16 July 2011
URGENT: Please guide me with the following words written in the Section 44AD.
"claimed to have been earned "
Example
X is carrying on small business . The Turnover is Rs. 50 lakh. The profit as per his books or calculation is Rs. 44 Lakhs. However, he opts to return the income under section 44AD @ 8% i.e Rs. 4 Lakh. The proceeds of business are deposited in a bank account.
Can the AO assess the difference amount as undisclosed income?
Please try to understand the essence of 44AD. It is made for people who dont keep books of accounts, who dont have bank accounts.
So in those cases AO cannot determine their income, so Govt tells them to give tax on 8% of turnover and be free from keeping books.
Other person can also claim in this section but then if the AO wants to determine income, he can easily do so by tracing your bank accounts.
It is a normal practice that AO doesnt do scrutiny of cases u/s 44AD, but it is not written in law anywhere. So its better for you to show true income.
17 July 2011
Thanks a lot Sir. Even i am of the same opinion. But i was shocked to see the comments by many(almost all) professionals contrary to our understanding.
So,i request if anyone can provide me with the source through which govt. would have expressed their legitimate intention behind this section.
17 July 2011
Leaving FBT and Cash Transaction Tax aside in memories- the following text may be read in response to your query -
The intention of government have always been legitimate as the presumptive methods of computing income have relieved more than 70% of the small and medium assessees from the burden of maintaining books of account. Section 44AD is the boldest step of the govt. in the history of presumptive taxation, where it has tried to relieve all the small assessees from such burden.
This step could be taken by the Govt. by lowering the tax rates and after observing the results of erstwhile such Sections like 44AC, 44AD, 44AE. 44AF etc.
The new provisions in statute creates new debatable issues. Some of them exist and many of them are only deemed issues.
Overall view of a taxman, about these schemes is positive. One who wants to pay tax on profits @8% can pay so, and who is not having 8% profit can maintain the books of account and get them audited. At least, to enforce the provisions of law some compliance responsibility on the part of the assessee is also required.
So, I praise the present Finance Minister and his clear cut intention without any suspicion in my mind about the implications of such provisions.
18 July 2011
Claim to have been earned means if the turnover is below 60 lacs (Presently and your profit say 7 % but you have shown the same to 8% then this 8% is claimed to have been earned but actually you have not earned.
21 July 2011
Thanks A Lot. Though i have a further significant Query.
If my partnership firm is coming into Audit only due to Section 44AD, then can it be avoid by putting an argument that i am not opting for the option of 44AD since it is presumptive section and it has a different ITR (ITR-4S).
Though in my opinion that there may not be an option available to escape the Audit and it would become a risky decision.
(Though point of Legitimate intention is arguable in favour of escaping audit u/s 44AD, since in the Memorandum of Act the intention clearly states that this section is introduced only for benefit for small businessmen but alone that cannot give 100% assurety, please if you can try to find a 100% reliable evidence against or for the above Statement.)
21 July 2011
Any business entity comes under the net of audit due to some provisions in law. . Like a fish, every one wants to get rid of the net. .
The argument can be made "Sarthak" if there is somebody before you with whom you can argue. It will be felt "Nirarthak" when you will file or start to file rectification requests in odd 2500 words. Whether those will be considered or not by the people of e-world.
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The provisions are not having any controversy, but are made controversial by the tax payers.
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An abstract from your query -
(Though point of Legitimate intention is arguable in favour of escaping audit u/s 44AD, since in the Memorandum of Act the intention clearly states that this section is introduced only for benefit for small businessmen but alone that cannot give 100% assurety, please if you can try to find a 100% reliable evidence against or for the above Statement.)
By reading the above para, one can conclude that Section 44AD is meant for small business man. It's not applicable for your firm. Meaning thereby , your firm is not a small assessee.
I respectfully conclude that, the audit provisions are for medium and big assessees.
Hence, it is better to grab the opportunity of taking advantage of eased provisions of remuneration and interest to partners out of profits U/s 44AD, and pay tax. It is " Nirarthak" to get accounts audited looking towards the "big discounts" available to the 44AD assessees.
21 July 2011
Dear Sir, I think you have been too much distracted by my name coz you have lost track of my main query which is repeated as under-
If my partnership firm is coming into Audit only due to Section 44AD, then can it be avoid by putting an argument that i am not opting for the option of 44AD since it is presumptive section and it has a different ITR (ITR-4S).
Key words- presumptive section, ITR-4S.
Nirarthak words- Argument.(since i do not mean to literally argue with Income tax officer as you mentioned above.)
CAclubindia
