30 January 2014
ABC & Co. is a proprietorship firm doing trading in industrial tools. It has turnover of below Rs. 1 Crore and eligible for 44AD. It has been maintaining proper books of accounts for last several years. It's profits during FY 2013-14 is expected to be more than 8% of turnover. What are the risk involved in filing return of income u/s 44AD with presumptive income @ 8% when the actual income as per books is say 20%? Can the AO accept 8% when the books disclose 20%?
30 January 2014
The AO has no power to reject your claim if it is 8% or more. But your increase in wealth/assets should not be more than the declared income. Otherwise, for unexplained investments/cash you can not only be required to pay tax and interest but penalty can also be imposed.
30 January 2014
Thanks Singh Ji for the prompt reply. Suppose Turnover is Rs. 80 Lacs. So, presumptive tax @ 8% = 6,40,000/- which I want to declare u/s 44AD. But actual profit as per books @ 20% = 16,00,000/-. How to treat the differential profit of Rs. 9,60,000? This has indeed increased the Net Current Assets of the firm. Which profit should be credited to the Proprietor's Capital A/c?
30 January 2014
U/s 44AD you can declare 8% or more. So if the assets have increased by Rs.1600,000 you should declare that amount as profit u/s 44AD. Section 44AD says minimum should be 8% there is no upper limit.
30 January 2014
Declaring more than 8% is optional. Can the AO add the differential income to my taxable profit if he come across my actual books of accounts? If I declare Rs. 16 Lacs as profit,then i lose the substantial benefit of 44AD. The section doesn't provide that if the actual profit is more than 8%, it must be declared.
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