section 273B states that no penalty shall be levied under section 271B if there is a reasonable cause for such failure. Some instances which have been accepted by the Tribunals/Courts as “Reasonable Cause” are:-

  1. Resignation of the Tax Auditor and Consequent Delay
  2. Death or physical inability of the partner in charge of the Accounts
  3. Labour Problems such as strikes, lock-outs for a long period
  4. Loss of Accounts because of Fire/Theft etc. beyond the control of the Assessee
  5. Natural Calamities

Bare Act for Sec 44AB

Bare Act for Sec 44AB

Every person,—

(a)  carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds [one crore rupees] in any previous year; or

(b)  carrying on profession shall, if his gross receipts in profession exceed [twenty-five lakh rupees] in any [previous year; or (fifty lakh rupees from financial year 2016-17).

(c)  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 44AE ] [or section 44BB or section 44BBB], as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any [previous year; or

(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 so deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,]get his accounts of such previous 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 such accountant and setting forth such particulars as may be prescribed :

Following text is replaced for sub clause (d) above  from financial year 2016-17-

[(d)  carrying on the profession shall, if the profits and gains from the profession are deemed to be the profits and gains of such person under section 44ADA and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his profession and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, or] get his accounts of such previous 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 such accountant and setting forth such particulars as may be prescribed :

Sub section (e) inserted from financial year 2016-17 –

(e) carrying on the business shall, if the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,.

[Provided that this section shall not apply to the person, who derives income of the nature referred to in section 44B or [section 44BBA], on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later :

Provided further that] in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and [furnishes by] that date the report of the audit as required under such other law and a further report [by an accountant] in the form prescribed under this section.

Explanation.—For the purposes of this section,—

(i)  “accountant” shall have the same meaning as in the Explanation below sub-section (2) of section 288;

[(ii)  “specified date”, in relation to the accounts of the assessee of the previous year relevant to an assessment year, means [the due date for furnishing the return of income under sub-section (1) of section 139].

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