Section 44AB

Section 44AB — the law in short

What the courts have decided on section 44AB, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Price Waterhouse Coopers Pvt Ltd v CIT Supreme CourtHelps taxpayer
  You forgot to add back something your own audit report flagged. Is that concealment?
  No. It is a bona fide and inadvertent human error — a computation mistake, not concealment or inaccurate particulars. The audit report disclosed the item, so nothing was hidden, and the penalty was deleted.
• Sahara India (Firm) v CIT Supreme CourtCuts both ways
  The AO ordered a special audit of my books without hearing me first. Is that direction valid?
  No. A direction under s.142(2A) carries serious civil consequences, so the assessee must be given a reasonable opportunity of being heard before it is issued, even though the section as it then stood said nothing about a hearing. The post-audit hearing under s.142(3) is no substitute, because it reaches only the audit material and not the validity of the direction.
• T.D. Venkata Rao v Union of India Supreme CourtHelps department
  I am a registered income-tax practitioner under s.288(2). Can I sign a tax audit report?
  No. Being an authorised representative under s.288(2) carries no right to conduct the compulsory audit under s.44AB. The Court gave one reason: chartered accountants, by reason of their training, have a special aptitude in the matter of audits and form a class by themselves, so it is reasonable to require the audit to be done by them; the Article 19 challenge failed "for the same reasons", and the practitioners remain entitled to act as authorised representatives.
• Ankit Agarwal v PCCIT High CourtHelps taxpayer
  My 148A notice says I never filed a return, but I did. Is that enough to get it quashed?
  Yes, on these facts. The Patna High Court held that where the Insight Portal flag is contradicted by the Department's own records, the 'information which suggests' escapement is missing and the s.148A(b) notice, the s.148A(d) order, the s.148 notice and the demand all fall.
• Chavakkad Service Co-operative Bank v ITO High CourtHelps taxpayerNo later treatment found
  Our audit report was late because the statutory auditor was late. Can the officer still levy the s.271B penalty?
  No, where the delay is genuinely the auditor's and the report reaches the officer before the assessment is completed. The Kerala High Court set aside penalties of Rs 1.5 lakh, holding that s.273B is peremptory: no penalty can be imposed under s.271B if the assessee proves reasonable cause, and a co-operative society has no control over the timetable of the statutory auditor appointed under the State co-operative law.
• Reddy Vanga Ventures LLP v PCIT High CourtHelps taxpayerNo later treatment found
  The officer declared your return invalid for want of an audit report when your turnover was below the audit threshold. What is the remedy?
  The High Court quashed the orders invalidating the return and the order in revision, and remitted the matter to the Assessing Officer to re-examine the turnover. Where the record, including the officer's own finding, showed that the turnover was below the threshold at which audit is required, the premise on which the return had been held defective under s.139(9) did not stand.
• DIT (International Taxation) v Schlumberger Asia Services Ltd (Full Bench) High CourtHelps taxpayer
  Our Uttarakhand assessments add back the service tax ONGC reimbursed to us. Is there a binding answer in that High Court?
  Yes, and it is against the Revenue. A Full Bench of the Uttarakhand High Court answered the reference holding that the amount reimbursed by ONGC to the service provider, representing service tax the provider had already paid to the Government, does not form part of the aggregate amount referred to in clauses (a) and (b) of s.44BB(2).
• Thomas George Muthoot v CIT High CourtHelps departmentHigh Courts differ
  My payee has already paid the tax on the interest I paid him without deducting TDS. Can I use the second proviso to s.40(a)(ia) for an earlier year?
  Not in Kerala. The Kerala High Court held that the second proviso to s.40(a)(ia), inserted by the Finance Act 2012 with effect from 1 April 2013, is prospective only, because it confers an additional benefit rather than removing an unintended hardship, and so cannot rescue a disallowance for an earlier assessment year. The Court also held that the fact that the recipient has since paid the tax does not undo the disallowance, Hindustan Coca Cola being confined to s.201(1).
• Kerala State Bamboo Corporation Ltd v CIT High CourtHelps taxpayerNo later treatment found
  You missed the fifteen days on a s.139(9) notice and the officer has written back that your return is invalid. Is there anything left to do?
  Yes. The proviso to s.139(9) lets the Assessing Officer condone the delay and treat the return as valid where the defect is cured after the fifteen days but before the assessment is made. The Kerala High Court held that the consequence of invalidity does not bite until the assessment is completed or the time for completing it runs out, so a cure filed before that date can still be accepted, and an application seeking reconsideration must be dealt with as a petition under the proviso even if it is not labelled one.
