Tax audit--Clubbing of Receipts from Bus. and Prof.

Hi Mr Agarwal and Abhishek,

This issue—-about the requirement for tax audit in case of businesssales of say Rs 36 lacs professional receipts of say Rs 8 lacs---didcross my mind while I was penning down---typing out to be precise!---my earlier reply. But I didn't touch upon it and restricted my replyto specifically what Anjana Behanji had asked.Although from a layman perspective, "business" and "profession" aretwo sides of the same coin and are used interchangeably, in theIncome Tax Act these two terms have been used in a mutuallyexclusive sense. So even though the inclusive definition of Businessu/s 2(13) as "any adventure or concern IN THE NATURE of trade,commerce or manufacture" would seem to embrace a Profession as well,in view of the separate definition of "profession" u/s 2(36), it isclear the law intends to treat Business and Profession as twodifferent animals.So a doctor has receipts of Rs 8 lacs from treating patients; healso has a business of selling garments sales of which are Rs 36lacs. Would he be required to get his accounts audited?The Guidance Note on Tax Audit u/s 44AB issued by the ICAIfortunately comes to our rescue. I am quoting below para 5.14 of theGuidance Note:[5.14. A question may arise in the case of an assessee carrying onbusiness and at the same time engaged in a profession as to what arethe limits applicable to him under section 44AB for getting theaccounts audited. In such a case if his professional receipts are,say, rupees twelve lakhs but his total sales, turnover or grossreceipts in business are, say, rupees twenty two lakhs, it will benecessary for him to get his accounts of the profession and also theaccounts of the business audited because the gross receipts from theprofession exceed the limit of rupees ten lakhs. If however, theprofessional receipts are, say, rupees seven lakhs and total salesturnover or gross receipts from business are, say, rupees thirtyfour lakhs it will not be necessary for him to get his accountsaudited under the above section, because his gross receipts from theprofession as well as total sales, turnover or gross receipts fromthe business are below the prescribed limits.]So it's clear then. Unless the receipts/sales/turnover from theindividual component of business/professional activities exceed Rs10 lacs or Rs 40 lacs, no tax audit would be required. Professionalreceipts of Rs 12 lacs and business sales of Rs 22 lacs tots up toRs 34 lacs. But still, says the Guidance Note, the assessee needs toget the accounts of not only his profession but also his businessaudited. By implication, if the sales of business are Rs 40.10 lacsand receipts from profession are Rs 2 lacs, the accounts of theprofession too would need to be put under the CA's scanner. On theother hand, if sales from business are Rs 39.99 lacs and receiptsfrom profession are Rs 9.99 lacs, then the assessee can go scot-free.But respectfully, I partly disagree with this interpretation ofSection 44AB by the ICAI. From what I understand of the big ideabehind the introduction of this section, I think tax audit would becalled for even where the aggregate receipts from two separate anddistinct activities of business and profession exceed Rs 40 lacs.The distinction between "business" and "profession" laid down in theAct seems more academic than real. As far as the tax assessment isconcerned, both business and profession are assessed under the samehead of income. So if the idea is to rope in assessees whose incomesexceed a certain level, it doesn't make any sense to let go of theassessees whose gross receipts from the twin-activities of businessand profession cross Rs 40 lacs, but the individual receipts ofeither of the two activities is below Rs 10 lacs/ Rs 40 lacs. Butthis is what the ICAI is saying above.As far for the VAT part, in Punjab there's no legal requirement toapply for only one registration when you carry on two differentbusinesses at two different places.Thanks,CA Sanjeev Bedi--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=um2BmFo2CAqiN2a9N67oZ50ZcsqlYTC69zgSkmZ4bQkPqDid37zs8IqfU5s6ICkjuR4bVCTd5U-LUTHiH-2QvznV3aP_Bswbx6l4, "CA J P Agarwal" wrote:>> Dear Sanjeev Bhai,>> I would like to have your opinion when the professional income issay Rs 5> lacs and business (other than profession) is Rs 36 lacs (whichprobably the> members who wrought earlier intended to ask) would audit u/s 44ABbe> attracted>> Further, I would like to add that as far as I understand evenunder VAT (UP> Trade tax) for different businesses owned by one assessee single> registartion is required. If it is otherwise please apprise.