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

Anand Hardware has turnover of Rs. 6 crore. Its total receipts are Rs. 6 crore, of which Rs. 24 lakh were received by account payee cheques and Rs. 27 lakh by cheques that were not account payee. No other cash receipts exist. Cash payments are negligible and well under 5%. Under section 63 of the Income-tax Act, 2025, what is the position?

Audit is not required. Non-account payee cheques are treated as cash, but Rs. 27 lakh is only 4.5% of Rs. 6 crore, within the 5% limit. The Rs. 10 crore threshold therefore applies and turnover of Rs. 6 crore is below it.

  1. AAudit is not required because only Rs. 27 lakh was received by non-account payee cheques, below 5%
  2. BAudit is required because non-account payee cheques count as cash and receipts of Rs. 27 lakh exceed 5% of Rs. 6 crore, so the Rs. 1 crore limit appliesCorrect
  3. CAudit is not required because receipts in cheques are never cash
  4. DAudit is required only if the account payee cheques also exceed 5%

Explanation

A cheque or bank draft that is not account payee is deemed cash under section 63(5)(b). 5% of Rs. 6 crore is Rs. 30 lakh, and Rs. 27 lakh is below that, so the relaxation applies and the limit is Rs. 10 crore. The turnover of Rs. 6 crore is below this, so no audit is required; the second option wrongly assumes Rs. 27 lakh exceeds 5%.

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