In the case of an assessee whose income is not chargeable to income-tax by reason of a specific exemption contained in the law or otherwise, whether he is required to get his accounts audited and to furnish such report under section 44AB?

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section 44AB

In the case of an assessee whose income is not chargeable to income-tax by reason of a specific exemption contained in the law or otherwise, whether he is required to get his accounts audited and to furnish such report under section 44AB?

Yes. 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. Section 44AB 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(23A), 10(23B) or section 10(23BB) or section 10(23C) or section 11 etc. A cooperative 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/gross receipts in business exceed Rs.1 Crore. [ICAI Guidance Note on Tax Audit]

Contrary view: In favour of assessee:

  • Penalty under s. 271B—Failure to get accounts audited—Exemption under s. 10(23D)—Sec. 44AB becomes operative when there is computation of profits and gains of business or profession as a part of total income— If there is no computation of total income or, for that matter, no computation of profits and gains of business or profession as a part of computation of total income, provisions of s. 44AB could not apply—When income of assessee was not chargeable to tax under the provisions of s. 10(23D), Assessee therefore, not liable to obtain any audit report within the meaning of s. 44AB [ACIT vs. India Magnum Fund, (2002) 74 TTJ 620]
  • Main object of assessee was to promote and develop game of hockey in country – assessee was not involved in any kind of business activity to earn profit or gains – S. 271B did not apply to assessee’s case [ITO v. Indian Hockey Federation (2012) 49 SOT 162 (Delhi)]

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