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44AD vs. 40A(3)

prasad (government employee) (225 Points)

12 November 2018

whether the provisions of section 40A(3) be invoked for 44AD cases?

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rama krishnan (12234 Points)
Replied 13 November 2018

yes

40A. [1] The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession".

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Uday Rathi (133 Points)
Replied 13 November 2018

No.
Provisions of section 40A(3) will not be invoked in cases of Section 44AD.

rama krishnan (12234 Points)
Replied 13 November 2018

@ uday where it's mentioned in act that 40A will not attract in cases of 44ad
for academic purpose not for argument

Uday Rathi (133 Points)
Replied 13 November 2018

Section 44AD clearly excludes the provisions of chapter of PGBP for computation of income.

rama krishnan (12234 Points)
Replied 13 November 2018

PLS could post the relevant provisions of the section

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Uday Rathi (133 Points)
Replied 13 November 2018

Special provision for computing profits and gains of business on presumptive basis.

44AD. [1] Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession" :

56[Provided that this sub-section shall have effect as if for the words "eight per cent", the words "six per cent" had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section [1] of section 139 in respect of that previous year.]

rama krishnan (12234 Points)
Replied 13 November 2018

then what about this
40A. [1] The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession".

Uday Rathi (133 Points)
Replied 13 November 2018

In the context of Section 44AD firstly there is no expenditure which is allowed as deduction, therefore there is no question of disallowance.
There are several case laws and highcourt judgments overuling the contention regarding disallowance u/s 40A(3).
Logically also, provisions of section 44AD are for small traders who does not maintain books of accounts.
This is well settled issue where therewould b no dissalowance.

rama krishnan (12234 Points)
Replied 13 November 2018

44ad speaks about only deductions which can be allowed under section 28 to 43c and it will be deemed that those deductions are allowed.
this is can be noticed from 44ad(2)
[2] Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section [1], be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.

so when there are expenses which are not allowable under the 40A(3), it will be disallowed

this is my humble opinion

Jaisika Kukreja (216 Points)
Replied 13 November 2018

sec 30 to 38 ..deemed deductions while sec 40(b) earlier allowed but this is amended now n nt allowed n also deductions under sec 80C to 80U allowed.

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prasad (government employee) (225 Points)
Replied 13 November 2018

what does it mean that " Notwithstanding anything to the contrary contained in sections 28 to 43C" I understood that the above sections aren't applicable to 44AD cases.

Nitesh bind (Student CA Final ) (12692 Points)
Replied 14 November 2018

Sec 40A(3) is applicable on 44AD as well. Sec.40A override entire Income tax act. On the other hand Sec 44AD tell that "Notwithstanding anything to the contrary contained in sections 28 to 43C" which means if there is any CONTRARY ISSUE THAT WILL BE CONSIDERED BY SECTION 44AD.

Also Section 40A is ANTI TAX EVASION MEASURES which must be working in every case otherwise people could just simply set up multiple small businesses and follow presumption under 44AD and make as much black money and cash transaction as they want. But thats not the case.

Therefore, it's completely clear that 40A(3) must apply for 44AD as well.

Thanks .