Please help me in following case. Whether 44AD provisions can be applied?
Following are the actual figures taken from the books of an eligible assessee engaged in eligible business.
Annual Turnover Rs 60,000,00/-
Expenses Rs 40,000,00/-
Profit Rs 20,000,00/-
Can assessee claim his taxable income is Rs 4,80,000/- ?( ie 8% of 60 Lacs)
Assuming assessee is having income only uder head PGBP and have not done any expenditure deductible under chapter VI, His actual profit after tax will be as follows
Profit as per books 20,000,00/-
Less: Tax on Rs 4,80,000 ie Rs 28,000/-
Actual profit after tax 19,72,000/- ( 20lacs -28k)
ie His after tax profit is Rs 19,72,000/- and Assessing officer cannot treat Rs 15,20,000/- (ie 20,000,00-4,80,000) as undisclosed income.
Please help me. Whether my calculation is correct?
14 March 2013
Yes you can apply 44AD if yours is an eligible business & your turnover is less than that specified for tax audit. The excess profit if any cannot be treated as undisclosed by AO
15 March 2013
sorry, the income to be reported is actual profit or 8 % whichever is higher
44AD (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”.
The wording used in the section is "a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee" Doesn't this mean that assessee can voluntarily declare higher income?
In the section the term used is "claimed to have been earned" Means Assessee has the option to claim higher income under this section.
What could be the reason behind using this phrase?
15 March 2013
In above example if Assessee invests Rs 19.72 Lacs, Can AO take objection and treat Rs 15,20,000/-(ie 20 Lacs less 4.8 Lacs)as undisclosed income? Can AO apply provisions of sec 69?
15 March 2013
Hey Harshad there is nothing to get confused, sec 44AD is clear, if its applicable & assesee has declared profit @ 8% or more AO cannot object & invoke sec 69
Please let me know whether my following interpretation is correct
Repeating details of case again Turnover Rs 60Lakhs Expenses Rs 40 Lakhs Actual Profit Rs 20 Lakhs Profit as per sec 44 AD Rs 4.80 Lakhs After Tax Profit Rs 19.72 Lakhs(ie 20 Lakhs Less Tax Rs 28k on declared income 4.80Lakhs)
1. As per sec 44AD Assessee has the option to claim income @ 8% ie Rs 4.80Lakhs and this will be accepted by AO
2. If Assessee invests Rs 19.72 Lakhs anywhere, and Assessing Officer asks for Source of this income assessee cannot plead that it is out of his business profits Because of wording of section
It is as follows
"Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of aneligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”
3. If assessee says that it is out of his business income then it is deemed that Assessee is claiming higher income and wording of section is very clear on claiming higher profits. This will attract provisions of sec 69 and AO can levy Penalty for concealment , Interest etc.
4.Therefore we cannot say that if sec 44AD is applied Assessee can declare income at 8% even if his actual Profit Percentage is more.
5. As per wordings of sec 44AD, He can declare income at 8% but there are high chances that he is caught u/s 69.
6. By opting this scheme Assessee can escape from provisions of sec 28 to 43C ( mainly he will be safeguarded from disallowances of cash payment exceeding Rs 20 Thousand , Payment to relative, Maintenance of books, etc) But the section is silent about the provisions of sec 69, It means that sec 69 can be applied by AO
7. As this section is recent amendment AO must be having the data about the actual profit % of past several years.
8. In short we can say that as per sec 44AD, Income will be 8% of gross receipts OR Actual profit whichever is higher. There is no question of voluntarily declaring more income.
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