• Surajmal Parsuram Todi v CIT High CourtHelps taxpayer
  I never maintained books of account at all. Can the department penalise me under section 271B for not getting them audited?
  No. The Gauhati High Court held that where an assessee has not maintained books of account at all, penalty under section 271B for failure to get them audited cannot be imposed. Maintenance of accounts is required by section 44AA, and failure there is punished by section 271A. Once that default is complete there is nothing to audit, so no failure under section 44AB can arise and section 271B has nothing to bite on. The Tribunal had overlooked this. The question was answered in the negative and in favour of the assessee, leaving the department to act under section 271A.
• TSC Fashions Pvt Ltd v ITO ITATHelps departmentNo later treatment found
  My client missed the tax audit because the old auditor stopped cooperating. Is that a reasonable cause that kills the s.271B penalty?
  Not on assertion alone. The Tribunal confirmed the penalty because the assessee produced no correspondence, email, letter, complaint or affidavit against the earlier auditor, and showed no proactive steps of its own; a bald plea of auditor non-cooperation is a mere allegation and does not discharge the burden under s.273B.
• Calories Count v DCIT ITATCuts both waysNo later treatment found
  The officer has rejected my books and worked out a much higher turnover from material impounded in a survey. If he does that, does he still have to apply the presumptive rate?
  On these facts, yes. The Tribunal upheld the Assessing Officer's determination of gross sales at Rs 1.87 crore against the Rs 87.34 lakh disclosed, but directed that the business profit be computed at 8 per cent of the redetermined turnover instead of the Rs 1.45 crore the officer had assessed.
• Paramsukh Infradevelopers LLP v Income-tax Officer, Ward 1(1)(1), Agra ITATHelps taxpayerNo later treatment found
  My LLP was not required to be audited, but the partners had the accounts audited anyway. The CPC treated the return as belated and refused the carry forward of the business loss. Was the return late?
  No. The Agra Tribunal held that where the partners of an LLP that is exempt from audit under the first proviso to Rule 24(8) of the LLP Rules 2009 decide to have the accounts audited, the second proviso requires the audit to be carried out in accordance with those Rules, and the LLP then becomes a person whose accounts are 'required to be audited ... under any other law for the time being in force' within Explanation 2(a)(ii) to s.139(1). The due date accordingly moved to 30 September, the return filed on 17 September was in time, and the business loss was allowed to be carried forward.
• Bright Singh Chelladurai v ITO ITATHelps taxpayerHigh Courts differ
  The officer penalised my client Rs 25,000 under s.271A for not keeping books and then another Rs 1,50,000 under s.271B for not getting them audited. Can he do both for the same year?
  No. Having levied the s.271A penalty for not maintaining books under s.44AA, the officer ought not to have levied a s.271B penalty as well — if no books were kept there was nothing to audit, so s.44AB was not violated. The Tribunal deleted the s.271B penalty and left the s.271A penalty standing.
• Haresh Ghanshyamdas Makhija v ITO ITATHelps taxpayer
  They already penalised me under 271A for keeping no books. Can they levy 271B on top?
  No. Once penalty has been levied under s.271A for non-maintenance of books, a further penalty under s.271B for failure to audit those books cannot stand — the department cannot assert a failure to audit books it has itself found not to exist. The same consolidated order deletes a separate concealment penalty under s.271(1)(c) on the footing that the officer accepted the return and assessed the identical income, so there was nothing concealed.
• Gunita Pradeep Kapur v ITO ITATHelps taxpayerNo later treatment found
  I trade in futures and options. The officer has disallowed my loss because I did not get a tax audit and has brought s.44AD into it. Does s.44AD apply to derivative trading at all?
  The Tribunal held that s.44AD cannot be a reference point where the profit or loss arises from derivatives, futures and options in shares or commodities, because the section deals with regular business in the retail of goods, and that reliance on it by the authorities below was misplaced. The loss of Rs 35,81,745 was allowed, the absence of a tax audit not being a ground to disallow the claim.
• Prakash Bhansali v ACIT — no s.271B penalty where the assessee declared under s.44AD(1) and turnover stayed under the ceiling, even though it crossed Rs 1 crore ITATHelps taxpayerNo later treatment found
  My client's turnover was Rs 1.22 crore, above the s.44AB audit limit. He declared eight per cent under s.44AD and got no audit. The officer has levied s.271B. Is he liable?
