The income tax Department has enabled the tax audit utility form on its portal for financial year 2019-20 and 2020-21.Under the I-T Act, taxpayers are required to get their accounts audited if the sales, turnover or gross receipts of business exceed 10 crore, while in case of professionals; the limit was over 50 lakh in 2020-21 (AY 2021-22).

• (i). ITR filing by taxpayers not covered under audit is extended from 30^th Sep 21 to 31^st Dec 21
• (ii). ITR filing for tax audit cases is extended to 15^th Feb 22
• (iii). ITR filing for transfer pricing is extended to 28^th Feb 22
• (iv). ITR filing of belated or revised return for FY 20-21 is extended from 31^st Dec 21 to 31^st March 22

• (i). Due date to furnish the audit report is extended to 15^th Jan 22
• (ii). Due date to furnish the audit report for transfer pricing cases is extended to 31^st Jan 22

For fiscal 2019-20 i.e. AY 2020-21, limit was 5 crore for businesses and 50 lakh for professionals and due date for original tax audit report was January 15, 2021.
However, companies can still file the revised tax audit report for that year to rectify errors.
If a person is required to get his accounts audited under any other law for example, statutory audit of companies under company law provisions, in such cases, the taxpayer need not get his accounts audited again for income tax purposes. It is sufficient if accounts are audited under such other law before the due date of filing the return. The taxpayer can furnish this prescribed audit report under Income tax law.

If any taxpayer who is required to get the tax audit done but fails to do so, the least of the following may be levied as a penalty:

•  0.5% of the total sales, turnover or gross receipts
•  1,50,000

However, if there is a reasonable cause of such failure, no penalty shall be levied under section 271B.So far, the reasonable causes that are accepted by Tribunals/Courts are:

The penalties in India for not filing Tax Returns in time i.e. by 31st March following the taxable financial year which may range from 5,000 to 10,000 in addition to interest payable at 1% per month on the unpaid taxes.

•  The most severe consequences of not filing a tax return on time is that one loses the benefit of carry forward of any losses that may have incurred which cannot be set off against the same year’s income. These losses can be in the nature of capital losses in case of individuals or it may also be losses incurred in the business or profession. Hence one loses the tax shield which they would have gained if they had recouped these losses to their portfolio through profits in the subsequent years. The taxes that you end up paying in the subsequent years on the profits are the real penalty in such a case.
•  Further if you are entitled to a tax refund then normally you will get an interest of 6% per annum from 1st April before the due date till the issue of the refund. In case you file the return late you lose the opportunity of getting the interest for the period from April till the month in which you filed the return.
•  If you have earned foreign income and have paid foreign taxes on such income, then the law requires you to file a form prior to return filing in India for claiming credit on such foreign taxes in order to avoid double taxation. If you forget to file that form in time, you may not get the credit of the foreign taxes paid by you.

1. The tax auditor should obtain from the assessee a letter of appointment for conducting the audit as mentioned in section 44AB.
2. The tax auditor is required to upload the tax audit report directly in the e-filing portal. In case of joint auditors, management representation has to be obtained about responsibility of uploading Tax Audit Report & ITR by particular auditor.
3. The appointment of the auditor for tax audit in the case of a company need not be made at the general meeting of the members. It can be made by the Board of Directors or even by any officer, if so authorized by the Board in this behalf.
4. The appointment in the case of an assessee, being a firm or a proprietary concern, can be made by a partner or a person authorized by the assessee in the case of a firm or by the proprietor himself or a person authorized by him in the case of the assessee being a proprietary concern.
5. It is possible for the assessee to appoint two or more chartered accountants as joint auditors for carrying out the tax audit, in which case, the audit report will have to be signed by all such chartered accountants. In case of disagreement, they can give their reports separately.
6. The Act prohibits a relative or an employee of the assessee being appointed as a tax auditor under section 44AB, besides ICAI has also laid in the code of ethics that a Chartered Accountant should not express his opinion on financial statements of any business or enterprise in which he, his firm or a partner in his firm has a substantial interest.
7. A chartered accountant who is responsible for writing or maintenance of the books of account of the assessee should not audit such accounts (including tax audits). This principle will apply and extend to any partner of such a chartered accountant as well as to the firm in which he is a partner.
8. The audit of accounts of a Firm of chartered accountants, under section 44AB, cannot be conducted by any partner or employee of such a firm. Similarly, where such a firm is a proprietary one, the said audit cannot be conducted by the proprietor or his employee.
9. A chartered accountant/ firm of chartered accountants, who is appointed as tax consultant of the assessee, can conduct tax audit under section 44AB. But an internal auditor of the assessee cannot conduct tax audit if he is an employee of the assessee.
10. The tax auditor cannot be removed on the ground that he has given an adverse audit report or the assessee has an apprehension that the tax auditor is likely to give an adverse audit report. If there is any unjustified removal of tax auditors, the Ethical Standards Board constituted by the Council of the Institute if approached, may intervene in such cases. No chartered accountant should accept the audit assignment if the removal of his predecessor is not on valid grounds.

