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Practical Guide to Tax Audit - Rajkumar S. Adukia

Sec. 44AB and Related Provisions of the
Income Tax Act, 1961

4.1       Sec. 44AB: Audit of accounts of certain persons     carrying on business or profession

Every person:  

Ø      carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds forty lakh rupees in any previous year, or

Ø      carrying on profession shall, if his gross receipts in profession exceed ten lakh rupees in any previous year; or

Ø      carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD or section 44AE or section 44AF or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year, SHALL

Ø      get his accounts of such previous year audited by an accountant before the specified date, and

Ø      furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed:

 This section shall not apply to the person,

Ø      who derives income of the nature referred to in section 44B or section 44BBA or  on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later:

Ø      where such person is required by or under any other law to get his accounts audited it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report in the form prescribed under this section.

4.2       Sec. 44AD: Special provision for computing profits and    gains of business of civil construction, etc.

Applicable to an assessee engaged in the business of civil construction or supply of labour for civil construction and having gross receipts paid or payable not exceeding an amount of Rs 40 lakh.

Civil construction includes:

      1.          The construction or repair of any building, bridge, dam or other structure or of any canal or road;

      2.          The execution of any works contract.

Income on which tax is payable

8% of the gross receipts paid or payable to the assessee in the previous year on account of such business—Deemed Income,

OR

A sum declared by the assessee in his return of income,

whichever is higher, shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and gains of business or profession notwithstanding anything to the contrary contained in sections 28 to 43C.

Exception

An assessee may claim lower profits and gains than the profits and gains if he keeps and maintains such books of account and other documents as required by section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.

4.3       Sec. 44AE: Special provision for computing profits and    gains of business of plying, hiring or leasing goods    carriages

Applicability

An Assessee, who owns not more than ten goods carriages at any time during the previous year and who is engaged in the business of plying, hiring or leasing such goods carriages.

An assessee, who is in possession of a goods carriage, whether taken on hire purchase or on installments and for which the whole or part of the amount payable is still due, shall be deemed to be the owner of such goods carriage.


 

Income on which tax is payable

Vehicle

Income

A heavy goods vehicle

a) Rs 3500 for every month or part of a month during which the heavy goods vehicle is owned by the assessee in the previous year OR

 

b) an amount declared in his return of income

whichever is higher.

Other than a heavy goods vehicle

a) Rs 3150 for every month or part of a month during which the heavy goods vehicle is owned by the assessee in the previous year OR

 

b) an amount declared in his return of income

whichever is higher

 

Following terms are defined in section 2 of Motor Vehicle Act, 1988.

Sub section (16) ‘heavy goods vehicle’ means any goods carriage the gross vehicle weight of which, or a tractor or a road-roller the unladen weight of either of which, exceeds 12,000 kilograms.

Sub section (15) ‘gross vehicle weight’ means in respect of any vehicle the total weight of the vehicle and load certified and registered by the registering authority as permissible for that vehicle.

Sub section (28) ‘motor vehicle’ or ‘vehicle’ means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding thirty five cubic centimeters.

Exception

An assessee may claim lower profits and gains than the profits and gains if he keeps and maintains such books of account and other documents as required under section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.

4.4       Sec. 44AF: Special provisions for computing profits and gains of retail business

Applicability

Assessee engaged in retail trade in any goods or merchandise, whose total turnover does not exceed an amount of forty lakh rupees in the previous year.

Income on which tax is payable

      1.          5% of the total turnover in the previous year on account of such business, OR

      2.          Sum as declared by the assessee in his return of income;

whichever is higher shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and gains of business or profession.

Exception

An assessee may claim lower profits and gains than the profits and gains if he keeps and maintains such books of account and other documents as required under section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.

4.5       Sec. 44BB: Special provision for computing profits and    gains in connection with the business of exploration, etc., of mineral oils

Applicability

An assessee being a non-resident engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils.

This shall not apply in a case where the provisions of section 42 (Special provision for deductions in the case of business for prospecting, etc., for mineral oil) or section 44D (Special provisions for computing income by way of royalties, etc., in the case of foreign companies.) or section 115A (Tax on dividends, royalty and technical service fees in the case of foreign companies) or section 293A(Power to make exemption, etc., in relation to participation in the business of prospecting for, extraction, etc., of mineral oils) apply for the purposes of computing profits or gains or any other income referred to in those sections.


 

Income on which tax is payable

10% of the aggregate of the following amounts shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and gains of business or profession.

      1.          The amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and

      2.          The amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India.

Exception

An assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under section 143 and determine the sum payable by, or refundable to, the assessee.

4.6       Sec. 44BBB: Special provision for computing profits and             gains of foreign companies engaged in the business of           civil construction, etc., in certain turnkey power             projects

Applicability

Assessee, being a foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government in this behalf.

Income on which tax is payable

10% of the amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and gains of business or profession.

Exception

An assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under section 143 and determine the sum payable by, or refundable to, the assessee.

Thus in all the sections discussed above, viz., section 44AD or section 44AE or section 44AF or section 44BB or section 44BBB there is an exception that an assessee may claim lower profits and gains than the profits and gain specified if he keeps and maintains such books of account and other documents as required under section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.

Other Pages from This e-book

Introduction to Tax Audit | Audits Done Under Income Tax Act, 1961 | Maintenance of Accounts by Certain Persons Carrying on Profession or Business-Sec. |  44AA | Sec. 44AB and Related Provisions of the Income Tax Act, 1961 | A study on Section 44AB | Important Terms and Definitions | Appointment as Tax Auditor | Audit Process | General Considerations by Tax Auditor | Specimen Documentation | Guidance on Form 3CD | Accounting Standards Issued by ICAI | FORM NO. 3CA | FORM NO. 3CB | New Form 3CD as amended by Notification no. 208/2006 dated 10-8-2006 | Relevant Income Tax Provisions | Annexure I to Form 3CD | Annexure II to Form 3CD | About the publisher