Skip to content

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

Mehra & Co., a trader, has turnover of Rs 6 crore. Total receipts are Rs 6 crore, of which Rs 21 lakh were received by a cheque that was not account payee; other cash receipts were Rs 12 lakh. All payments are made through banking channels. Under section 63 of the Income-tax Act, 2025, what is the position?

Tax audit is required. A cheque that is not account payee is deemed cash, so cash receipts are 33 lakh out of 600 lakh, which is 5.5%. This exceeds 5%, so the one crore limit applies and turnover exceeds it.

  1. ATax audit not required, as the limit is ten crore rupees
  2. BTax audit required, as the non-account payee cheque receipts are deemed cash, making cash receipts 5.5%, so the limit stays one crore rupeesCorrect
  3. CTax audit not required, as cheque receipts are never treated as cash
  4. DTax audit required only if cash payments also exceed 5%

Explanation

A cheque that is not account payee is deemed cash. Deemed cash receipts = 21 + 12 = 33 lakh; 33/600 = 5.5%, which exceeds 5%. The ten crore limit is therefore unavailable and turnover of 6 crore exceeds one crore. Treating the cheque as non-cash (option C) gives only 2%.

Did you get it right without looking?

One question tells you little. A timed set on Tax Audit shows your real accuracy, how long you take and where you lose marks.

Practise Tax AuditFree diagnostic mock

More Tax Audit questions