Specified Number of Tax Audit Assignments It is to be noted that a Chartered Accountant in practice can conduct 60 tax audits relating to an assessment year. The ICAI had clarified that audit prescribed under any statute which requires the assessee to furnish an audit report in the form as prescribed under section 44AB of the Income-tax Act, shall not be considered for the purpose of reckoning the specified number of tax audit assignments if the turnover of the assessee is below the turnover limit specified in section 44AB of the Income-tax Act. The ICAI has modified the guidelines on August 23, 2018 to provide that the audits conducted under Section 44AD, 44ADA and 44AE of the Income-tax Act (Presumptive Taxation Schemes) shall not be considered for the purpose of reckoning the ‘specified number of tax audit assignments’ Before accepting a tax audit, the chartered accountant should ensure that taking such audit will not exceed the specified number of tax audits assignments, which at present are 60 in a given financial year. This said specified number of 60 Needless to mention, A Chartered Accountant in practice, is deemed to be guilty of professional misconduct if, he accepts more than 60 tax audit assignments relating to an assessment year.
In case, a member is a partner in a firm of chartered accountants in practice, the ceiling of 60 tax audit assignments shall be computed with reference to each of the partners in the said firm. Where any partner of a firm of Chartered Accountants in practice, is also a partner of any other firm or firms of Chartered Accountants in practice, the ceiling limit of 60 shall apply with reference to all the firms together in relation to such a partner. Similarly, where any partner accepts one or more tax audit assignments in his individual capacity, the total number of such assignments under section 44AB which may be accepted by him whether directly in his individual capacity or as partner in one or more firms of chartered accountants in practice shall not exceed 60 tax audit assignments. If two chartered accountants already in practice or two of such chartered accountants are appointed as joint tax auditors, then the assignment will have to be included in the case of both the members and firms separately. It is, however, clarified that the audit of an assessee head office and branch offices shall be regarded as one tax audit assignment. The audit of one or more branches of the same concern by one Chartered Accountant in practice shall be construed as only one tax audit assignment.
Therefore, if there are 10 partners in a firm of Chartered Accountants in practice, then all the partners of the firm can collectively sign 600 tax audit reports. This maximum limit of 600 tax audit assignments may be distributed between the partners in any manner whatsoever. For instance, 1 partner can individually sign 600 tax audit reports in case remaining 9 partners are not signing any tax audit report.

The responsibility of appointing tax auditors in a company is vested with the Board of Directors. The Board may also delegate this responsibility to any other officer like CEO or CFO. Auditors in a firm or proprietorship can be appointed by a partner, proprietor or a person authorized by the assessee. Moreover, a taxpayer can also appoint two or more chartered accountants as joint auditors for performing the tax audit. In this case, the audit report must be signed by all the joint auditors, if all of them concur with the report. In case of any differences in opinion, the auditors must express their opinion separately through another report.

The tax auditor must obtain a letter of appointment from the concerned assessee before going forward with the tax audit. The appointment letter must be duly signed by the person competent to sign the return of income. The letter must mention the remuneration offered to the auditor. Further, the appointment letter should specify that no other auditor is entrusted with the task for the particular financial year, and could contain details of the previous auditor. The latter is mentioned to facilitate the communication between the appointed auditor and his predecessor.

There are certain prohibitions on the appointment of tax auditors, which are enumerated below:

•  Any member in part-time practice is not eligible to perform tax audit.
•  A chartered account cannot audit the accounts of a person to whom he is indebted for more than 10,000.
•  A statutory auditor will be deemed to be guilty of professional misconduct if he/she accepts the appointment of Public Sector Undertaking/Government Company/Listed Company and other Public Company having turnover of 50 crores or more in a year and accepts any other work, assignment or service in regard to the same undertaking/company on a remuneration which in total exceeds the fee payable for carrying out the statutory audit of the same undertaking/company.
•  The Chartered Accountant who is assigned with the task of writing and maintaining the books of account of the assessee should not audit such accounts.

