The tax audit was introduced by section 11 of the Finance Act, 1984, which inserted a new section 44AB with effect from 1st April, 1985 [Assessment Year 1985-86]. This section makes it obligatory for a person carrying on business / profession to get his accounts audited by a chartered accountant, and to furnish by the ‘specified date’, the report in the prescribed form of such audit,
A. For a Business, if the total sales, turnover or gross receipts in such business in the relevant previous year exceed or exceeds the prescribed limit (Rs. One Crore w.e.f. A.Y. 2013-14).
B. For a profession, the provisions of tax audit become applicable, if his gross receipts in profession exceed the prescribed limit (Rs. Twenty five Lakhs w.e.f. A.Y. 2013-14) in the relevant previous year.
C. For a Business, if the profits are deemed to be profits of such person under section 44AE or 44BB or section 44BBB, if the assesse claims his income to be lower than the limits specified under these sections.
D. For a Business, if the profits are deemed to be profits of such person under section 44AD, if the assesse claims his income to be lower than the limits specified under the said section and his income exceeds the maximum amount not chargeable to tax.
MEANING OF SALES, TURNOVER OR GROSS RECEIPTS
Turnover is the aggregate amount for which sales are affected or services are rendered by an enterprise.
Not to be deducted:
1. Cash discount otherwise than that allowed in a cash memo/sales invoice is in the nature of a financing charge and is not related to turnover. The same should not be deducted from the figure of turnover.
2. If sales tax and excise duty are included in the sale price while accounting, then Turnover shall include these taxes.
3. Scrap Sales shall form part of Turnover.
To be deducted:
1. Trade discounts (i.e. Discount shown in Sales Invoice) can be deducted from sales but not the commission allowed to third parties
2. Turnover discount is normally allowed to a customer if the sales made to him exceed a particular quantity. This being dependent on the turnover, as per trade practice, it is in the nature of trade discount and should be deducted from the figure of turnover even if the same is allowed at periodical intervals by separate credit notes.
3. If the Excise duty and/or sales tax recovered are credited separately to Excise duty or Sales tax Account (being separate accounts) and payments to the authority are debited in the same account, they would not be included in the turnover.
4. Sales Returns
5. Sale proceeds of any shares, securities, debentures, etc., held as investment
6. Sale proceeds of property held as investment property
7. Sale proceeds of fixed assets
In case of Consignment Sale/Share Brokers:
If Property in Goods and its significant risk and rewards are transferred to the Agent, the Sale Price of such goods shall form part of “Turnover” for the Consignment Agent. If not, the sale price shall not be taken into “Turnover”. Share Brokers also purchase and sell shares on behalf of their customers only, and act as an agent hence the Sales of such shares shall not form part of Broker’s Turnover.
In case of Shares, Securities & Derivatives:
Speculative Transactions/ Derivatives/ Futures & Options:
Difference of each transaction shall form part of Turnover. Both Negative & Positive Differences shall be added to arrive at the “Turnover”.
Delivery based Transactions:
Total value of sales shall be “Turnover”.
Gross Receipts will include all receipts whether in cash or in kind arising from carrying on of the business which will normally be assessable as business income under the Act.
To be included:
1. Export incentives.
2. Duty Drawback of Excise, Service Tax or Customs.
3. Lease rentals in case such income is chargeable under Business Income
4. Interest received by a Money Lender
5. Advance Received and forfeited from Customers
6. Insurance Claims – Except for Fixed Assets
Not to be included:
1. Dividend on Shares except in case of assessee dealing in shares
2. Write back of amounts payable to creditors and/or provisions for expenses or taxes no longer required.
ASSESSEE HAVING MORE THAN ONE BUSINESS
In cases, where the assessee carries on more than one business activity, the aggregate sales, turnover and/or gross receipts of all such businesses carried on by the assessee would be taken into consideration in determining whether the prescribed limit laid down under section 44AB has exceeded or not.
However, in case the Turnover of a particular business of the assesse is covered under section 44AD/AE/B/BBA and if the assesse opts to be assessed under these sections on presumptive basis, the Turnover of such business shall be excluded to arrive at the limit prescribed by section 44AB. (i.e. Rs. 1 Crore at present).
also read Practical aspects of tax audit u/s 44AB
also read Practical aspects of tax audit u/s 44AB
CA. PRAMOD JAIN ,B. COM (H), FCA, FCS, FCMA, LL.B, DISA, MIMA