Question ID : 32764

Income Tax Audit under section 44AB and 44AD

Thank you very much in advance  An assesee is having turnover as under As per Profit and loss account                 Rs 88 lakhs (EXCLUDING TAXES) where As per sales register                               Rs 1.2 crores ( INCLUDING TAXES)  Q.1 Turnover Excluding Taxes or Turnover including taxes is to be considered  for audit u/s 44AB ?  Q.2  If assesee selects section 44AD, turnover limit for audit is Rs 2 Crores and he will not be liable for audit  . Is there any benefits in opting section 44AD as comared to section 44AB.?  

Answer ID : 71901

Its well settled question - Turnover under GST is defined as exclusive of Taxes, but Turnover under Income Tax is not defined, but its no where excluded and ICDS mandates inclusion of Taxes. So Turnover while opting under section 44AD will be 1.2 Crore, and in case of 44AB also 1.2 Crore. Benefit of 44AD vs 44AB depends on case to case. Reference: Sec145A - the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation. Reference: ICDS 2 (Measurement of Inventories) - Purchase cost shall include purchase price inclusive of duties and taxes, freight inwards and other expenses directly related to purchase. Trade discounts, rebates, etc. will not be included.

Answer ID : 71902

its well settled question, Turnover under GST is defined as exclusive of Taxes and cess, but under income tax Turnover is not defined. Under income tax Turnover is considered inclusive of taxes on the basis of two provisions, first sec. 145A and second ICDS 2., both provides for valuation and cost of purchases and inventories. Sec 145A - the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation. ICDS 2 - Purchase cost shall include purchase price inclusive of duties and taxes, freight inwards and other expenses directly related to purchase. Trade discounts, rebates, etc. will not be included. So under income tax Turnover shall be inclusive of all taxes. in the given case 8% or 6% presumptive income u/s 44AD shall be computed on Rs. 1.2 Crore. Further Benefits of sec. 44AD over 44AB or vice versa depends on case to case.

Answer ID : 71908

1. Excluding GST, 2. No books required, no audit required, he can file ITR 4 instead of ITR3

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