Some cases may cover those assessees who are wholly outside the preview of income-tax law as well as those whose income is otherwise exempt under the Act. It is felt that neither section 44AB nor any other provisions of the Act stipulate exemption from the compulsory tax audit to any person whose income is exempt from tax. This section makes it mandatory for every person carrying on any business or profession to get his accounts audited where conditions laid down in the section are satisfied and to furnish the report of such audit in the prescribed form.

•  A trust/association/institution carrying on business may enjoy exemptions as the case may be under sections 10(21), 10(23A), 10(23B) or section 10(23BB) or section 10(23C) or section 11.
•  A co-operative society carrying on business may enjoy deduction under section 80P. Such institutions/associations of persons will have to get their accounts audited and to furnish such audit report for purposes of section 44AB if their turnover in business exceeds the prescribed limit.
•  Only Agriculture Income (Tax Audit Not Applicable) But an agriculturist, who does not have any income under the head “Profits and gains of business or profession” chargeable to tax under the Act and who is not required to file any return under the said Act, need not get his accounts audited for purposes of section 44AB even though his total sales of agricultural products may exceed the prescribed limit.
•  Non-Residents: –
  The case of non-residents may be considered separately.
  Section 44AB does not make any distinction between a resident and non-resident. Therefore, a non-resident assessee is also required to get his accounts audited and to furnish such report under section 44AB if his turnover/sales/gross receipts exceed the prescribed limits. This audit, however, would be confined only to the Indian operations carried out by the non-resident assessee since he is chargeable to income-tax in India only in respect of income accruing or arising or received in India.

Clause 8A has been modified to include if the assessee is exercising the of option u/s 115BAC or 115BAD (two new concessional rates introduced in Finance Act 2020) with already existing 115BA/ 115BAA/ 115BAB for companies.

•  Taxpayer being an individual or HUF can go for new option u/s 115BAC when he opts to pay income tax under the new tax regime; wherein there are lower tax rates but does not allow certain deductions and exemptions; or
•  Taxpayer being a Resident Co-operative Society can go for new option u/s 115BAD providing a benefit of a lower tax rate of 22% but subject to non-availing for certain deductions and exemptions and other conditions.
•  Auditor should ensure to obtain a copy of Form 10-IB / 10-IC / 10-ID / 10-IE / 10-IF for opting to apply section 115BA / 115BAA / 115BAB / 115BAC / 115BAD respectively and report accordingly.

ICAI has through a Guidance Note clarified the following points:-

1. Where a person is carrying on 2 Business/2 Professions– the total turnover of both the businesses shall be clubbed together and tax audit shall be liable to be conducted if the Total Turnover exceeds 1 Crore/ 25 Lakhs as the case may be.
2. Where a person is carrying on business as well as profession and the Turnover of the business is 1.2 Crore and the Gross Receipts of the profession is 22 Lakhs. In such a case, ICAI has clarified through a Guidance Note that the Assessee is liable to get the Tax Audit done of both the business as well as profession because the Gross Receipts from the business exceed the limit of 1 Crore. However, if his Total Turnover was 95 Lakhs and Gross Receipts from business was 22 Lakhs, he would not be required to get his Tax Audit done.
3. In case where a person has a total turnover of 98 Lakhs and has sold a Car for 8 Lakhs- In such a case, the total amount on adding up becomes 1.06 Lakhs i.e. above 1 Crore. Confusion arose whether the person is liable to get an audit done in this case and ICAI has clarified that the turnover will not include any amount on the sale of the fixed asset as it was held by the person for business use and not for the purpose of sale.

ICAI has further clarified that the amount received from the following items shall not be included while computing the Total Sales/Total Turnover/ Gross Receipts:-

•  Sale Proceeds of Fixed Assets
•  Sale Proceeds of Assets held as Investments
•  Rental Income
•  Income by way of Interest unless assessable as Business Income
•  Any expense which is reimbursable to the Agent by the Client

The auditor should take care that:

