BBA.LL.

B (Hons) CORPORATE LAWS

SEMESTER- VIII

ACADEMIC YEAR: 2019-20

SESSION: JANUARY - MAY, 2020

SUBJECT: TAXATION LAW

TOPIC: Provisions relating to Profits and Gains of Business or Profession with
respect to Tax Audit

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SECTION 28 OF THE INCOME TAX OF 1961

Profits and gains of business or profession 1The following income shall be chargeable to
income- tax under the head" Profits and gains of business or profession",-

(i) The profits and gains of any business or profession which was carried on by the assessee at
any time during the previous year;

(ii) Any compensation or other payment due to or received by,-

(a) Any person, by whatever name called, managing the whole or substantially the whole of the
affairs of an Indian company, at or in connection with the termination of his management or the
modification of the terms and conditions relating thereto;

(b) any person by whatever name called, managing the whole or substantially the whole of the
affairs in India of any other company, at or in connection with the termination of his office or the
modification of the terms and conditions relating thereto;

(c) any person, by whatever name called, holding an agency in India for any part of the activities
relating to the business of any other person, at or in connection with the termination of the
agency or the modification of the terms and conditions relating thereto;

(d) any person, for or in connection with the vesting in the Government, or in any corporation
owned or controlled by the Government, under any law for the time being in force, of the
management of any property or business;]

(iii) Income derived by a trade, professional or similar association from specific services
performed for its members;

(iiia) profits on sale of a license granted under the Imports (Control) Order, 1955, made under the
Imports and Exports (Control) Act, 1947 (18 of 1947 );]

(iiib) Cash assistance (by whatever name called) received or receivable by any person against
exports under any scheme of the Government of India;]

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(iiic) Any duty of customs or excise re- paid or re- payable as drawback to any person against
exports under the Customs and Central Excise Duties Drawback Rules, 1971;]

(iv) The value of any benefit or perquisite, whether convertible into money or not, arising from
business or the exercise of a profession.

(v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or
received by, a partner of a firm from such firm : Provided that where any interest, salary, bonus,
commission or remuneration, by whatever name called, or any part thereof has not been allowed
to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to
the extent of the amount not so allowed to be deducted ;]

[(va) any sum, whether received or receivable, in cash or kind, under an agreement for— (a) not
carrying out any activity in relation to any business; or (b) not sharing any know-how, patent,
copyright, trade-mark, license, franchise or any other business or commercial right of similar
nature or information or technique likely to assist in the manufacture or processing of goods or
provision for services: Provided that sub-clause (a) shall not apply to—

(i) any sum, whether received or receivable, in cash or kind, on account of transfer of the
right to manufacture, produce or process any article or thing or right to carry on any
business, which is chargeable under the head "Capital gains";
(ii) (ii) any sum received as compensation, from the multilateral fund of the Montreal
Protocol on Substances that Deplete the Ozone layer under the United Nations
Environment Programme, in accordance with the terms of agreement entered into
with the Government of India. Explanation.—

For the purposes of this clause,— (i) "agreement" includes any arrangement or understanding or
action in concert,— (A) whether or not such arrangement, understanding or action is formal or in
writing; or (B) whether or not such arrangement, understanding or action is intended to be
enforceable by legal proceedings;

(iii) "service" means service of any description which is made available to potential users
and includes the provision of services in connection with business of any industrial or
commercial nature such as accounting, banking, communication, conveying of news
or information, advertising, entertainment, amusement, education, financing,

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 insurance, chit funds, real estate, construction, transport, storage, processing, supply
of electrical or other energy, boarding and lodging;]

[(vi) any sum received under a Keyman insurance policy including the sum allocated by way
of bonus on such policy. Explanation.—For the purposes of this clause, the expression
"Keyman insurance policy" shall have the meaning assigned to it in clause (10D) of section
10;]

[(vii) any sum, whether received or receivable, in cash or kind, on account of any capital
asset (other than land or goodwill or financial instrument) being demolished, destroyed,
discarded or transferred, if the whole of the expenditure on such capital asset has been
allowed as a deduction under section 35AD.]