  No. For the year in issue the first proviso to s.44AB took out of that section a person who declared profits and gains for the previous year in accordance with s.44AD(1) and whose total sales, turnover or gross receipts in business did not exceed two crore rupees in that previous year. Because the assessee had declared 8.02 per cent of a turnover of about Rs 1.22 crore under s.44AD(1), no obligation to get his accounts audited was cast upon him, and the Raipur Bench vacated the penalty of Rs 61,365. Read the proviso in its current form for later years: section 15 of the Finance Act 2023 substituted it with effect from 1 April 2024, and it now disapplies s.44AB to a person who declares under s.44AD(1) or s.44ADA(1), with no monetary condition of its own.
• Lokesh Kumar Sharma v ITO ITATHelps taxpayerNo later treatment found
  I never maintained books at all. Can they penalise me under 271B for not getting them audited?
  No. Section 44AB requires a person to get 'his accounts' audited, which presupposes that accounts exist. Where the default is at the earlier stage of not maintaining books under s.44AA, the audit obligation never arises, and the penalty for that default is s.271A — not s.271B.
• Umeshkumar Harilal Shah v ITO, TDS-3, Ahmedabad ITATHelps departmentNo later treatment found
  I am a metal trader, not a manufacturer, and the scrap I sold never came off any process of mine. Does s.206C still catch me if I have no Form 27C?
  Yes. The Tribunal accepted as undisputed that the assessee was not a manufacturer and that the scrap he sold did not come from his own manufacturing activity, and still upheld the demand, holding that on the CBDT circular the Assessing Officer relied on there is no requirement that goods, to be eligible as scrap, be produced or manufactured by the seller itself. Because the assessee had not filed the prescribed Form 27C, the tax and interest under s.206C were rightly charged and the appeal was dismissed.
• Shakir Ahmad v ITO — s.44AE covers only the goods carriages the assessee owns, so expenditure on hired vehicles remains deductible ITATHelps taxpayerNo later treatment found
  My client is assessed under s.44AE on his own trucks, but he also hired trucks from the market. The officer has disallowed all the running expenses. Is that right?
  No. Section 44AE applies to an assessee who owns not more than ten goods carriages and deems the income from all the goods carriages owned by him; receipts relating to owned goods carriages are subject to the section, but vehicles taken on hire are outside it. The Delhi Bench directed the Assessing Officer to allow the deduction of expenditure relating to goods carriages not owned by the assessee but taken on hire from the open market for carrying out the transportation activities.
• Yuvraj Singh v ITO ITATHelps taxpayerNo later treatment found
  The officer treated my cash deposits as turnover, said I crossed the s.44AB limit and levied s.271B. The quantum was settled under Vivad se Vishwas. Does the penalty still stand?
  No. Where the assessee's declared turnover was below the s.44AB threshold and the officer crossed the threshold only by adding cash deposits to it, and the quantum dispute ended under the Vivad se Vishwas Scheme 2020 without any final judicial finding on the correctness of the turnover, the benefit of the doubt goes to the assessee and the s.271B penalty is reversed.
• ACIT v Hirapanna Jewellers ITATHelps taxpayer
  My cash sales are already in my books and already in my turnover. The officer has added the same money again under section 68 and taxed it at 60%. Can he?
  Not on these facts. The Tribunal upheld the deletion of an addition of Rs 4,71,31,500 made under section 68 read with section 115BBE on a jeweller's cash sales of 8 November 2016. The Assessing Officer had accepted the sales and the stock, had not disturbed the closing stock, and had found no defect in the stock register on either of two surveys; purchases, sales and stock are interlinked and inseparable, every purchase increases the stock and every sale reduces it, and where the movement matches the sales there is no basis to disbelieve them. Because the receipts had already been admitted as revenue receipts and offered as turnover, the Tribunal held there was no case for adding them under section 68 or taxing them again under section 115BBE. Suspicion, however strong, cannot decide the matter against the assessee without tangible evidence disproving the sales.
• Somnath Ghosh v ITO ITATHelps taxpayerNo later treatment found
  I kept no books at all. Can they penalise me under 271B for not getting the accounts audited?
  No. Where no books of account exist there is nothing capable of being audited, so s.271B is not attracted, and the penalty was cancelled. The further proposition - that the default, if any, is non-maintenance of books, which is dealt with by s.271A - was the assessee's argument, and the Tribunal did not state a separate holding on it.
• National Transport Company v ITO — the s.44AE presumptive rates used as the yardstick for an estimate after books were rejected ITATHelps departmentNo later treatment found
  My client's books have been rejected and the officer has estimated a per-vehicle profit. How does the Tribunal test whether that estimate is reasonable?