>> CA J P AGARWAL>>> Hi Anjana and others,>> I don't know what the big issue is about. Section 44AB speaks of> turnover "in" business and not "of a" business. The use of the> preposition "in" rather than the words "of a" leaves little roomfor> doubt that for the purposes of tax audit, the turnover from various> businesses carried on by a person is to be aggregated; and if this> figure exceeds Rs 40 lacs, each constituent business will be> subjected to tax audit.>> The Rajasthan High Court has had an occasion to dissect Section44AB> recently in the case of Bajrang Oil Mills v. ITO [2007] 163 TAXMAN> 154 (Raj.). Although the matter before the court had more to dowith> the interpretation of seemingly synonymouswords "sales", "turnover"> and "gross receipts" used in Section 44AB, the judgement clearly> betrays what would have been the decision of the court had this> multiple-business issue we are discussing come up before it.>> The court held that the maximum limit of Rs. 40 lacs in section44AB> has been fixed in the case of EVERY PERSON who is carrying on> business and whose total receipts from the business activity, which> come under the head "Income from profits and gains of business",> have to be viewed as ONE INTEGRATED WHOLE and NOT INDEPENDENTLY.The> assessment of a person is on the total income and not on the income> derived from the different sources separately.>> Also what about depreciation u/s 32? Would you add up the WDV of> different asset blocks employed in different businesses? Suppose a> proprietor owns two businesses--A and B. Machinery in Business Ahas> a WDV of Rs 100 and the machinery in Business B stands at a WDV of> Rs 70; the machinery of Business B is sold for Rs 110, how wouldyou> deal with it?>> In this situation, what we'll do is prepare only one Dep Chart for> both businesses for Income Tax purpose. So the total closing> machinery WDV will stand at Rs 60 (170-110). Those who advocatethat> sales figure of each individual business be looked at independently> for tax audit would also now have to take a stand that WDV of> Business A would keep standing at Rs 100, while we shall compute an> STCG of Rs 40 (110-70) in Business B. Would that be right? This> would be palpably wrong, as a reading of Section 32 would> reveal. "Used for the purpose of the business" as mentioned in> Section 32 envisages the aggregate WDV of the different assets> falling within the same block of assets even if deployed in> different businesses. Definition of "block of assets" u/s 2(11) too> underscores that the "block" concept would straddle over all> businesses of an assessee; a sale of an asset in one business may> impact the WDV of that class of assets in the other business. So> we'd need to prepare only IT Dep Chart to arrive at correct> depreciation/STCG/WDV.>> A perusal of the CBDT circular No 387 dated 06.07.1984 also clearly> brings out the intention of the legislature. The idea behind tax> audit was to assist the AO to determine the taxable income of the> ASSESSEE, by requiring certain "big" assessees to have their books> of account audited. It would be puerile to think that an assessee> having a single business with turnover of Rs 1 crore is a "big"> assessee; while another one having five different businesses with> sales of Rs 20 lacs each is a "small" assessee. If indeed such a> plea were to be accepted, there would be a huge deluge of> unscrupulous assessees springing up overnight who would obtain five> different VAT registrations with different trade names and refuseto> go under the 44AB scalpel on the grounds that the turnover in none> of their businesses is beyond Rs 40 lacs!>> Sat Sri Akal,>> CA Sanjeev Bedi>>> --- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=um2BmFo2CAqiN2a9N67oZ50ZcsqlYTC69zgSkmZ4bQkPqDid37zs8IqfU5s6ICkjuR4bVCTd5U-LUTHiH-2QvznV3aP_Bswbx6l4, "rani girdhar"> wrote:> >> > IN MY OPINION TAX AUDIT IS NOT REQUIRED BECAUSE BOTH THE> CONDITIONS OF U/S 44A ARE NOT SATISFIED.WHEN ACT DIFINES TWO> DIFFERENT NORMS FOR BUSINESS AND PROFESSION THEN WHY WE COMBINED> THEM.> >> >> > On Mon, 14 Jan 2008 saurabh garg wrote :> > >I my openion Tax audit is required.> > >> > >> > >> > >> > >On 1/12/08, ranjana mahajan wrote:> > > >> > > > i have 5 different business with different set of> books , having> > > > turnover of 20 lakhs plus in each business, but less than 40> lakhs in each> > > > of the individual business, dou think i dont need my> accounts to be> > > > audited u/s 44AB> > > >> > > > thnkx>>>>>>