Declared income under section 44ad

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Gaurav (Querist)
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20 March 2013 Hi,

I am an individual with turnover around 55 Lacs.
I have not maintained any books of accounts.

I will file returns under 44AD. For this, I will show net profit at 8% of turnover.

What will be the repercussions if my net profit is higher than 8% but I am still claiming it as 8%?

Thanks

CA E.A.Ravikumar

CA E.A.Ravikumar (Expert)
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20 March 2013 Hi,
Per 44AD, the profit that has to be offered is at least 8%. In your case, if the income is more than 8%, offer the same and pay the tax. For quick reference, 44AD says "... a sum equal to eight per cent of the total turnover or gross receipts of the assessee ...or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned....

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Gaurav

Gaurav (Querist)
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20 March 2013 If I am showing more than 8 percent profit where is the chance of tax enquiry coming into picture . I can show more income but minimum 8 percent is compulsory ie. Even if I maintain books or I don't, if the profit is more than 8 percent it does not matter. Only if profit is less than 8%, or turnover more than 60 lacs, then I am required to maintain books and get my accounts audited.

In this case, since I will be paying tax on presumptive income, on what basis will the ITO open case and ask for actual income proof?

Please don't think that I am challenging your views, you are an experienced professional in this field. This is just my genuine query.

Thanks

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CA E.A.Ravikumar

CA E.A.Ravikumar (Expert)
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30 March 2013 If the query is "whether the income returned u/s.44AD can be subjected to scrutiny", the answer is Yes.

Courts have ruled that...

...the Assessing officer does not have power to assess anything in excess of returned income if returned income is more than prescribe %...

...the assessee is not under obligation to explain individual entry of cash deposit in the bank unless such entry has no nexus with the gross receipts....

ref:
Abhi Developers vs. ITO [2007]12 SOT 444 Ahd.)

CIT v. Surinder Pal Anand APPEAL NO: ITA No. 156 of 2010

If the AIR, investment or expenditure evinces an income more than what is returned then the department may want the assesse to explain.