Relief from tax audit under section 44AB

CA V.K. Subramani

Tax audit under section 44AB of the Income Tax Act, 1961 has provided transformational change in tax compliance by the taxpayers. It has put the responsibility on the tax auditors to report and the taxpayers hence have to meticulously follow legal compliances to avoid adverse reporting in the tax audit report which in the recent times has become very elaborate and demanding specific answers.

Section 44AB has 5 clauses. Clause (a) mandates audit where the gross receipt or turnover exceeds Rs.100 lakhs. The proviso to the clause (a) provides relief from audit where the total sales, turnover or gross receipt does not exceed Rs. 10 crore if the following conditions are satisfied :--

(a) where the aggregate of all amounts received for sales, turnover or gross receipts during the previous year, in cash does not exceed 5% of the said amount ; and

(b) aggregate of all payments made including amount incurred for expenditure, in cash, during the previous year does not exceed 5% of the said payment.

Thus, persons engaged in F and O transactions which is not a speculation business and those engaged exclusively in intra day trade in shares could satisfy the above conditions and need not get the books of account audited under section 44AB and can furnish the ITR as per the results reflected in the books of account.

Yet another aspect regarding relief from tax audit could to those taxpayers having turnover below Rs. 100 lakhs and have income below the limit chargeable to income tax. This would mean that if the total turnover is below Rs. 100 lakhs and say the income is below the basic exemption limit say total income is Rs. 2,40,000 the taxpayer can furnish the book results and need not get the books audited.

For this reference is invited to clause (e) of section 44AB which refers to section 44AD(4) which debars a taxpayer from availing presumptive provision for 5 years if has opted out of the section 44AD. Thus, even where the taxpayer has opted out of section 44AD if the turnover is less than Rs. 100 lakhs, though he could not get back to section 44AD, he can admit income as per book results if the income is below the taxable limit.

This in a way would permit partnership firms to claim deduction under section 40(b) viz. working partner remuneration and interest on capital in case the total income after such deduction is negative or nil.