• Taxpayer being an individual or HUF can go for new option u/s 115BAC when he opts to pay income tax under the new tax regime; wherein there are lower tax rates but does not allow certain deductions and exemptions; or
• Taxpayer being a Resident Co-operative Society can go for new option u/s 115BAD providing a benefit of a lower tax rate regime but subject to non-availing for certain deductions and exemptions and other conditions.
• Auditor should ensure to obtain a copy of Form 10-IC / 10-IE / 10-IF for opting to apply section 115BAA / 115BAC / 115BAD respectively.
• In such cases set off of carried forward loss (due to specified sections) or unabsorbed additional depreciation from any earlier assessment year is not allowed. Hence, such details need to be mentioned accordingly in this clause.
• Brought forward losses may pertain to different heads of income such as house property income, profits and gains in business or profession, speculation business or capital gains.
• Information about the pending assessment or appellate proceedings or about delay in filing loss returns should be given.
• The auditor should study the assessment records i.e. income-tax returns filed, assessment orders, appellate orders and rectification/ revision orders for the earlier years and ascertain if the figures / details given in the above clause are correct
• He should be also aware of section 78 regarding Carry Forward and Set Off of Losses in case of Change in Constitution of Firm or on Succession
• Any assessment, rectification, revision or appeal proceedings pending at the time of tax audit should be disclosed in the remarks column by way of information. If consequential orders for any revision/appellate order is yet to be passed, the same can be disclosed along with the impact thereof if Material
• Obtain suitable management representation regarding the carry forward losses and depreciation details.
• Carry forward of losses are restricted in case of firms / LLP u/s 78 and closely held companies u/s 79. Details should be given under this clause, with remarks regarding restriction of carry forward further. In next year the same would not be brought forward loss.
• Auditor should take note that section 78/79 restrictions do not affect the set off of unabsorbed depreciation as it is governed by section 32(2).

• Where change in shareholding of company has taken place in Previous Year due to which losses incurred in preceding Previous Years cannot be carried forward as per Section 79. The change would not affect carry forward of unabsorbed depreciation u/s 32(2). This provision shall not apply to a change in the voting power consequent upon:

1. the death of a shareholder, or
2. On account of transfer of shares by way of gifts to any relative of the shareholder making such gift.
3. any change in the shareholding of an Indian company which is subsidiary of a foreign company arising as a result of amalgamation or demerger of a foreign company subject to the condition that 51 % of the shareholders of the amalgamating or demerged foreign company continue to remain the shareholders of the amalgamated or the resulting foreign company.

• Check whether the assessee has incurred any speculation loss referred to in section 73 during the previous year and any loss in respect of speculation business shall not be set off except against profits or gains of another speculation business. No loss shall be carried forward under this section for more than 4 AYs immediately succeeding the assessment year for which the loss was first computed. Speculative transaction does not include derivatives (futures & options) and commodity derivatives.
• Any loss, computed in respect of any specified business referred to in section 35AD and shall not be set off except against profits and gains, if any, of any other specified business.
• In case of a company, please state that whether the company is deemed to be carrying on a speculation business. The auditor should obtain information from the assessee and verify the same from the books of account, income tax returns of earlier years and other relevant documents.
• The admissibility of the aforesaid deductions/exemptions is dependent upon various conditions. It is, therefore, advised that while working out the amount of admissible deduction the tax auditor has to ascertain that those condition stand fulfilled or not.
• For ascertaining this, the auditor should obtain all necessary evidence which would enable him to express the opinion regarding the admissibility of deductions.

• In the case of a sole proprietor being an individual or HUF the auditor would be auditing the accounts of the business / profession and he may have other activities and other sources of income in respect of which tax audit is not mandatory. In such cases the particulars of deductions admissible under Chapter VIA has to be given with reference to the items appearing in the books of accounts of the business/profession which is subject to audit u/s 44AB
• There may be cases where there is difference between the amount claimed by the assessee and the amount computed by the auditor-

1. In such cases it is quite possible that the client's claim is based on some judicial pronouncement on the subject. In such case the tax auditor should report the amount admissible with his comments in Form 3CA/ 3CB.
2. If the claim of the assessee is well-founded and settled by judicial pronouncement the tax auditor may accept the claim but he has to record in his working papers that admissible amount has been reported on the basis of such judicial pronouncement. He may report the amount admissible with his comments in Form 3CA/ 3CB.

The auditor should take the following details from their clients to give a true and fair view about the company affairs:

• Quantitative details of raw material in case of trader and manufacturer. This clause is not applicable to service providers.
• In case of trading concern, quantitative details of principal items of goods traded is required to be disclosed, which are as follows:

1. Opening Stock
2. Purchases during the previous year
3. Sales during the previous year
4. Closing stock
5. Shortage/ Excess, if any.