  By comparing it with the presumptive figures Parliament itself has fixed. The Delhi Bench upheld an estimate of Rs 50,000 per tanker per annum, about Rs 4,000 a month, on the footing that under the presumptive scheme in s.44AE the monthly income for a heavy vehicle was Rs 5,000 and for other goods carriages Rs 4,500, so the estimate was not based on irrational parameters, and it dismissed the appeal.
• ADIT (International Taxation) v Shandong Tiejun Electric Power Engineering Co. Ltd — where s.44BBB(2) is complied with, the officer cannot reject the books under s.145(3) and fall back on the 10 per cent ITATHelps taxpayerNo later treatment found
  We are a foreign company on an approved turnkey power project. We keep books, they are audited, and we recognise revenue on percentage of completion under AS-7. The Assessing Officer has rejected the books under section 145(3) and taxed 10 per cent of our billings under section 44BBB(1). Can he do that?
  The Ahmedabad Bench of the Tribunal held he could not, on these facts, and dismissed the Revenue's appeal. Section 44BBB(2) gives the assessee an option to be assessed on lower profits on two conditions only — that it keeps and maintains books and other documents as required under s.44AA(2) and that it gets its accounts audited and furnishes the s.44AB report — and where those are satisfied and a recognised method of accounting under AS-7 has been regularly followed and disclosed, the officer's action in rejecting the books under s.145(3) and assessing under s.44BBB(1) on a presumptive basis is not justified.
• Banwari Sitaram Pasari HUF v ACIT ITATHelps taxpayerSuperseded by amendment
  The officer has added up my whole commodity contract value as turnover and penalised me under s.271B. Is contract value turnover?
  No. Where the assessee buys and sells commodities on a commodity exchange without delivery being taken or given, the total value of the transactions booked with the exchange cannot be treated as turnover for deciding whether accounts had to be audited under s.44AB. The transactions were speculative, no delivery took place, and the s.271B penalty was deleted.
• Statutory position — s.194A: tax on interest other than interest on securities, with the threshold at ₹50,000 for a bank, co-operative bank or post office, ₹1,00,000 for a senior citizen and ₹10,000 in any other case — the 1961 Act position from 1 April 2025 to 31 March 2026 CBDT Circulars & InstructionsCuts both ways
  My bank has deducted tax on my fixed deposit interest and I was told the limit had gone up. My father is a senior citizen and his bank deducted too. There is also a loan I took from a friend on which I pay interest, and a co-operative society that pays me interest on a deposit. Who exactly has to deduct under section 194A, on what amount, and what are the limits as they stand now?
  Section 194A requires any person who is not an individual or a Hindu undivided family, and who pays a resident interest other than interest on securities, to deduct tax at the rates in force at the time of credit or payment, whichever is earlier. An individual or HUF is drawn in only by the proviso to sub-section (1), and only if total sales, gross receipts or turnover exceeded one crore rupees in business or fifty lakh rupees in profession in the preceding financial year. Section 194A(3)(i) sets the thresholds. From 1 April 2025 they are fifty thousand rupees where the payer is a banking company, a co-operative society carrying on banking business or a post office deposit scheme, one lakh rupees where the payee is a senior citizen, and ten thousand rupees in any other case — each figure substituted by Act No. 7 of 2025, the Finance Act, 2025. Section 194A(3) also carries the exclusions: interest paid to a banking company, a financial corporation, the Life Insurance Corporation, the Unit Trust of India or an insurer under clause (iii); interest paid by a firm to its partner under clause (iv); the co-operative society exemptions in clauses (v) and (viia), which since 1 April 2020 are switched off only where both conditions in the proviso are met — the society's turnover exceeded fifty crore rupees in the preceding financial year and the interest to that payee crossed one lakh rupees for a senior citizen or fifty thousand rupees for anyone else; and the two Motor Accidents Claims Tribunal limbs in clauses (ix) and (ixa), where interest credited is never liable and interest paid is liable only above fifty thousand rupees in the financial year — a figure the Finance Act, 2025 did not move. Section 197A(1A) and (1C) let a payee stop the deduction by declaration — Form No. 15G, or Form No. 15H for a resident individual aged sixty or more, both prescribed by rule 29C. From 1 April 2026 the Income-tax Act, 1961 was repealed by section 536 of the Income-tax Act, 2025; the successor is section 393(1) of the 2025 Act, whose Table carries the same three figures.