Sub Section 1

In the first subsection of Section 28, the Act refers to the profits and gains of any business or
profession made by the assessee. An assessee is any person who is liable to pay taxes to the
Government of India under the Income Tax Act. The assessee can carry out the business at any
time during the previous year. This business activity can also be a single isolated transaction
given that there is an element of trade as well as there is a motive of making profits. The business
may or may not be operating throughout the year for it to be charged under the Act.
This clause charges the owner of the business against any income or loss in an assessment year.
It charges the owner even if the owner carries the business through a manager, an agent or a
servant.  The clause includes businesses within as well as outside India. This section does not
exclude business income that arises out of illegal business practices.

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 Sub Section 2

This subsection defines any compensation or other payment received as business income which

makes it taxable under section 28.  It classifies four types of compensation under this category
wherein any person:
 handling the whole or substantially the whole of the affairs of an Indian Company
receives compensation on termination or modification of his respective duties;

 handling the affairs of a foreign Company in India receives compensation on termination

or modification of his respective duties;

 holding an agency in India conducting activities on behalf of any other business receives
compensation on the termination of his agency or any modifications;

 receiving compensation on the transfer of control to the Government or any Corporation

controlled by the Government under any law in favor.

Sub Section 3

The Third subsection under Section 28 lays down rules regarding taxing income derived by trade
or a professional association. If an association provides “specific services” to its members in
return for charging money from its members then the amount received will be taxable under
Section 28(iii) of the Income Tax Act. For instance, if a professional body provides its own CA
students with specific services in return of certain fees. It will also be taxable if an institution
makes money through trade with its own members.
The government provides certain incentives to exporters because of mutual profit-making
interests. All these benefits are chargeable under Section 28(iv) of the Income Tax Act.  These
incentives include:
 Profits derived by Sale of Import Licenses granted on account of export. This only
includes importing products for the purpose of re-exporting it.
 Cash assistance either received or receivable by a person against exports under any
scheme of the Government.
 Any duty of customs or excise that has to be repaid as a drawback to any person against
exports. One is liable to pay import duty while importing goods to India. However, if the same

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 import is re-exported in the same form or in a modified form then the import duty will be repaid.
This repaid duty is taxable under the said clause.
 Any profit on the transfer of the Duty Entitlement Pass Book Scheme. The DEPB scheme
was also an incentive on exports that neutralized the customs duty on the import content of the
export product. However, this scheme was abolished w.e.f 1.10.2011.
 any profit on the transfer of the Duty-Free Replenishment Certificate. This certificate is
issued to manufacture exporters for the import of specific inputs used in manufacturing goods. 
The profit on the transfer of this certificate is taxable under Section 28.

Sub Section 4

The fourth subsection makes the value of any benefit or perquisite arising from a business
activity or the exercise of a profession taxable. The benefit may or may not be convertible into
money to be taxed under this clause of section 28 in the Income Tax Act. The said benefit must
arise because of business activity or profession. The said person receiving the benefit should not
have an employee-employer relationship with the company or place of a profession.
For instance, this section will tax any free transportation, housing facilities or any other article
provided for achieving a sales target. A company providing Rent Free Accommodation for a
lawyer's services will also come under this section.

Sub Section 5

The fifth subsection includes any interest, salary, bonus, remuneration, or compensation received
or due to be received by the partner of a firm.  A partner may take more salary from its firm in
the context of more performance and better results. This extra salary becomes income according
to this provision. This is because there is no defining employee-employer relationship in this
scenario. Therefore, it cannot be seen as salary and hence is taxable under Section 28 (v) of the
Income Tax Act,1961.

Section 28(v[a]) will not apply to the following items under the head “profits and gains of
business or profession“:

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 any sum whether received in cash or kind on account of the transfer of the right to
manufacture, produce or process any article as well as the right to carry on a business. This sum
will be taxed under Capital gains and not under profits and gains from business income.
 any sum received as compensation on substances that deplete the Ozone layer under the
UN Environment Programme.  The multilateral fund of the Montreal Protocol in accordance with
the agreement with the Government of India provides the said compensation. Under this
agreement, the government has to supervise the manufacturing of harmful gases like CFC. In
turn, the CFC manufacturers receive compensation. This compensation is not taxable under any
head of the Income Tax Act.

