Audit under Sec.44AB is applicable to FOUR categories of Assesses. 
FIRST CATEGORY
  • Any person carrying on a BUSINESS
  • Whose total sales, turnover or gross receipts EXCEED Rs.60,00,000/- during the P.Y.
SECOND CATEGRORY
  • Any person carrying on a PROFESSION
  • Whose gross receipts EXCEED Rs.15,00,000/-
THIRD CATEGRORY
  •  Any person whose income is assessed on a PRESUMPTIVE BASIS under SEC. 44AE, 44BB or 44BBB.
  • Where such assessee declare an income LESSER THAN PRESUMED under Sec.44AE, 44BB or 44BBB.
FOURTH CATEGRORY
  • Came into force by virtue of Finance(no.2) Act, 2009, W.e.f  01.04.2011
  • Covers assesses who wants to declare an income LESSER THAN PRESUMED under SEC.44AD.
Note: The Difference between third and fourth category is that In the case of FOURTH CATEGORY, the assesses are subject to audit under Sec.44AB only if their INCOME EXCEEDS THE BASIC EXEMPTION LIMIT.

 

 

 

CRITICAL ANALYSIS OF SEC.44AD:

 

  1. It has been amended from 01.04.2010 to facilitate the business operations of small taxpayers.
  2. ELIGIBLE ASSESSEE:

    A Resident Assesse who is:

    1. an Individual
    2. HUF
    3. Partnership Firm 

               BUT DOES NOT INCLUDE A Limited Liability Partnership.

    • ADDITIONAL CRITERIA:

 

An assessee who has not claimed any deductions under

          • Sec.10A,10AA,10B,10BA or
          • Chapter VI-A under the heading C.

  1. ELIGIBLE BUSINESS:
    • Any business except the business of plying, hiring or leasing goods carriages referred to in Sec.44AE. AND
    • Whose total turnover or gross receipts in the P.Y DOES NOT EXCEED an amount of Rs.60,00,000/-

 The following are the business covered:

          • Manufacturing
          • Trading
          • Wholesale
          • Retail
          • Job Work
          • Service Business
          • Speculative/ non-speculative.

 

Note: This section DOES NOT cover PROFESSION.

 

  1. What do you mean by Total Turnover/Gross Receipts?

 

    • Total turnover/ gross receipts are amount received/ receivable from clients in respect of sale of previous year.
    • Sec.145 relating to METHOD OF ACCOUNTING applicable to Sec 44AD. As per this the assessees have an option to choose either MERCANTILE OR CASH method.
    • Gross receipts are the amounts received from clients for the services provided to be provided and DOES NOT INCLUDE the value of material supplied by the client.

 

  1. How to calculate limit of 60 Lakhs?

 

    • The total turnover and gross receipts should be less than 60 lacs in p.y.
    • It includes ALL THE ELIGIBLE BUSINESS carried on by an ELIGIBLE ASSESSEE during the p.y

 

Here is the Illustration on how to calculate with examples:

1.Mr.X, A resident individual, is carrying on three eligible business, the turnover of which as under:

Business A (Manufacturing) Rs.25 Lacs

Business B (Trading) Rs.15 Lacs

Business C (Service) Rs.25 Lacs

In the above case sec.44AD will not apply as the turnover of eligible business exceed Rs.60 Lacs.

2. Mr.X, A resident individual, is carrying on two business, the turnover of which as under:

Business A (Eligible Business) Rs.55 Lacs

Profession Rs. 10 Lacs

Business B (Transport u/s 44AE) Rs. 6 Lacs

Sec.44 AD and 44AE are applicable as profession is not included under section 44AD and sec.44AD and 44AE are independent of each other.

 

  1. Who bears the ONUS of proof to prove the turnover?
    •  The onus of proof is on assessee.
    • If the assessee is maintaining book it will be easy for him to prove the turnover.

  1. What documents are to be provided to the AO to prove the turnover?
    •  Copies of invoices issued
    • Copies of cash memos
    • Copies of purchase bills
    • Bank statement
    • Inventory details, if any maintained
    • Average G.P.rate applicable to particular business
    • Returns filed under sales tax/vat/excise/service tax laws.

 

  1. Sec.44AD OVERRIDES Sec.28 to 43c:

What are the implications of this? Here are the benefits and losses:

Some of the benefits are

    • If X pays Rs.28,000 for purchase of goods in cash- No disallowance as per Sec.40A (3).
    • If X pays Rs.42,000 to transporter for freight in cash- No disallowance as per Sec.40A (3).

 

Some losses are

    • If X contributes certain sum to national laboratory which qualifies for deduction under sec.35(2AA), if he chooses sec.44AD, he will not be eligible for the benefit of this section.

 

This Article was written by Sujeeth Jain  – a Co-Author of Chartered Accountants Corner, a CA Student from Nellore, Andhra Pradesh
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