Loss of the firm

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

02 September 2012 A partnership firm does not have any sale income in the FY 11-12 but has expenses like depreciation on car, vehicle maintenance bank commission etc. query is
1. Can the firm file the loss return?
2. Whether 44AD is applicable since 8% on nil sale is zero and the firm is claiming loss for the year?

CA SHABIR

CA SHABIR (Expert)
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02 September 2012 Dear,

My answers to the questions asked by u are as under:

1. Yes the firm is entitled to claim the loss (on account of the mentioned expenses) and is supposed to file its ITR within due date. Loss to the tune of depreciaition can be carried forawrd even though the return is filed after due date.

2. Using the provisions of section 44AD will not be benificial to the assessee, because the expenses incurred, during the year, can not be claimed.These expenses are deemed to have been claimed.

Thanks

Querist : Anonymous

Querist : Anonymous (Querist)

04 September 2012 Dear CA Shabir,

My second querry was - since the sale of the firm is zero then the income to be offered shall be equal to or more than zero. In this case the assessee is claiming loss i.e. is claiming below 8%. Whether under such circumstances Audit is applicable u/s 44AD (5) although is his income does not exceed the maximum amount which not chargeable to tax.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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03 August 2024 For a partnership firm with no sale income in a financial year but with expenses like depreciation, vehicle maintenance, and bank commission, here’s how you can approach the situation with respect to filing a loss return and the applicability of Section 44AD:

### 1. **Can the Firm File a Loss Return?**

Yes, the firm can file a return showing a loss. Even if there is no sale income, the firm can report its expenses and claim a loss for the year. This loss can be carried forward to subsequent years, subject to the provisions of the Income Tax Act.

### 2. **Applicability of Section 44AD**

**Section 44AD** provides for a presumptive taxation scheme for small businesses. Under this section:

- **Eligibility Criteria:** The section is applicable to businesses where the gross receipts do not exceed ₹2 crore in a financial year.

- **Presumptive Income:** Under Section 44AD, 8% of the gross receipts is considered the presumptive income. If the presumptive income (8% of gross receipts) is less than the actual income, the actual income is considered.

In your case:

- **Zero Sale:** Since there is no sale income, the gross receipts are ₹0.

- **Presumptive Income:** 8% of ₹0 is ₹0, meaning no presumptive income.

Given that:

- **Claiming Loss:** If the firm claims a loss (which could include depreciation and other expenses), this is acceptable. The loss would be carried forward to future years.

- **Audit Requirement:** Under Section 44AD, if the income is claimed below 8% of the gross receipts (which is zero in this case), and the total income is a loss, then the audit requirement under Section 44AB does not automatically apply.

However, if the firm's total income exceeds the maximum amount not chargeable to tax (which is the basic exemption limit), then an audit under Section 44AB may be required. For FY 11-12, if the loss results in total income below the exemption limit, the audit requirement under Section 44AB may not be triggered.

### **Summary:**

1. **Filing Loss Return:** Yes, the firm can file a return with a loss. The loss can be carried forward to future years.

2. **Applicability of Section 44AD:** Section 44AD is not applicable if there are no gross receipts. The firm can declare a loss.

3. **Audit under Section 44AB:** The audit requirement under Section 44AB is based on the total income exceeding the exemption limit. If the firm’s total income (considering loss) does not exceed the exemption limit, the audit may not be required.

For exact compliance and to ensure that all conditions are met, it’s always best to consult with a tax professional or accountant who can provide tailored advice based on the specific details of your case.