Sub Section 6

Subsection 28(vi) under Income Tax Act covers the term “Keyman Insurance Policy”. It is an
insurance policy made for key managerial personnel of companies. In this provision, if the
insured person dies then the Company is liable to receive the sum of the insurance. This insured
amount is taxable under Section 28(vi) of the Income Tax Act, 1961.

Sub Section 7

The seventh and final clause under Section 28 says that any sum received or receivable in cash or
kind on account of a capital asset being destroyed, demolished or transferred is taxable under
section 28 if the expenditure has been allowed as a deduction under section 35AD.

Depreciation.

32. (1) In respect of depreciation of—

 (i)  buildings, machinery, plant or furniture, being tangible assets;

(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or
commercial rights of similar nature, being intangible assets acquired on or after the 1st
day of April, 1998,

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owned, wholly or partly, by the assessee and used for the purposes of the business or profession,
the following deductions shall be allowed—

 (i)  in the case of assets of an undertaking engaged in generation or generation and

distribution of power, such percentage on the actual cost thereof to the assessee as may
be prescribed10;

(ii)  in the case of any block of assets, such percentage on the written down value thereof as
may be prescribed11:

Provided that no deduction shall be allowed under this clause in respect of—

 (a)  any motor car manufactured outside India, where such motor car is acquired by the
assessee after the 28th day of February, 1975 but before the 1st day of April, 2001,
unless it is used—

 (i)  in a business of running it on hire for tourists ; or

 (ii)  outside India in his business or profession in another country ; and

 (b)  any machinery or plant if the actual cost thereof is allowed as a deduction in one or
more years under an agreement entered into by the Central Government
under section 42 :

Provided further that where an asset referred to in clause (i) or clause (ii) or clause
(iia) 12[or the first proviso to clause (iia)], as the case may be, is acquired by the assessee
during the previous year and is put to use for the purposes of business or profession for a
period of less than one hundred and eighty days in that previous year, the deduction
under this sub-section in respect of such asset shall be restricted to fifty per cent of the
amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii)
or clause (iia), as the case may be :

Following third proviso shall be inserted after the second proviso to clause (ii) of
sub-section (1) of section 32 by the Finance Act, 2015, w.e.f. 1-4-2016 :

Provided also that where an asset referred to in clause (iia) or the first proviso to
clause (iia), as the case may be, is acquired by the assessee during the previous year
and is put to use for the purposes of business for a period of less than one hundred and
eighty days in that previous year, and the deduction under this sub-section in respect of

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such asset is restricted to fifty per cent of the amount calculated at the percentage
prescribed for an asset under clause (iia) for that previous year, then, the deduction for
the balance fifty per cent of the amount calculated at the percentage prescribed for such
asset under clause (iia) shall be allowed under this sub-section in the immediately
succeeding previous year in respect of such asset:

Provided also that where an asset being commercial vehicle is acquired by the assessee
on or after the 1st day of October, 1998 but before the 1st day of April, 1999 and is put
to use before the 1st day of April, 1999 for the purposes of business or profession, the
deduction in respect of such asset shall be allowed on such percentage on the written
down value thereof as may be prescribed.

Explanation.—For the purposes of this proviso,—

 (a)  the expression "commercial vehicle" means "heavy goods vehicle", "heavy
passenger motor vehicle", "light motor vehicle", "medium goods vehicle" and
"medium passenger motor vehicle" but does not include "maxi-cab", "motor-cab",
"tractor" and "road-roller";

 (b)  the expressions "heavy goods vehicle", "heavy passenger motor vehicle", "light
motor vehicle", "medium goods vehicle", "medium passenger motor vehicle",
"maxi-cab", "motor-cab", "tractor" and "road roller" shall have the meanings
respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of
1988):

Provided also that, in respect of the previous year relevant to the assessment year
commencing on the 1st day of April, 1991, the deduction in relation to any block of
assets under this clause shall, in the case of a company, be restricted to seventy-five per
cent of the amount calculated at the percentage, on the written down value of such
assets, prescribed under this Act immediately before the commencement of the Taxation
Laws (Amendment) Act, 1991:

Provided also that the aggregate deduction, in respect of depreciation of buildings,

machinery, plant or furniture, being tangible assets or know-how, patents, copyrights,
trademarks, licences, franchises or any other business or commercial rights of similar
nature, being intangible assets allowable to the predecessor and the successor in the case

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of succession referred to in clause (xiii), clause (xiiib) and clause (xiv) of section
47 or section 170 or to the amalgamating company and the amalgamated company in the
case of amalgamation, or to the demerged company and the resulting company in the
case of demerger, as the case may be, shall not exceed in any previous year the
deduction calculated at the prescribed rates as if the succession or the amalgamation or
the demerger, as the case may be, had not taken place, and such deduction shall be
apportioned between the predecessor and the successor, or the amalgamating company
and the amalgamated company, or the demerged company and the resulting company, as
the case may be, in the ratio of the number of days for which the assets were used by
them.

