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Audit of Accounts – Sec 44AB

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

 

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