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CS Professional · Advanced Direct Tax Laws and Practice · Tax Audit

Meera Associates carries on business with turnover of Rs 6 crore. Total receipts are Rs 6.2 crore, of which Rs 40 lakh were received by a cheque not account payee. All receipts otherwise were banking channels. Payments in cash are within 5%. Under Section 63 of the Income-tax Act, 2025, what is the position?

Audit is required. A non-account payee cheque is deemed a cash receipt, so cash receipts are Rs 40 lakh of Rs 6.2 crore, about 6.45%, exceeding 5%. The ten crore limit is lost and the one crore limit applies, which Rs 6 crore turnover exceeds.

  1. AAudit not required, as the cheque is a banking instrument
  2. BAudit not required, as only cash payments matter
  3. CAudit required, since non-account payee cheque receipts are deemed cash receipts and 40/620 is about 6.45%, exceeding 5%, so the one crore limit appliesCorrect
  4. DAudit required only if the cheque amount exceeds Rs 50 lakh

Explanation

Section 63(5)(b) deems receipts by a cheque or draft that is not account payee to be cash. Deemed cash receipts are 40 lakh out of 620 lakh, about 6.45%, above 5%. Condition (b)(i) fails, so the one crore limit applies and turnover of Rs 6 crore exceeds it.

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