• Auditor should check the details of purchase, consumption and production of principal items of raw materials and finished goods their yield including by-products.
• Information should be given only in respect of those items where it is practicable to do so, having regard to the records maintained by the Assessee.
• In case adequate records are not maintained / provided by the assessee, the auditor should report the same in Para 3 of Form 3CA or Para 5 of Form 3CB as the case may be. It could be as under:

1. The assessee has not provided / maintained adequate records for our verification regarding the principal items of raw materials, finished products and by-products as required to be reported under clause 35(b) of Form 3CD or
2. As explained by the assessee, keeping in view the nature, volume of the business and due to numerous items, it is not practically possible for the assessee to maintain any stock book to record quantities of each and every inward and outward of such goods on day-to-day basis, hence information under this clause is not feasible.

• Principal items here would mean the items which constitute more than 10% of the aggregate value of purchases, consumption or sales.
• The auditor should obtain the following certified documents for principal items of raw materials, finished products and by-products:

1. Certificate from the assessee certifying the quantity and value of the opening stock, purchases, sales and closing stock.
2. Certificate to the extent of shortage/excess/damage and the reasons for the same.

• Details of tax on distributed profits u/s 115-O which has been Omitted w.e.f. 01.04.2021.
• The auditor should check whether the assessee has received any amount in the nature of dividend u/ (22)(e)and if yes, the details need to be given:

(1). Payment should be made by closely held company i.e., a company in which public are not substantially interested (including unlisted public company).
(2). Payment should be by way of advance or loan or the payment should be on behalf, or for the individual benefit, of the shareholder.
(3). Shareholder must be a person who is the registered / beneficial owner of shares holding not less than 10% of the voting power or to a concern (Company / Firm / HUF / etc.) in which such shareholder is having substantial interest i.e., 20% or more. For this purpose, shareholder as an individual is to be considered and not along with his / her relatives.
(4). Dividend is deemed to the extent to which the company possesses accumulated profits on the date of giving loan / advance.
(5). The dividend taxable u/s 2(22) (e) is restricted to accumulated profits on the date of payment. Thus, the accumulated profits have to be determined as on the date of the payment. Further, if at any time earlier any amount has been taxed under any of the clauses of section 2(22) including clause (e), the accumulated profits will have to be reduced by the amount so taxed.

(6). Where the loan or advance is made by the closely held company to a concern, it is chargeable to tax in the hands of the shareholder and not in the hands of the concern till AY 2018-19. However, the position has been reverted back to be taxable in hands of the shareholder due to non-applicability of section 115-O from 1.4.2021.
(7). Section 2(22) (e) does not include any advance or loan made to a shareholder or the concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company. Some of the decisions have held that `substantial part’ would indicate 20% i.e., where 20% or more funds have been deployed in the business of lending money the test of substantial part will be satisfied.
(8). Various courts have held that trade advances in the nature of commercial transactions would not fall within the ambit of the provisions of section 2(22)(e). Such cases need not be reported as 9. Few cases have also held that inter-corporate deposits are not loans.
(10). There are various cases in favor of assessee taking loan due to commercial expediency, etc. which the auditor should be aware of.

• The auditor should obtain list of all loans / advances received during the year by the assessee to test it for applicability of section 2(22)(e). In case the assessee has not received any such amount during the year, no reporting may be required under this clause.
• Where the assessee has received any loan or advance from any company, the auditor should obtain its list of shareholders to test 10% / 20% test as discussed above.
• The auditor should also obtain the financial statements of that company to ascertain its accumulated profits.
• The auditor may not be able to determine the accumulated profits of the closely held company making the payment for various reasons. He may not have access to the records of such closely held company, etc. In such a case the auditor should include appropriate remarks in clause (3) of Form No. 3CA or clause (5) of Form 3CB, as the case may be, about the methodology adopted by him, which could be as the assessee could not provide appropriate information / details to determine accumulated profits to enable us to report that the loan / advance received by the assessee is deemed dividend or not u/s 2(22) (e).
• He should also obtain from the assessee a certificate containing list of closely held companies in which he is beneficial owner of shares carrying not less than 10% of the voting power and list of concerns in which he has substantial interest.
• He should also obtain a certificate from the assessee giving particulars of any loans or advances received by any concern in which he has substantial interest from any closely held company in which he is beneficial owner of shares carrying not less than 10% voting power.
• If reliance has been placed on any judicial decision, a reference of the same may be given by the auditor as observations in clause (3) of Form No. 3CA or clause (5) of Form 3CB, as the case may be.

