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

Meera Associates, a business, has turnover of Rs. 4 crore. Cash receipts are 2% of total receipts, but it paid Rs. 9 lakh in cash out of total payments of Rs. 1.2 crore (7.5%). Which statement is correct for the tax audit under section 63?

Audit is required. The higher Rs. 10 crore limit needs both cash receipts and cash payments to be within 5%. Cash payments are 7.5%, so the Rs. 1 crore limit applies and turnover of Rs. 4 crore exceeds it.

  1. AAudit is required because the cash payment condition is not met, so the Rs. 1 crore limit appliesCorrect
  2. BAudit is not required because cash receipts are within 5%
  3. CAudit is not required because turnover is below Rs. 10 crore regardless of cash payments
  4. DAudit is required only if cash receipts also exceed 5%

Explanation

The Rs. 10 crore limit needs both conditions: cash receipts and cash payments each not above 5%. Payments in cash are 9/120 = 7.5%, exceeding 5%. So the Rs. 1 crore limit applies and turnover of Rs. 4 crore exceeds it.

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