Explanation 1.—Where the business or profession of the assessee is carried on in a

building not owned by him but in respect of which the assessee holds a lease or other
right of occupancy and any capital expenditure is incurred by the assessee for the
purposes of the business or profession on the construction of any structure or doing of
any work in or in relation to, and by way of renovation or extension of, or improvement
to, the building, then, the provisions of this clause shall apply as if the said structure or
work is a building owned by the assessee.

Explanation 2.—For the purposes of this sub-section "written down value of the block of
assets" shall have the same meaning as in clause* (c) of sub-section† (6) of section 43.

Explanation 3.—For the purposes of this sub-section, the expression "assets" shall mean
—

 (a)  tangible assets, being buildings, machinery, plant or furniture;

 (b)  intangible assets, being know-how, patents, copyrights, trade marks, licences,
franchises or any other business or commercial rights of similar nature.

Explanation 4.—For the purposes of this sub-section, the expression "know-how" means
any industrial information or technique likely to assist in the manufacture or processing
of goods or in the working of a mine, oil-well or other sources of mineral deposits
(including searching for discovery or testing of deposits for the winning of access
thereto).

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Explanation 5.—For the removal of doubts, it is hereby declared that the provisions of
this sub-section shall apply whether or not the assessee has claimed the deduction in
respect of depreciation in computing his total income;

(iia) in the case of any new machinery or plant (other than ships and aircraft), which has
been acquired and installed after the 31st day of March, 2005, by an assessee
engaged in the business of manufacture or production of any article or thing or in
the business of generation or generation and distribution of power, a further sum
equal to twenty per cent of the actual cost of such machinery or plant shall be
allowed as deduction under clause (ii) :

Following proviso shall be inserted before the existing proviso to clause (iia) of sub-
section (1) of section 32 by the Finance Act, 2015, w.e.f. 1-4-2016 :

Provided that where an assessee, sets up an undertaking or enterprise for manufacture

or production of any article or thing, on or after the 1st day of April, 2015 in any
backward area notified by the Central Government in this behalf, in the State of Andhra
Pradesh or in the State of Bihar or in the State of Telangana or in the State of West
Bengal, and acquires and installs any new machinery or plant (other than ships and
aircraft) for the purposes of the said undertaking or enterprise during the period
beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in
the said backward area, then, the provisions of clause (iia) shall have effect, as if for the
words "twenty per cent", the words "thirty-five per cent" had been substituted :

Provided [further] that no deduction shall be allowed in respect of—

(A)  any machinery or plant which, before its installation by the assessee, was used either
within or outside India by any other person; or

(B)  any machinery or plant installed in any office premises or any residential
accommodation, including accommodation in the nature of a guest-house; or

(C)  any office appliances or road transport vehicles; or

(D)  any machinery or plant, the whole of the actual cost of which is allowed as a
deduction (whether by way of depreciation or otherwise) in computing the income
chargeable under the head "Profits and gains of business or profession" of any one
previous year;

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(iii) in the case of any building, machinery, plant or furniture in respect of which
depreciation is claimed and allowed under clause (i) and which is sold, discarded,
demolished or destroyed in the previous year (other than the previous year in which it is
first brought into use), the amount by which the moneys payable in respect of such
building, machinery, plant or furniture, together with the amount of scrap value, if any,
fall short of the written down value thereof :

Provided  that such deficiency is actually written off in the books of the assessee.

