Tax Audit Under Section 44AB of Income Tax Act, 1961

Person carrying on business to get his accounts audited if his total sales, turnover, etc., exceeds the specified amount [Section 44AB(a)]:

Every person carrying on business shall if his total sales, turnover or gross receipts, in business exceed ₹1 crore in any previous year, get his accounts of such previous year audited by a “Chartered Accountant in Delhi” before the specified date and furnish by that date the report of such audit in the prescribed form, duly signed and verified, by such accountant.

Threshold limit of tax audit increased from ₹1 crore to ₹10 crore in case of person carrying on business subject to certain conditions being satisfied [Proviso to section 44AB(a)]

In order to reduce compliance burden on small and medium enterprises, the following proviso to increase the threshold limit for a person carrying on business from ₹1 crore to ₹10 crore in cases where,-

1. a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed 5% of the said amount; and
2. 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.

For the purposes of this clause, the payment or receipt, as the case may be, by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt, as the case may be, in cash.”

2. Person carrying on profession to get his accounts audited if his gross receipts in profession exceeds the specified amount [Section 44AB(b)]: In the case of a person carrying on profession, the provisions for compulsory audit are applicable if his gross receipts in profession exceed ₹50,00,000 in any previous year.
3. In case the assessee has claimed his income under section 44AE, section 44BB and section 44BBB to be lower than the profits or gains so deemed to be the profits and gains of his business [Section 44AB(c)]: Where a person who is carrying on the business and is covered under section 44AE, 44BB or 44BBB and claims that his income from the said business is lower than the deemed profits and gains computed under the said relevant of such previous year audited by a Chartered Accountant sections, he shall get his accounts on or before the specified date.
4. In case the assessee has claimed his income under section 44ADA to be lower than 50% of the gross receipt of the profession[Section 44AB(d)]: Where a person who is carrying on a profession referred to in section 44ADA and claims that:

(i) income from such profession is lower than 50% of the gross receipt of the profession; and

(ii) his income exceeds the maximum amount which is not chargeable to income-tax        in any previous year

he shall get his accounts of such previous year audited by a Chartered Accountant on or before the specified date.

5. In case of a person carrying on a business in whose case section 44AD(4) is applicable [Section 44AB(e)]: A person carrying on a business shall,-

– if the provisions of section 44AD(4) are applicable in his case, and

– his income exceeds the maximum amount which is not chargeable to income-tax in any previous year

get his accounts of such previous year audited by a Chartered Accountant on or before the specified date

where assessee was only a partner in a partnership firm and was not carrying on any business independently, remuneration received by assessee from said partnership firm could not be treated as gross receipts of assessee and, accordingly, assesse was justified in not getting her accounts audited under section 44B with respect to such remuneration [Perizad Zorabiese lines vs PCIT [2022] 139 taxmann.com 164 (Bom)]

Meaning of specified date [Clause (ii) of the Explanation to section 44AB]: Specified date, in relation to the accounts of the assessee of the previous year relevant to an assessment specified date, in one month prior to the due date for furnishing the return of income under section 139(1).

In other words, it shall be:

(i) 31st October (as the due date of furnishing the return under section 139(1) is 30th November) of the relevant assessment year in case the assessee has undertaken any international transaction as per section 92B or specified domestic transaction as per section 92BA, and

(ii) 30th September (as the due date of furnishing the return under section 139(1) is 31st October) of the relevant assessment year in case of any other assessee.

Report of Audit of Accounts [Rule 6G]

1. The report of audit of the accounts of a person required to be furnished under section 44AB shall: a) in the case of a person who carries on business or profession and who is required by or
2. b) in the case of a person who carries on business or profession, but not being a person referred to in clause (a), be in Form No. 3CB;
3. The particulars which are required to be furnished under section 44AB shall, in the case of a person carrying on business or profession, be in Form No. 3CD.
4. The report of audit furnished under this rule may be revised by the person by getting revised report of audit from an accountant, duly signed and verified by such accountant, and furnish it before the end of the relevant assessment year for which the report pertains, if there is payment by such person after furnishing of report under sub-rules (1) and (2) which necessitates recalculation of disallowance under section 40 or section 43B. 

Consequences of failure to get accounts audited [Section 271B]

If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of ₹1,50,000/, whichever is less.

However, in view of the specific provisions contained in section 273B, no penalty is imposable on the assessee for the above failure if he proves that there was reasonable cause for the said failure.

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