Finance Act, 2020 has introduced a proviso to sec 44AB (a) to encourage less-cash economy and to encourage digital transactions. If the turnover of the assessee is up to 5 crores and his cash receipts are up to 5% of total receipts and the cash payments are up to 5 % of total payments, then the assessee would not be required to get his books of accounts audited.The Finance Act, 2021 has increased the threshold limit of turnover for tax audit u/s 44AB from 5 crores to 10 crores where cash transactions do not exceed 5% of total transactions. This amendment will take effect from 1st April 2021 and will, accordingly, apply in relation to the assessment year 2021-22. Thus, the higher limit of turnover will take effect from F.Y. 2020-21 itself.The Finance Act, 2021 has added a new second proviso to section 44AB (a) which is reproduced below-“Further it was provided that 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.”

As per provisions of section 44AB, turnover limit for tax audit has been increased from 1 crore to 10 crore if receipts and payment are within the permissible cash limit. The Finance Act, 2021 has introduced new proviso to section 44AB (a) wherein it has been stated that transactions through non account payee cheques shall be considered as deemed cash for this clause. This point is very important because large chunk of audit shall be governed on interpretation and adoption of this proviso. Here it is interesting to state that deeming provisions is with respect to only cheques and not for E-Payment or digital payment hence RTGS/NEFT etc. shall always be treated as non-cash. Now most important question is how to prove receipt and payment of cheque through account payee mode is a burning issue as assessee does not possess any documentary evidence thereof and only option left with the assessee to collect scanned copies of all cheques from the bank. After introduction of CTS clearing system, scanned copies all receipts and issued cheques remain with the banks but it is very cumbersome to get scanned copies of cheques from the bank looking to the magnitude of cheques. Though intention of the legislature is to ease the compliance burden of small assessee if they are dealing mostly through banking channel accordingly threshold limit for tax audit shall be 10 crore but

It is to be noted that cash receipts are to be compared with total receipts and cash payments are to be compared with total payments separately. Cash Receipts/Payments are not to be compared with aggregate of receipts and payments.
The expression “aggregate of all amounts received” denotes the Total Receipts of the assessee in cash and through banking channels. Total receipts invariably include receipt from sales or turnover of the business of the assessee. The words ‘in cash’ only includes receipts in cash mode only. In other words, the assessee must have received the amount in cash.
The words ‘said amount’ refers to “aggregate of all amounts received” (Total Receipts) and not to the turnover or sales amount.
Similarly, the expression “aggregate of all payments” denotes the Total Payments of the assessee in cash and through banking channels. Similarly, the words ‘said payment’ refer to the total payment which is invariably the “aggregate of all payments”.
In certain provisions, the law has used the words “an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed” and not the ‘cash’.

Hence transactions in the following modes will be regarded as transactions not carried on in cash-

• Account Payee Cheques
• Demand Draft/Pay Order
• Credit Card
• Debit Card
• Net Banking
• IMPS (Immediate Payment Service)
• UPI (Unified Payment Interface)
• RTGS (Real Time Gross Settlement)
• NEFT (National Electronic Funds Transfer)
• BHIM (Bharat Interface for Money) Aadhaar Pay

Some of the issues in computing the limit of 5% cash transactions (receipts and payments) for the purpose of applicability of higher turnover limit of 5 crore u/s 44AB are discussed below-

1. Capital Contribution: When an Individual/sole proprietor introduces capital in his business in cash, then the same shall not be included in the total receipts in cash of the assessee. This is for the simple reason that one cannot transact with himself.However, the notified ITR forms do not follow this principle. It requires that all the cash receipt of the business including capital contribution should be considered in determining the 5% cash transactions limit.However, in case of partnership firms, the situation is different since a firm is assessed as a separate person under income tax law and is considered distinct from its partners. To clarify, if a firm receives any capital contribution in cash from any partner, it shall be counted towards the limit of 5%.

2. Direct cash deposit into bank account by customers: In this case, it will be included in cash transactions. Even if the assessee debits the bank account in his books, it will be regarded as a cash transaction since the account is ultimately settled in cash. It was held that depositing cash directly in the bank account of the supplier / beneficiary cannot be referred to as payment made through electronic clearing system, covered as an exception under Rule 6DD(c)(v); it was observed that the term use of electronic clearing system through bank account” as stipulated in Rule 6DD(c)(v) would necessarily include the transaction of funds by electronic mode through clearing system i.e. through electronic mode of transfer such as NEFT, RTGS, IMPS, etc.; thus it was opined that, such transaction by depositing cash directly in the bank account of the beneficiary is not routed through any clearing house nor is the money send through electronic mode and therefore such a transaction cannot be covered by Rule 6DD(c)(v) ”; Moreover it was noted that in the absence of adequate evidence to show that the assessee had deposited the amount on the instructions of the beneficiary or due to any business exigency there is no benefit of exemption.

