Section 44AD
This query is : Resolved
20 June 2011
A partnership firm with a turnover of Rs 35 lakhs incurs loss during FY 2010-11. Whether tax audit u/s 44AB is compulsory in this case as the firm is not showing minimum 8% profit as required by section 44AD.
21 June 2011
NO NEED BECAUSE AUDIT PROVISIONS APPLY ONLY IF THE PROFITS OF BUSINESS ARE CLAIMED TO BE LOWER THAN 8 PERCENT AND THE TOTAL INCOME EXCEEDS THE MAXIMUM AMT NOT CHARGEABLE TO TAX
IN THIS CASE SECOND CONDITION DOES NOT GET FULFILLED
CA MANOJ GUPTA
JODHPUR
09828510543
IN THIS CASE SECOND CONDITION DOES NOT GET FULFILLED
CA MANOJ GUPTA
JODHPUR
09828510543
21 June 2011
But In case of firm maximum amount not chargeable to tax is zero.
21 June 2011
1. If we go through the professional approach, Tax Audit is necessary as any amount of loss is below the 8% of turnover.
.
2. In case of partnership, if we show profit @8% on the turnover before remuneration and interest to partners, then in my view no tax audit requirement is there.
.
3. As such From the profit@8% if we deduct
Salary and Interest to partners, and due to this if any loss arises then there will be no requirement of tax audit.
.
4.In any other case, if remuneration and interest can cumulatively be made equal to 8% , then also there is no need of tax audit. In this case net profit of the firm will be reduced to zero after providing such Interest and Salary.
.
5. In the remaining cases, where losses are heavy, but remuneration and interest can be managed equal to 8% of turnover, then also there is no requirement of tax audit.
.
However , in this case the firm will not be eligible to carry forward its losses.
.
2. In case of partnership, if we show profit @8% on the turnover before remuneration and interest to partners, then in my view no tax audit requirement is there.
.
3. As such From the profit@8% if we deduct
Salary and Interest to partners, and due to this if any loss arises then there will be no requirement of tax audit.
.
4.In any other case, if remuneration and interest can cumulatively be made equal to 8% , then also there is no need of tax audit. In this case net profit of the firm will be reduced to zero after providing such Interest and Salary.
.
5. In the remaining cases, where losses are heavy, but remuneration and interest can be managed equal to 8% of turnover, then also there is no requirement of tax audit.
.
However , in this case the firm will not be eligible to carry forward its losses.
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21 June 2011
In all cases where the provisions of Section 44AB are not applicable they are not required to maintain any books of account u/s 44AA and to cover the cases the basic income shown should be minimum 8% of the gross turnover.
Now, the basic question of Mr.K.K. Bhai is that the minimum taxable income is Zero. To the best of my knowledge if the profit shown below 8% attracts tax audit to be done but then the hurdle will be Section $$AA. Hence, the following shall be the position:-
1) Either you show the income @ 8%
Or
2) Show the losses and let the assessing officer complete the assessment by taking the Profit @8% by invoking the provisions of Section 44AD.
3) The profit or loss is determined only after the year end and during the year the assessee knows that his turnover shall not exceed as required u/s 44AB and had not maintained then how the auditor will certify the figures? Yes no doubt he can certify the turnover as the same is reflected in the Bank Statement or TDS Certificate otherwise that is also not possible.
Therefore, in cases of loss the C. A. has to be very smart by applying his mind whether to certify the accounts or not. My question is who will take the risk when no accounts are maintained.
Let us presume that accounts are maintained then if the income shown is loss then you bound to get your books of account audited for Tax Audit.
Now, the basic question of Mr.K.K. Bhai is that the minimum taxable income is Zero. To the best of my knowledge if the profit shown below 8% attracts tax audit to be done but then the hurdle will be Section $$AA. Hence, the following shall be the position:-
1) Either you show the income @ 8%
Or
2) Show the losses and let the assessing officer complete the assessment by taking the Profit @8% by invoking the provisions of Section 44AD.
3) The profit or loss is determined only after the year end and during the year the assessee knows that his turnover shall not exceed as required u/s 44AB and had not maintained then how the auditor will certify the figures? Yes no doubt he can certify the turnover as the same is reflected in the Bank Statement or TDS Certificate otherwise that is also not possible.
Therefore, in cases of loss the C. A. has to be very smart by applying his mind whether to certify the accounts or not. My question is who will take the risk when no accounts are maintained.
Let us presume that accounts are maintained then if the income shown is loss then you bound to get your books of account audited for Tax Audit.
21 June 2011
1. The importance of books of account(BoA) is not hidden for a person who is carrying on a business, specially, by entering into partnership firm with others.
*
2. A firm can become advantageous to its partners only when it maintains BoA. In real sense the firms who did not maintain BoA, had lived shortly. This may be due to mistrust or mismanagement of funds. Whereas BoA serves their interest silently.
*
3. Availing an option of presumptive taxation has been kept with the assessee, and he can exercise it even after maintaining BoA. In other words, it can be said that the right to maintain BOA has not been snatched by the legislation. He can "maintain" BoA.
*
4. In my view, it has become more obligatory for smaller assessee to maintain books of account - whose Gross Profit Margin is below 10% ( I assume 4 to 5 % as expenditure) as some times they may not find it comfortable to pay tax on profit ascertained @ 8% of the turnover.
*
5. We must advise our all clients to continue to maintain the books of account, so that in desired situation tax audit can be carried out.
*
6. Conclusion :
*
1. It is compulsory to maintain BoA as the
option to show the income on presumptive basis can be exercised in a better manner only when one has maintained books of Account.
*
2. It is a fact that business can do better only by maintaining BoA.
*
3. In undesired cases, BoA is also not required.
*
4. Law will never do away with the provisions related with maintaining the BoA.
*
5. Lastly, law can easily be maintained in BoA.
1. The importance of books of account(BoA) is not hidden for a person who is carrying on a business, specially, by entering into partnership firm with others.
*
2. A firm can become advantageous to its partners only when it maintains BoA. In real sense the firms who did not maintain BoA, had lived shortly. This may be due to mistrust or mismanagement of funds. Whereas BoA serves their interest silently.
*
3. Availing an option of presumptive taxation has been kept with the assessee, and he can exercise it even after maintaining BoA. In other words, it can be said that the right to maintain BOA has not been snatched by the legislation. He can "maintain" BoA.
*
4. In my view, it has become more obligatory for smaller assessee to maintain books of account - whose Gross Profit Margin is below 10% ( I assume 4 to 5 % as expenditure) as some times they may not find it comfortable to pay tax on profit ascertained @ 8% of the turnover.
*
5. We must advise our all clients to continue to maintain the books of account, so that in desired situation tax audit can be carried out.
*
6. Conclusion :
*
1. It is compulsory to maintain BoA as the
option to show the income on presumptive basis can be exercised in a better manner only when one has maintained books of Account.
*
2. It is a fact that business can do better only by maintaining BoA.
*
3. In undesired cases, BoA is also not required.
*
4. Law will never do away with the provisions related with maintaining the BoA.
*
5. Lastly, law can easily be maintained in BoA.
Message likes :
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24 July 2013
In view of above conversation, should i file return as considering the Loss as per books ? or should i file it after considering 8 % of the turnover ?
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