• Statutory position — s.194H: two per cent on commission or brokerage paid to a resident since 1 October 2024, on a threshold that became twenty thousand rupees on 1 April 2025 CBDT Circulars & InstructionsCuts both ways
  I pay my selling agents a percentage on every order they bring in, and I give my distributors a discount off the list price. Do I deduct under section 194H, at what rate, and from what figure does the obligation start?
  Section 194H makes a payer who is not an individual or a Hindu undivided family deduct tax on any income by way of commission or brokerage paid to a resident, at two per cent. It was five per cent until 30 September 2024 and was substituted by Act No. 15 of 2024 with effect from 1 October 2024, so anything still applying five per cent to a later payment is applying a superseded rate. The threshold is an annual aggregate, not a monthly one: no deduction is required where the amount, or the aggregate of the amounts, credited or paid or likely to be credited or paid to that payee during the financial year does not exceed twenty thousand rupees, a figure substituted for fifteen thousand rupees by Act No. 7 of 2025 with effect from 1 April 2025 — and it stayed an annual aggregate on the very date section 194-I's rent threshold became a monthly one, so a payer who runs both rent and commission now applies two different kinds of test. Insurance commission is expressly outside the section and belongs to section 194D, and services rendered that are "professional services" are excluded from the definition and belong to section 194J; the section is also not divided into sub-sections, being printed as one unnumbered operative paragraph, three provisos and an Explanation in four clauses. All of this is the Income-tax Act, 1961, which the CBDT's transition FAQ says stands repealed on 1 April 2026. For a credit or payment on or after that date the corresponding provision is serial number 1(ii) of the Table to section 393(1) of the Income-tax Act, 2025, at the same two per cent and the same twenty thousand rupees.
• Statutory position — s.194-I: two per cent on plant, machinery or equipment and ten per cent on land, building, furniture or fittings, on a threshold that became fifty thousand rupees a month on 1 April 2025 CBDT Circulars & InstructionsCuts both ways
  I pay rent for a warehouse and I also hire a generator on a monthly charge. Do I deduct under section 194-I, at what rate on each, and from what figure does the obligation start — is it an annual total or a monthly one?
  Section 194-I sets two rates on one kind of payment: two per cent where the rent is for the use of any machinery or plant or equipment, ten per cent where it is for the use of any land or building (including a factory building), land appurtenant to a building, furniture or fittings, and both have stood since 1 October 2009. The threshold is the part that moved — until 31 March 2025 it was an annual aggregate of two hundred and forty thousand rupees paid to a payee, and from 1 April 2025 the first proviso was substituted so that the test is now whether the rent credited or paid "for a month or part of a month" to that payee exceeds fifty thousand rupees, so a payer who is still adding up the year has the wrong test. The section does not reach an individual or a Hindu undivided family unless the second proviso brings them in on turnover, and the only exclusion written into the section itself is for rent paid to a real estate investment trust on a real estate asset referred to in clause (23FCA) of section 10. All of this is the Income-tax Act, 1961, which the CBDT's own transition FAQ says stands repealed on 1 April 2026. For a credit or payment on or after that date the corresponding provision is serial number 2(ii) of the Table to section 393(1) of the Income-tax Act, 2025, which carries the same two rates and the same fifty-thousand-a-month threshold.
• Statutory position — s.194J: two per cent on technical fees and film royalty, ten per cent on everything else, and a fifty thousand rupee threshold that never reaches a director CBDT Circulars & InstructionsCuts both ways
  I pay a consultant, I pay an engineering firm for technical work, and I pay my company's non-executive director a sitting fee. Do I deduct two per cent or ten per cent on each, and does the fifty thousand rupee limit apply to all three?
  Section 194J does not have one rate. Since 1 April 2020 it has two, and which one you use depends on which limb of sub-section (1) the payment falls into: two per cent for fees for technical services that are not professional services and for royalty that is consideration for the sale, distribution or exhibition of cinematographic films; ten per cent for everything else the section catches — professional fees, director's remuneration, other royalty and a non-compete sum under s.28(va) — and two per cent again, under a separate proviso, where the payee is engaged only in the business of operation of a call centre. The threshold in the first proviso is fifty thousand rupees, raised from thirty thousand by the Finance Act, 2025 with effect from 1 April 2025, and it is set out limb by limb for clauses (a), (b), (c) and (d) only — clause (ba), the director limb, is not in that list, so a single rupee of director's fee carries tax. An individual or Hindu undivided family is outside the section altogether unless the second proviso pulls them back in, and then only for fees for professional or technical services. All of this governs a sum credited or paid up to 31 March 2026: the Income-tax Act, 1961 stands repealed on 1 April 2026, and for a payment on or after that date the governing provision is section 393(1), Table, Serial No. 6(iii) of the Income-tax Act, 2025, which carries the same two rates and the same fifty thousand rupee threshold.
