Skip to content

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

Vikram Exports, a proprietary concern with turnover of Rs. 8 crore, has cash receipts of Rs. 30 lakh (3.75% of receipts) and cash payments of Rs. 9 lakh against total payments of Rs. 6 crore. Payments by non-account payee bank drafts total Rs. 24 lakh. It is not otherwise required to be audited under any other law. Under section 63 of the Income-tax Act, 2025, what is the position?

Audit is required. Non-account payee drafts are deemed cash, so cash payments are Rs. 33 lakh, which is 5.5% of Rs. 6 crore and exceeds 5%. The Rs. 10 crore relaxation is lost, and turnover of Rs. 8 crore exceeds Rs. 1 crore.

  1. AAudit is not required; cash payments are 1.5%
  2. BAudit is required; cash payments including non-account payee drafts are Rs. 33 lakh, i.e. 5.5%, exceeding 5%, so the Rs. 1 crore limit appliesCorrect
  3. CAudit is not required; payments by drafts are never deemed cash
  4. DAudit is required only if receipts exceed 5%

Explanation

Non-account payee drafts are deemed cash, so cash payments are Rs. 9 lakh + Rs. 24 lakh = Rs. 33 lakh. 5% of Rs. 6 crore is Rs. 30 lakh, so Rs. 33 lakh (5.5%) exceeds the limit. The relaxation is lost, the Rs. 1 crore limit applies and turnover of Rs. 8 crore exceeds it.

Did you get it right without looking?

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

Practise Tax Audit and Ethical CompliancesFree diagnostic mock

More Tax Audit and Ethical Compliances questions