Explanation.—For the purposes of this clause,—

(1) "moneys payable" in respect of any building, machinery, plant or furniture includes
—

(a)  any insurance, salvage or compensation moneys payable in respect thereof;

(b)  where the building, machinery, plant or furniture is sold, the price for which it
is sold,

so, however, that where the actual cost of a motor car is, in accordance with the
proviso to clause (1) of section 43, taken to be twenty-five thousand rupees, the
moneys payable in respect of such motor car shall be taken to be a sum which bears
to the amount for which the motor car is sold or, as the case may be, the amount of
any insurance, salvage or compensation moneys payable in respect thereof
(including the amount of scrap value, if any) the same proportion as the amount of
twenty-five thousand rupees bears to the actual cost of the motor car to the assessee
as it would have been computed before applying the said proviso;

(2)  "sold" includes a transfer by way of exchange or a compulsory acquisition under any
law for the time being in force but does not include a transfer, in a scheme of
amalgamation, of any asset by the amalgamating company to the amalgamated
company where the amalgamated company is an Indian company or in a scheme of
amalgamation of a banking company, as referred to in clause (c) of section 5 of the
Banking Regulation Act, 1949 (10 of 1949) with a banking institution as referred to
in sub-section (15) of section 45 of the said Act, sanctioned and brought into force
by the Central Government under sub-section (7) of section 45 of that Act, of any
asset by the banking company to the banking institution.

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EXPLANATION

Depreciation – Non-cash expenditure allowed under Income Tax Act, 1961 following block
concept. Under the block concept, all the assets falling within the same class and subject to same
rate of depreciation are clubbed together and considered as single asset. Any alterations to the
value of the block have to be strictly in accordance with the provisions of Chapter IV D of
Income Tax Act, 1961.

As per section 32 of Income Tax Act, 1961, a assessee is entitled to claim depreciation on fixed
assets only if the following conditions are satisfied:
1. Assessee must be owner of the asset – registered owner need not be necessary.
2. The asset must be used for the purposes of business or profession.
3. The asset must be used during the previous year.
The use of the asset during the previous year may be active use or passive [ie., kept ready for
use]. 

SECTION 44AA

(1) Every person carrying on legal, medical, engineering or architectural profession or the
profession of accountancy or technical consultancy or interior decoration or any other profession
as is notified by the Board in the Official Gazette shall keep and maintain such books of account
and other documents as may enable the Assessing Officer to compute his total income in
accordance with the provisions of this Act.

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(2) Every person carrying on business or profession [not being a profession referred to in sub-
section (1)] shall,—

 (i)  if his income from business or profession exceeds one lakh twenty thousand rupees or
his total sales, turnover or gross receipts, as the case may be, in business or profession
exceed or exceeds ten lakh rupees in any one of the three years immediately preceding
the previous year; or

(ii)  where the business or profession is newly set up in any previous year, if his income from
business or profession is likely to exceed one lakh twenty thousand rupees or his total
sales, turnover or gross receipts, as the case may be, in business or profession are or is
likely to exceed ten lakh rupees, during such previous year; or

(iii)  where the profits and gains from the business are deemed to be the profits and gains of
the assessee under section 44AE or section 44BB or section 44BBB, as the case may be,
and the assessee 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, during such previous year;
or

(iv) Where the provisions of sub-section (4) of section 44AD are applicable in his case and his
income exceeds the maximum amount which is not chargeable to income-tax in any
previous year,

keep and maintain such books of account and other documents as may enable the Assessing
Officer to compute his total income in accordance with the provisions of this Act:

[Provided that in the case of a person being an individual or a Hindu undivided family, the
provisions of clause (i) and clause (ii) shall have effect, as if for the words "one lakh twenty
thousand rupees", the words "two lakh fifty thousand rupees" had been substituted :

Provided further that in the case of a person being an individual or a Hindu undivided family,
the provisions of clause (i) and clause (ii) shall have effect, as if for the words "ten lakh rupees",
the words "twenty-five lakh rupees" had been substituted.]

(3) The Board may, having regard to the nature of the business or profession carried on by any
class of persons, prescribe, by rules, the books of account and other documents (including
inventories, wherever necessary) to be kept and maintained under sub-section (1) or sub-section

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 (2), the particulars to be contained therein and the form and the manner in which and the place at
which they shall be kept and maintained.

(4) Without prejudice to the provisions of sub-section (3), the Board may prescribe, by rules, the
period for which the books of account and other documents to be kept and maintained under sub-
section (1) or sub-section (2) shall be retained.