• Statutory position — s.194C: one per cent for an individual or HUF and two per cent for everyone else, the thirty thousand and one lakh thresholds, and the material-bought-from-a-third-party carve-out that takes a contract outside "work" CBDT Circulars & InstructionsCuts both ways
  I pay a fabricator to make parts to my drawings and I pay lorry owners to move my goods. Do I deduct under section 194C, at what rate, and at what figure does the obligation start — is it thirty thousand rupees or one lakh?
  Both figures are live and they do different jobs. Section 194C(5) says no deduction is to be made where the single sum credited or paid does not exceed thirty thousand rupees, and its proviso says that once the aggregate of such sums in the financial year exceeds one lakh rupees you must deduct under the section anyway. So a single bill of Rs 35,000 is caught on its own, and a run of Rs 12,000 bills is caught the moment the year's total passes Rs 1,00,000. The rate is one per cent where the payee is an individual or a Hindu undivided family and two per cent in every other case. Whether the fabrication is "work" at all depends on whose material is used: manufacturing to your specification out of material bought from you (or from an associate of yours) is "work"; the same job done out of material the fabricator bought from anyone else is expressly excluded, and that exclusion is the line between section 194C and a contract for sale. All of this is the 1961 Act, which the CBDT's own transition FAQ says stands repealed on 1 April 2026: for a credit or payment on or after that date the corresponding provision is section 393(1) of the Income-tax Act, 2025, which carries the same rates and the same two figures.
• Statutory position — section 158BC: the sixty-day notice, the two approvals, and the traps that kill a block assessment CBDT Circulars & InstructionsCuts both ways
  My client has a section 158BC notice for a March 2025 search. How long has he got, what happens if he files late, and is there a section 153D approval to attack?
  The notice must give a period not exceeding sixty days for the block return, and that period can be extended by a further thirty days only in the narrow audit case described in the fifth proviso. If the return goes in after the period allowed, the second proviso says in terms that it 'shall not be deemed to be a return under section 139' — so a late block return is non est, with consequences that run all the way to the notice under section 143(2). There is no section 153D approval in a block assessment; the approvals are elsewhere — section 158BC(3) requires the prior approval of the Additional or Joint Commissioner or Director BEFORE the section 158BC notice is issued, and section 158BG requires the previous approval of the same rank BEFORE the assessment order is passed.
• Statutory position — s.44AD(1) and (2): the eight and six per cent rates, the Rs 2 crore / Rs 3 crore ceiling, and the partner's-salary proviso that was omitted CBDT Circulars & InstructionsCuts both ways
  My client wants to file under s.44AD. What turnover can he have, what rate must he declare, and can the firm still deduct partners' salary and interest from the presumptive figure?
  Eight per cent of turnover, or six per cent of so much of the turnover as is received by account payee cheque, account payee bank draft, electronic clearing system or other prescribed electronic mode during the previous year or before the s.139(1) due date. The eligible-business ceiling is two crore rupees, replaced by three crore rupees where cash receipts do not exceed five per cent of turnover (Finance Act 2023, from AY 2024-25) — and the proviso that once let a firm deduct partners' salary and interest from the s.44AD figure was omitted by the Finance Act 2016 with effect from 1 April 2017, so it is not available for AY 2017-18 or any later year.
• Statutory position — s.44ADA: fifty per cent, the Rs 50 lakh / Rs 75 lakh ceiling, and the audit condition in s.44ADA(4) CBDT Circulars & InstructionsCuts both ways
  My client is a professional with gross receipts of about Rs 62 lakh, nearly all banked. Can he still use s.44ADA, and if he wants to declare less than fifty per cent, must he be audited?
  Section 44ADA deems fifty per cent of the total gross receipts of a resident individual or partnership firm (not an LLP) engaged in a profession referred to in s.44AA(1) to be the profits of that profession, where gross receipts do not exceed fifty lakh rupees — raised to seventy-five lakh rupees where cash receipts do not exceed five per cent of gross receipts. By s.44ADA(4), a professional who claims profits LOWER than the deemed fifty per cent must keep books under s.44AA(1) and get them audited under s.44AB only if his total income exceeds the maximum amount which is not chargeable to income-tax.