The presumptive scheme of taxation reduces compliance burden on small professions and facilitates ease of doing business. Under the presumptive scheme of taxation, profits are presumed at 50% of the gross receipts. The following Indian assessees are eligible: Individuals Hindu undivided families (HUFs) Partnership firms (note that limited liability partnerships are not eligible)Presumptive taxation for businesses is covered under section 44AD of the income tax act. Any business which has a turnover of less than 2 crore can opt to be taxed presumptively. They must declare profits of 8% for non-digital transactions or 6% for digital transactions, whichever one is applicable. The following businesses are excluded from presumptive taxation:

• Life insurance agents.
• Commission of any kind.
• Running the business of plying, hiring or leasing goods carriages.

• National Defense Fund set up by the Central Government.
• Prime Minister’s National Relief Fund.
• In presumptive taxation under Section 44AD, your net income is considered as 8% of your turnover and you will pay tax on that income.
• If your receipts are in digital (non-cash) form then only 6% of your receipts are your net income and you will pay tax on that income.
• You don’t have to maintain accounting records.
• You don’t have to get your accounting records audited.
• You have to pay advance tax – but instead of estimating income and paying tax each quarter, you can pay all your advance tax before March 31. Advance tax, for taxpayers having opted for the presumptive scheme, is to be paid by 15^th March of the relevant financial year if you expect that your income tax liability will exceed 10,000 in the financial year.

Section 139 is a complete code in itself and it provides the persons who are required to file the return, categories of persons who are required to file, different situations in which the return may be required even without income, due date within which the return should be filed by the taxpayers, etc. Section 139 read with section 119 further empowers the CBDT to further relax the due date if the circumstances or situation so demands.
The assessee other than an assessee referred to in clause (aa) is —

• a company; or
• a person (other than a company) whose accounts are required to be audited under this Act or under any other law for the time being in force; or
• a partner of a firm whose accounts are required to be audited under this Act or under any other law for the time being in force or the spouse of such partner if the provisions of section 5A applies to such spouse]

The 1^st day of October of the assessment year; It may be noted that the due date is 31^st October for certain categories of person specified therein. In clause (ii), it includes “a person (other than a company) whose accounts are required to be audited under this Act or under any other law for the time being in force;”One may note that the trusts are required to get the books of accounts audited under the relevant Act also wherein it is registered. Normally, trusts are registered either under the Society Act, Companies Act, Trust Act etc. All such Act throughout the country stipulates to get the books of accounts of trust audited as a mandatory condition.

Further, the Income Tax Act also provides for the audit of the trust if the income (i.e., gross receipts in general) of such trust exceeds the amount which is not chargeable to tax (i.e., 2.50 Lakh for most of the trust as this is the basic exemption limit which is applicable to individual assessee).In short, the trusts are required to get the books of accounts audited under the Respective Act of their registration as well as under the Income Tax Law.The due date of filing the income tax return is often relaxed / extended by the CBDT to take care of special situations & problems in filing the income tax return. This date of 31^st October for the FY 2020-21 was extended to 15^th February 2022 by the CBDT vide Circular No.9/2021 dated 20.05.2021 and Circular No.17/2021 dated 09.09.2021. This date is further extended to 15^th March 2022 now by Circular NO. 1/2022 dated 11.02.2021.

In short, the due date of filing the audit report by the trust shall be 15^th February 2022 now for the FY 2020-21. It may be noted that there is no special or separate due date for FCRA registered NGO. The date applicable to normal trust would be applicable even to the FCRA registered NGO.

1. being a company or a firm; or
2. being a person other than a company or a firm, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax,

shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed38 form and verified in the prescribed manner and setting forth such other particulars as may be prescribed : Provided that a person referred to in clause (b), who is not required to furnish a return under this sub-section and residing in such area as may be specified by the Board in this behalf by notification in the Official Gazette, and who during the previous year incurs an expenditure of fifty thousand rupees or more towards consumption of electricity or at any time during the previous year fulfils any one of the following conditions, namely :—

1. is in occupation of an immovable property exceeding a specified floor area, whether by way of ownership, tenancy or otherwise, as may be specified by the Board in this behalf; or
2. is the owner or the lessee of a motor vehicle other than a two-wheeled motor vehicle, whether having any detachable side car having extra wheel attached to such two-wheeled motor vehicle or not; or
3. has incurred expenditure for himself or any other person on travel to any foreign country; or
4. is the holder of a credit card, not being an “add-on” card, issued by any bank or institution; or
5. is a member of a club where entrance fee charged is twenty-five thousand rupees or more,