EXPLANATION

According to Section 44AA and Rule 6F of the Income Tax Act, there is a list of professions
who need to maintain books of accounts for income tax purpose:

1. if their gross receipts are more than Rs. 2,50,000 in 3 preceding years for an existing
profession

2. if gross receipts are expected to be more than Rs. 2,50,000 in case of a newly set up
profession

The list of professions include:

 Lawyers

 Engineers

 Architects

 Accountants

 Technical consultants

 Interior decorators

 Authorized representatives, such as agents and contract negotiators

 Filmmakers, a category that includes producers; editors; actors; directors; music, dance,
and art directors; camera crews; singers; song and story writers; script and dialogue writers; and
costume designers

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These rules shall also apply to a freelancer pursuing any of these listed professions if his gross
receipts are more than Rs. 2,50,000 a year.

However, law allows you to skip the accounting records requirement:

1) if the gross receipts of the Professions listed above are not more than Rs 2,50,000 in any one
or more of the preceding 3 years for an existing profession

2) if the gross receipts are expected to be less than Rs 2,50,000 in case of a newly set up
profession.

SECTION 44AB

Every person,—

(a) carrying on business shall, if his total sales, turnover or gross receipts, as the
case may be, in business exceed or exceeds one crore rupees in any previous
year; or

(b) carrying on profession shall, if his gross receipts in profession exceed [twenty-

five] lakh rupees in any previous year; or

(c) 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
44AE 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; or

(d) 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] and he
has claimed such income to be lower than the profits and gains so deemed to
be the profits and gains of his [business] and his income exceeds the maximum
amount which is not chargeable to income-tax in any [previous year,]
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 Following clause (e) shall be inserted after clause (d) of section 44AB by the
Finance Act, 2016, w.e.f. 1-4-2017:

(e) carrying on the business shall, if the provisions of sub-section (4) of section
44AD are applicable in his case and his income exceeds the maximum amount
which is not chargeable to income-tax in any previous year,

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

Provided that this section shall not apply to the person, who derives income of the
nature referred to in section 44B or section 44BBA, 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 :

Provided further that in a case 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 by an accountant in the
form prescribed under this section.

Explanation.—For the purposes of this section,—

 (i)  "accountant" shall have the same meaning as in the Explanation below sub-

section (2) of section 288;

(ii) "specified date", in relation to the accounts of the assessee of the previous year
relevant to an assessment year, means the due date for furnishing the return of
income under sub-section (1) of section 139.

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 EXPLANATION
A Tax Audit is an audit, made compulsory by the Income Tax Act, if the annual gross
turnover/receipts of the assessee exceed the specified limit. Tax audit is conducted in Sec 44AB
of the Income Tax Act by a Chartered Accountant. Simply Tax Audit means, an audit of matters
related to tax.

30th September is the due date to filing tax audit report under section 44AB for all the assessee.
Hence, if a tax audit is applicable to any assessee, then he/she has to mandatorily file its income
tax return along with the tax audit report before 30th September.

Where the assessee is required to furnish a report of a chartered accountant as referred to in

section 9E relating to international transaction or specified domestic transaction then the due date
to submit audit report is 30th November.

If a taxpayer who is required to obtain tax audit does not get the accounts audited, then penalty
could be levied under Section 271B of the Income Tax Act.

 5% of the turnover in case of business organization or 0.5% of the total receipts in case of
profession of the current financial year.
OR

 Rs. 1, 50,000.

Whichever is lower.

However, according to the section 273B, no penalty would be imposed on the person if valid
reason for such failure is proved.

Thus, tax audit is a very important requirement for individuals who are required to undergo such
an audit. Failure to comply with the income tax rules would attract penalty and individuals
wishing to avoid any penalty should ensure full compliance with all the rules of the income tax
audit.

In India, Chartered Accountant will audit the account and prepare the report as prescribed in
Income Tax Act. They are qualified for accounts and having degree of Chartered Accountancy

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(CA) from ICAI. Assessee can also authorize Chartered Accountant to file their income tax
return on his behalf or file by himself. It is not mandatory to file income tax return by CA; Only
audit report is mandatory. The audit report must be submitted before the due dates.

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