Tax audit--Multiple Businesses

Hi Anjana and others,

I don't know what the big issue is about. Section 44AB speaks ofturnover "in" business and not "of a" business. The use of thepreposition "in" rather than the words "of a" leaves little room fordoubt that for the purposes of tax audit, the turnover from variousbusinesses carried on by a person is to be aggregated; and if thisfigure exceeds Rs 40 lacs, each constituent business will besubjected to tax audit.The Rajasthan High Court has had an occasion to dissect Section 44ABrecently in the case of Bajrang Oil Mills v. ITO [2007] 163 TAXMAN154 (Raj.). Although the matter before the court had more to do withthe interpretation of seemingly synonymous words "sales", "turnover"and "gross receipts" used in Section 44AB, the judgement clearlybetrays what would have been the decision of the court had thismultiple-business issue we are discussing come up before it.The court held that the maximum limit of Rs. 40 lacs in section 44ABhas been fixed in the case of EVERY PERSON who is carrying onbusiness and whose total receipts from the business activity, whichcome under the head "Income from profits and gains of business",have to be viewed as ONE INTEGRATED WHOLE and NOT INDEPENDENTLY. Theassessment of a person is on the total income and not on the incomederived from the different sources separately.Also what about depreciation u/s 32? Would you add up the WDV ofdifferent asset blocks employed in different businesses? Suppose aproprietor owns two businesses—-A and B. Machinery in Business A hasa WDV of Rs 100 and the machinery in Business B stands at a WDV ofRs 70; the machinery of Business B is sold for Rs 110, how would youdeal with it?In this situation, what we'll do is prepare only one Dep Chart forboth businesses for Income Tax purpose. So the total closingmachinery WDV will stand at Rs 60 (170-110). Those who advocate thatsales figure of each individual business be looked at independentlyfor tax audit would also now have to take a stand that WDV ofBusiness A would keep standing at Rs 100, while we shall compute anSTCG of Rs 40 (110-70) in Business B. Would that be right? Thiswould be palpably wrong, as a reading of Section 32 wouldreveal. "Used for the purpose of the business" as mentioned inSection 32 envisages the aggregate WDV of the different assetsfalling within the same block of assets even if deployed indifferent businesses. Definition of "block of assets" u/s 2(11) toounderscores that the "block" concept would straddle over allbusinesses of an assessee; a sale of an asset in one business mayimpact the WDV of that class of assets in the other business. Sowe'd need to prepare only IT Dep Chart to arrive at correctdepreciation/STCG/WDV.A perusal of the CBDT circular No 387 dated 06.07.1984 also clearlybrings out the intention of the legislature. The idea behind taxaudit was to assist the AO to determine the taxable income of theASSESSEE, by requiring certain "big" assessees to have their booksof account audited. It would be puerile to think that an assesseehaving a single business with turnover of Rs 1 crore is a "big"assessee; while another one having five different businesses withsales of Rs 20 lacs each is a "small" assessee. If indeed such aplea were to be accepted, there would be a huge deluge ofunscrupulous assessees springing up overnight who would obtain fivedifferent VAT registrations with different trade names and refuse togo under the 44AB scalpel on the grounds that the turnover in noneof 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=tGwiy9KAt8cyZgQzJnpDXAbPAOHe1WplQPlT52Z9B4UESamHcmB31uznY6FycRMC3yhqc4S2g4AgprVoKsFbqXER0hfEBEoK2yxtdQ, "rani girdhar" wrote:>> IN MY OPINION TAX AUDIT IS NOT REQUIRED BECAUSE BOTH THECONDITIONS OF U/S 44A ARE NOT SATISFIED.WHEN ACT DIFINES TWODIFFERENT NORMS FOR BUSINESS AND PROFESSION THEN WHY WE COMBINEDTHEM.>>> 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 ofbooks , having> > > turnover of 20 lakhs plus in each business, but less than 40lakhs in each> > > of the individual business, dou think i dont need myaccounts to be> > > audited u/s 44AB> > >> > > thnkx