23 December 2013
If an assessee will calculate his Taxable income u/s 44AD @ 8% & he returned the same. But his actual income is more than 8%, then how he will be able to prove that his actual income is more than 8%. e.g., T/O = 50 Lakhs, 8% Income = 4Lakhs u/s 44AD, Actual income = 30 Lakhs, he has paid the taxes on Rs. 4 lakhs and Later on, Assessee Invest Rs. 10 Lakhs in Shares. A.O. issue the notice-explanation for the source of Income.
How the Assessee will explain the Source of income?
23 December 2013
The option u/s 44AD is 8% or more. So you can state that your case is justified by 8% & above and so you have declared the same. Which is very much under the guidlines of Sec 44AD.
Please remember that Section 44AD starts with a clause "Notwithstanding anything to the contrary contained in sections 28 to 43C....". Thus it gives you immunity only against 28 to 43C. Nowhere in the act, it is provided that 44AD will prevail of 68 or 69.
Further, if the intention of the legislature was to do so, it could have worded the section accordingly.
You can refer to judgment in the case of Usha Garg, Bathinda vs Department Of Income Tax
23 December 2013
Thanks Manish Sir & Nikhil Sir. But I want to ask you further that if the Returned Income is Rs. 4 lakhs(with reference to the original example). so, what should be done if assessee want to invest Rs. 10 Lakh in shares as well as dont want to pay the taxes on Rs.26 Lakhs(Over & above the 8%) as the assessee has the option to avail the benefit of 8%
23 December 2013
You can take any one stand either 8% and that corresponding amount will form a part of your balance sheet or declare 30lakhs and add the same to your capital as profit. Finally as per my opinion the profit declared will form part of your capital addition. And out of your taxable income you will be justified to make investments.
23 December 2013
I believe you can add higher amount to capital. You are confusing between application of Section 68/69 and 44AD. It is you right to claim profit at 8% or at higher %. claiming 8% when actual profit is here is not a crime and cannot result in addition to taxable income.
Once it is presumed that 8% is your income, the corollary is that 92% is the expense. As long as you have declared correct receipts, you can always relate those receipts to the investment and thereby removing the tag of unexplained investment (which is necessary for section 69 to trigger)
23 December 2013
Wow some confusion now or rather brainstorming session now. As per Abhi Developers v ITO the AO has no powers to access anything in excess of returned income if it is according to 44AD. 2) The assessee in under no obligation to explain individual entries unless such entries has no nexus with the gross receipts.CIt v Surinder Pal I feel if the investment is a surplus out of your gross receipts and the gross receipts were subject to 44AD your investment should be jusified.Still to lets keep this isssue open and wait for some more concrete inputs.
23 December 2013
You right Manish Bhai. The initial question was whether or not section 69/69 applies in case of 44AD. For that the answer is yes, it applies.
How to tackle it, is to draw nexus between the gross receipts and the bank account statement and the investments, cumulatively resulting in explanation for the investment made. And as long as the investment is explained, no addition can be made.
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