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

Vikram Enterprises has turnover of Rs. 6 crore. Its receipts total Rs. 6.3 crore, of which Rs. 12 lakh were cash and Rs. 25 lakh were by non-account-payee cheques. Payments total Rs. 5.5 crore, all through account payee banking channels. Under section 63, how is audit applicability decided?

Audit is required. Non-account-payee cheques are deemed cash, so cash receipts are Rs. 37 lakh, about 5.87% of Rs. 6.3 crore, exceeding 5%. The limit stays at Rs. 1 crore, which turnover of Rs. 6 crore exceeds.

  1. ANot required, since cash receipts are Rs. 12 lakh, below 5%
  2. BRequired, since non-account-payee cheques are deemed cash, making cash receipts Rs. 37 lakh, about 5.87% of Rs. 6.3 crore, above 5%Correct
  3. CNot required, since cash payments are nil
  4. DRequired, since Rs. 37 lakh exceeds 5% of turnover of Rs. 6 crore only on payments

Explanation

A cheque or draft that is not account payee is deemed cash. Cash receipts are 12 + 25 = Rs. 37 lakh. 5% of Rs. 6.3 crore is Rs. 31.5 lakh, so 37 lakh exceeds it. The Rs. 10 crore limit is lost and the Rs. 1 crore limit applies to turnover of Rs. 6 crore.

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