• Statutory position — section 285BA, rule 114E and Form 61A: who must file the statement of financial transactions, and the section 271FA and 271FAA penalties CBDT Circulars & InstructionsCuts both ways
  A notice says my client should have filed Form 61A and proposes a penalty of five hundred rupees a day. Who actually has to file, for what transactions, and how is the penalty computed?
  The statement of financial transactions is furnished under section 285BA(1) in Form No. 61A, and rule 114E(2) fixes both the reporting persons and the transactions in a table: for most reporters the threshold is ten lakh rupees in a financial year, for immovable property registered by a Registrar or Sub-Registrar it is thirty lakh rupees, and for a person liable to audit under section 44AB it is receipt of cash exceeding two lakh rupees for a sale of goods or services. The due date under rule 114E(5) is 31 May following the financial year. The penalty under section 271FA is five hundred rupees for every day of default, rising to one thousand rupees a day from the day after the time given in a notice under section 285BA(5) expires; section 271FAA adds fifty thousand rupees for an inaccurate statement, and, for a reporting financial institution, a further five thousand rupees for every inaccurate reportable account.
• Statutory position — s.44AB, provisos to clause (a): the Rs 10 crore threshold and the 5 per cent cash test CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client's turnover is Rs 6 crore and almost everything moves through the bank. Is he outside tax audit, and what counts as 'cash' for the 5 per cent test?
  The Rs 1 crore threshold in s.44AB(a) is replaced by Rs 10 crore only where BOTH tests are met — cash receipts do not exceed 5 per cent of all amounts received, and cash payments do not exceed 5 per cent of all payments made. For that purpose the statute itself deems a payment or receipt by a cheque or bank draft which is not account payee to be a payment or receipt in cash.
• Statutory position — s.80JJAA: thirty per cent of additional employee cost for three years, and every condition that defeats it CBDT Circulars & InstructionsCuts both ways
  My client wants to claim s.80JJAA for new hires. What exactly is the deduction, and which conditions actually cause claims to fail?
  Section 80JJAA gives an assessee to whom s.44AB applies, whose gross total income includes profits and gains derived from business, a deduction of thirty per cent of the additional employee cost incurred in the course of that business in the previous year, for three assessment years including the assessment year relevant to the previous year in which the employment is provided. The conditions that defeat claims in practice are in the Explanation, not in the operative sub-section: an employee earning more than twenty-five thousand rupees a month is not an "additional employee", nor is one employed for less than two hundred and forty days in the previous year (one hundred and fifty days for a manufacturer of apparel, footwear or leather products), nor one who does not participate in a recognised provident fund, nor one whose entire Employees' Pension Scheme contribution is paid by the Government. And the additional employee cost is nil for an existing business if there is no increase in the total number of employees over the last day of the preceding year, or if the emoluments are paid otherwise than by account payee cheque, account payee bank draft, electronic clearing system through a bank account, or such other prescribed electronic mode.
• Statutory position — s.44AE: Rs 1,000 per tonne for a heavy goods vehicle from AY 2019-20, Rs 7,500 for every other goods carriage CBDT Circulars & InstructionsCuts both ways
  My client runs six trucks, two of them well over twelve tonnes. What does he declare under s.44AE, and from which year did the per-tonne rate start?
  For a heavy goods vehicle the deemed profit is one thousand rupees per tonne of gross vehicle weight or unladen weight, as the case may be, for every month or part of a month of ownership, or the amount claimed to have been actually earned from that vehicle, whichever is higher; for every other goods carriage it is seven thousand five hundred rupees a month on the same 'whichever is higher' basis. That differentiated structure, and the definition of a heavy goods vehicle as a goods carriage whose gross vehicle weight exceeds 12,000 kilograms, were substituted into s.44AE by section 16 of the Finance Act 2018 with effect from 1 April 2019 — that is, from AY 2019-20.
• Statutory position — s.44AA(2): who must keep books of account, and the thresholds CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client runs a small business, not a notified profession. At what point is he obliged to keep books at all, and what are the current figures?
  For a business or a non-specified profession, books must be kept if income from the business or profession exceeds Rs 1,20,000 OR total sales, turnover or gross receipts exceed Rs 10,00,000 in any one of the three years immediately preceding the previous year. For an individual or a Hindu undivided family two provisos raise those figures to Rs 2,50,000 and Rs 25,00,000 respectively.
