Is tax audit applicable to turnover below 1 crore and have loss? - Professionals - Taxation - TIK Share
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Is tax audit applicable to turnover below 1 crore and have loss?


Rahul Rai

2014-04-25

Tax audit is applicable if someone having turnover less than 1 crore claim profit less than 8%.

But if someone file a loss return, is than also Tax Audit is applicable?

Doubt arised because act says profit less than 8%, but here we have the loss. Should the tax audit be conducted in this case?

Vedanta Deshika

2014-04-25

As per Sec 44AD, if assesee claims profit lesser than 8% of turnover, then he is liable to 44AB audit if and only if his income exceeds basic exemption limit. So in case of loss, 44AB audit cannot be done. 

However, the case is different in case of other presumptive sections like 44AE, 44BB,etc where tax audit is mandatory if assessee claims income lesser than that presumed under the section , irrespective of whether the Income exceeds basic exemption limit or not

 

 

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Rahul Rai

2014-04-25

Thanks for the wonderful solution.

So the condition is income should be more than basic exemption limit. But in case of Partnership Firm basic exemption limit does not exist.

What if a partnership have loss, do they need to get the Tax Audit done under section 44ab of Income tax Act or they have to file returns under section 44AD?

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Vedanta Deshika

2014-04-25

Wonderful question.

The solution is simple. Tell me do you want to carry forward your losses or not ?? If yes, you should get the tax audit done no matter if you suffer loss or have zero profit.

Suppose, u declare 8% as profits, you can claim deduction of interest and salary thereon. If after deducting Interest and salary , you end up in loss, tax audit may not be required but in case your losses are huge and you want to carry forward it, go for a tax audit is my advice

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Rahul Rai

2014-04-25

Thanks again. Wonderful answer keeping the benefits in mind, assessee should chose tax audit if loss are more and can componsate the tax audit fees if carried forward.

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Vedanta Deshika

2014-04-25

Rahul Rai,

For an Individual and HUF, there are slabs, hence 44AD provision can be applied straight forward, However, for a Partnership firm , since there is no Slab limit, Tax audit becomes mandatory if you declare profits ( Profits before Interest and salary to partner) below 8% of your turnover.

Suppose, imagine an assesee at the beginning of a FY thinks that he would not cross 1 crore turnover , so he decides that let me offer 8% profits as  per Sec 44AD. So he does not maintain books of accounts as per Sec 44AD(5).

Now, at the end of the year, he comes to know , his profits are leser than 8%.

He is not willing to offer 8%. So, he is willing to get the tax audit.

Now, there is  a violation of Sec 44AD(5) because as per this section , where you declare lesser than 8%, you have to MAINTAIN BOOKS OF ACCOUNT (which is not done) + GET TAX AUDIT.

However, the biggest challenge now is for Chartered Accountants because of Sec 44AD(5).

1. NO BOOKS OF ACCOUNT - What audit will you do ?

2. Can you take the risk of certifying such financials & TAR ?

Think Over before signing any tax audit report(TAR) in loss cases.

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