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CA Final · Direct Tax Laws & International Taxation · Tax Audit and Ethical Compliances

Anand Hardware, a proprietorship, had turnover of Rs. 6 crore in the tax year, with total receipts of Rs. 6 crore of which Rs. 24 lakh was in cash, and total payments of Rs. 5 crore of which Rs. 20 lakh was in cash. It also received Rs. 8 lakh by a cheque that was not account payee. Under section 63 of the Income-tax Act, 2025, is a tax audit required?

Audit is required. A cheque that is not account payee is deemed cash, so cash receipts become Rs. 32 lakh, about 5.33% of Rs. 6 crore, exceeding 5%. The Rs. 10 crore limit is lost, and turnover above Rs. 1 crore triggers audit.

  1. ANo, because cash receipts are exactly 4% and cash payments 4%, within 5%, so the limit is Rs. 10 crore
  2. BYes, because the non-account payee cheque is deemed cash, making cash receipts Rs. 32 lakh, about 5.33%, exceeding 5%, so the Rs. 1 crore limit appliesCorrect
  3. CYes, because cash payments exceed 5%
  4. DNo, because turnover is below Rs. 10 crore regardless of cash

Explanation

Cash receipts: 24 + 8 deemed = Rs. 32 lakh; 32/600 = 5.33%, above 5%. So the Rs. 10 crore limit is unavailable and Rs. 1 crore applies; turnover of Rs. 6 crore exceeds it. Cash payments are 20/500 = 4%, within limit, so option C is wrong. Option A ignores the deeming rule.

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