• Statutory position — section 80AC and section 115JC: a late return destroys the section 80LA claim, and AMT still bites at nine per cent CBDT Circulars & InstructionsCuts both ways
  We missed the section 139(1) due date by a week and the IFSC unit's whole income is covered by section 80LA. Is the deduction still available, and does alternate minimum tax apply on top?
  On the first question, no. Section 80AC provides that for an assessment year commencing on or after 1 April 2018, where any deduction is admissible under any provision of Chapter VI-A under the heading 'C.—Deductions in respect of certain incomes', no such deduction shall be allowed unless the assessee furnishes a return of his income for that assessment year on or before the due date specified under section 139(1). Section 80LA sits in that Part of Chapter VI-A, so a return filed even a day late costs the whole deduction. On the second, alternate minimum tax under section 115JC does apply to a person other than a company, and section 115JC(2)(i) adds back deductions claimed under any section in that same Part C — but section 115JC(4)(i) substitutes nine per cent for eighteen and one-half per cent where the person is a unit located in an International Financial Services Centre deriving its income solely in convertible foreign exchange.
• Statutory position — s.44AD(4) and s.44AD(5): the five-year lock-out, and why the books-and-audit duty bites only if total income exceeds the exemption limit CBDT Circulars & InstructionsCuts both ways
  My client filed under s.44AD for two years and then declared below eight per cent in the third. What happens to him for the next five years, and does he now have to get audited?
  By s.44AD(4), an eligible assessee who has declared profit in accordance with s.44AD and who, in any of the five assessment years relevant to the succeeding previous years, declares profit NOT in accordance with s.44AD(1), is shut out of s.44AD for the five assessment years subsequent to the assessment year in which he broke ranks. By s.44AD(5), that assessee must keep books under s.44AA(2) and get them audited and reported under s.44AB only if his total income exceeds the maximum amount which is not chargeable to income-tax — a condition that both the department and the assessee routinely read out of the sub-section.
• Statutory position — what the ICDS actually govern: s.145(2), s.145(3) and the preamble limits CBDT Circulars & InstructionsCuts both ways
  The Assessing Officer says my client's accounts must be redone under the ICDS. How far do the ICDS actually reach?
  Not as far as the notice usually assumes. The ten ICDS notified under s.145(2) apply only to a person following the mercantile system of accounting, and only for computing income under "Profits and gains of business or profession" and "Income from other sources" — the preamble to every ICDS says in terms that they are "not for the purpose of maintenance of books of accounts", and that where an ICDS conflicts with the Act, the Act prevails to that extent. They do not apply to an individual or Hindu undivided family whose accounts are not required to be audited under s.44AB, and they do not apply to a person on the cash system at all.
• Statutory position — section 44BBB: the 10 per cent turnkey power presumption, the international-aid condition dropped in 2003, and the lower-profit claim in sub-section (2) CBDT Circulars & InstructionsCuts both ways
  We are a foreign company erecting plant for a power project in India. The Assessing Officer wants to tax 10 per cent of our billings under section 44BBB although our audited books show much less. Can we claim the lower figure, and does it matter that our project is not funded by any aid programme?
  You can claim the lower figure, and the aid-funding point no longer matters. Section 44BBB(2), inserted by the Finance Act 2003 with effect from 1 April 2004, provides that notwithstanding sub-section (1) an assessee may claim lower profits and gains than the 10 per cent, if he keeps and maintains books of account and other documents as required under s.44AA(2) and gets his accounts audited and furnishes the audit report as required under s.44AB — whereupon the Assessing Officer must proceed to make an assessment of the total income or loss under s.143(3). The same Finance Act 2003 omitted, with effect from the same date, the words "and financed under any international aid programme" which until then had confined the section to aid-funded turnkey power projects; what remains is the requirement that the turnkey power project be approved by the Central Government in that behalf.
• Income Tax Dept presumptive taxation tutorial CBDT Circulars & InstructionsCuts both ways
  What are the current 44AD, 44ADA and 44AB limits, and what does the 5% cash test mean?
  For AY 2024-25 onwards: s.44AD applies up to Rs. 2 crore turnover, or Rs. 3 crore where cash receipts are within 5%, at 8% (6% for receipts by account payee cheque or draft or electronic mode); s.44ADA up to Rs. 50 lakh, or Rs. 75 lakh on the same condition, at 50%. Audit under s.44AB is triggered at Rs. 1 crore turnover for business, Rs. 10 crore where cash receipts and cash payments are each within 5%, and Rs. 50 lakh gross receipts for a profession. The 5% cash cap is the same thing as routing more than 95% of transactions through banking channels.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.