44ad - can take benifit or not

Tax queries 810 views 3 replies

Vijesh

55 Points Joined January 2011

Say a partnership ( father and son) is running a business service for abroad company and receives payment in wire transfer to father's bank account. say gross receipt is 30lac

part of the funds goes to father's Fixed deposits and part of money is withdrawn using ATM card. and during end of financial year about 1 lac is paid towards LIC payment of policy taken on name of son.

According to a ruff calculation

* about 60% of money pushed to Fixed Deposits. Transaction on bank account statement proves it.

* remaining 40% withdrawn through ATM Card / Self from bank etc . and only 15% of money is used towards business needs and remaining used for home and personal expsense.

So effectively profit is 85% .

Then if the partnership opts to file return on 44AD with 20% as profit what will happen.

is there any provision on IT laws which permits AO to ask explanation on receipt/expense if we declare profit more than 8%

Replies (3)

Nitin Garg

CA FINAL Article Trainee B.com

171 Points Joined May 2009

Yes, of course.. if your return considered for The Scrutiny Assessmentsu/s 143(3) of Income Tax Act 1961, you have to provide every information that AO requires. All receipts, exenses..

When a case is selected for scrutiny Assessment the A.O usually ask for the following:-

-Books of Accounts

-Bank Statements

-Confirmation certificates of Loans if any

-Name and Addresses of Sundry Creditors, Debtors

-The account statements of Sundry Creditors and Debtors for verification of transactions

In case the A.O. finds any discrepancy the assessee may be asked to explain the same.

Mere filling of confirmatory letters and producing the loan creditors do not discharge the onus that lies on the assessee. The assessee has to prove the disputed transaction prima facie appearing in his books of accounts. The assessee needs to prove the following things:

-Proof of Identity of creditor

-Credibility or capacity of a loan creditor to pay or advance the money

- the genuineness of the transaction

If the assessee prima facie proves a transaction then the onus shifts on the department to rebut the same. The A.O can only ask for the evidence of the cash credit or the loans which have been taken or given in the relevant previous year and not about those appearing from preceding years.

Vijesh

55 Points Joined January 2011

44AD section says there is no need to keep or maintain book of accounts if the profit is calculated at a rate greater than on qual to 8% of gross recipt.

Then how can we produce book of records if AO asks later.