If the total sales/turnover/receipts in the business for the previous year exceeds Rs. 60 Lakhs (from the financial year 2010, earlier Rs. 40 Lakh), it is obligatory for the person carrying such business to get its account audited before the specified dates.
The following adjustment can be made in calculating the limit of 60 Lakhs.
- Discount: - trade discount is always allowed on sales invoice which reduce the sales.
- Turnover discount: - in some business there is a turnover discount, which also reduces the sales.
- Special rebate: - in some business there is a special rebate like commission on sales, which is also adjusted in the total volume of sale.
- -Cash discount
- - Sales return: - if the goods are sold, are returned by the purchaser, the sales is adjusted against the sales and hence sales reduced.
- Sales price of assets held investment: - sale price of assets is not a part of turnover and hence it doesn’t affect the sales volume.
-Sales price of property, shares, security, debentures etc., will not form part of turnover. However, if those are held as stock in trade, there sale proceeds will form part of sale (Circular no 452 dated 17-03-1986).
- Sales by commission agent/consignee: - it is difficult to lay down a rule whether sales made by a commission agent would or would not forms part of turnover. Each case has to be analyzed before the goods are transferred to the third party. If the property in goods or all significant risks and reward of ownership of goods belong to the principal, the relevant sale price will not form part of the sale of the commission agent/consignee.
However the property in goods or all significant risks and reward of ownership belong to the commission agent, as the case may be, the sale price received will form part of his sale.
- Excise duty or sales tax: - where sales tax and excise duty is included in the sale price, no adjustment in respect thereof should be made for considering the quantum of the turnover. If excise duty and sales tax recovered are credited separately to Excise duty or Sales tax accounts and payment to the authority are debited in the same account, they would not be included in the turnover.
- Sale of scrap: - where sale of scarp and empties have been separately included under miscellaneous income, these will be included in the total turnover
- Assessee carrying on more than one business: - where the assesse carrying on more than one business activity, the result of all the activities should be clubbed together to determine the ceiling of Rs. 60 Lakhs. However where the business is covered by Section 44B, 44BB or 44BA, turnover of such business will be excluded. Similarly where the assessee opts to be assessed on presumptive basis under section 44AD, 44AE, 44AF, the turnover thereof will be excluded.
- Gross receipts: - it will be included all receipts which are chargeable as business income under the act. Receipts may be in cash or in kind but it must arise from carrying in of the business. The following items of income may be called receipts.
1- Profits on sale of license under the import order 1955
2- Cash assistance received or receivable by any person against export.
3- Any duty of customs or excise re paid or repayable as drawback to any person against export
4- The aggregate of gross income by way of interest received by the money- lender.
5- Commission, brokerage, service and other incidental charges received in the business of chit funds.
6- Reimbursement of expenses incurred like packing, forwarding, fright, insurance and if same is credit to the separate account in the books, only the net surplus on this account should be added to the turnover for the purpose of section 44AB.
7- The net exchange rate difference on export sales during the year.
8- Hire charges of cold store.
9- Liquidated damages.
10- Insurance claims expect for fixed assets.
11- Sale proceeds of scrap, wastage etc. unless treated as part of sale.
12- Gross receipts included lease rent in the business of operating lease.
13- Lease rent or interest on financing the business of finance lease.
14- Hire charges and installment received in the course of hire purchase.
However the following receipts are not the part of total turnover which are as under.
1- Sale proceeds of fixed assets.
2- Sale proceeds of assets held as investment.
3- Rental income unless the same is assessable as business income.
4- Dividend on shares expect in the case of assessee dealing in shares.
5- Income by way of interest unless assessable as business income.
6- Reimbursement of custom duty and other charges collected by a clearing agent.
7- In the case of recruiting agent, the advertisement charges received by him by way of reimbursement of expenses incurred by him.
8- In case of traveling agents, the amount received from the clients for payment to the airlines, railways etc. However, the travel agent is conducting the package tour, and then the amount received by him will form part of his gross receipts.
9- In case of advertising agency, the amount of advertising charges recovered by him from his clients provided these are by way of reimbursement. But if the advertising agency book the advertising spaces in bulk and received the advertising charges from different clients, the amount received by him will form the part of his gross receipts.
10- The amount received by way of advances for which service are yet to be rendered will not form part of the receipts as these are the liabilities of the assessee.
Tags-section 44ab of income tax,section 44ab,section 44ab of income tax act,audit limit of accounts under income tax act