Provided also that a person referred to in clause (b), who is not required to furnish a return under this sub-section, and who during the previous year—

1. has deposited an amount or aggregate of the amounts exceeding one crore rupees in one or more current accounts maintained with a banking company or a co-operative bank; or
2. has incurred expenditure of an amount or aggregate of the amounts exceeding two lakh rupees for himself or any other person for travel to a foreign country; or
3. has incurred expenditure of an amount or aggregate of the amounts exceeding one lakh rupees towards consumption of electricity; or
4. fulfils such other conditions as may be prescribed,

shall furnish a return of his income on or before the due date in such form and verified in such manner and setting forth such other particulars, as may be prescribed.]
Every person in receipt of income derived from property held under trust or other legal obligation wholly for charitable or religious purposes or in part only for such purposes, or of income being voluntary contributions referred to in sub-clause (iia) of clause (24) of section 2, shall, if the total income in respect of which he is assessable as a representative assessee (the total income for this purpose being computed under this Act without giving effect to the provisions of sections 11 and 12) exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1).

If the total income in respect of which such research association, news agency, association or institution, person or fund or trust or university or other educational institution or any hospital or other medical institution or trade union or body or authority or Board or Trust or Commission or infrastructure debt fund or Mutual Fund or securitization trust or venture capital company or venture capital fund is assessable, without giving effect to the provisions of section 10, exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form47 and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1).
The assessee shall be liable to pay simple interest at fifteen per cent per annum, where the return under sub-section (1) or sub-section (2) or sub-section (4) for an assessment year is furnished after the specified date, or is not furnished.
Specified date”, in relation to a return for an assessment year, means,—

1. in the case of every assessee whose total income, or the total income of any person in respect of which he is assessable under this Act, includes any income from business or profession, the date of the expiry of four months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year or the 30^th day of June of the assessment year, whichever is later;
2. in the case of every other assessee, the 30^th day of June of the assessment year.

Where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing Officer may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return : Providedthat where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period allowed, but before the assessment is made, the Assessing Officer may condone the delay and treat the return as a valid return.
A return of income shall be regarded as defective unless all the following conditions are fulfilled, namely:—

• (a). the annexures, statements and columns in the return of income relating to computation of income chargeable under each head of income, computation of gross total income and total income have been duly filled in;
• (b). the return is accompanied by a statement showing the computation of the tax payable on the basis of the return;

• (c). the return is accompanied by the report of the audit referred to in section 44AB, or, where the report has been furnished prior to the furnishing of the return, by a copy of such report together with proof of furnishing the report;
• (d). the return is accompanied by proof of—

• (i). the tax, if any, claimed to have been deducted or collected at source and the advance tax and tax on self-assessment, if any, claimed to have been paid : Provided that where the return is not accompanied by proof of the tax, if any, claimed to have been deducted or collected at source, the return of income shall not be regarded as defective if—

1. a certificate for tax deducted or collected was not furnished under section 203 or section 206C to the person furnishing his return of income;
2. such certificate is produced within a period of two years specified under sub-section (14) of section 155;
3. the amount of compulsory deposit, if any, claimed to have been made under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 (38 of 1974);
4. where regular books of account are maintained by the assessee, the return is accompanied by copies of—
5. manufacturing account, trading account, profit and loss account or, as the case may be, income and expenditure account or any other similar account and balance sheet;

• (ii). in the case of a proprietary business or profession, the personal account of the proprietor; in the case of a firm, association of persons or body of individuals, personal accounts of the partners or members; and in the case of a partner or member of a firm, association of persons or body of individuals, also his personal account in the firm, association of persons or body of individuals;


• (iii). where the accounts of the assessee have been audited, the return is accompanied by copies of the audited profit and loss account and balance sheet and the auditor’s report and, where an audit of cost accounts of the assessee has been conducted, under section 233B 51 of the Companies Act, 1956 (1 of 1956), also the report under that section;


• (iv). where regular books of account are not maintained by the assessee, the return is accompanied by a statement indicating the amounts of turnover or, as the case may be, gross receipts, gross profit, expenses and net profit of the business or profession and the basis on which such amounts have been computed, and also disclosing the amounts of total sundry debtors, sundry creditors, stock-in-trade and cash balance as at the end of the previous year: