CA R K SINGH (CA CS FINAL CMA INTER) (372 Points)
10 August 2011Under section 44AD the assessee is entitled to declare 8% of gross receipts as net income.
Suppose if the assessee is a partnership firm & it declares 8% of gross receipts as Income. But the firm failed to deduct tax at source. Will there be any disallowance u/s 40(a)(i) for partnership Firm. My view is disallowance provision should be attracted. What are your views. Plz reply. It's urgent.
vishnupriya
(CA Final)
(1418 Points)
Replied 10 August 2011
when the assessee wants his return of income should be assessd under presumptive taxation U/s 44AD, a sum equal to 8% of gross receipts or such higher sum declared by the assessee shall be deemed to be his income irrespective of expenditure it means no expenditure is allowed U/s 44AD. So the instances of Sec 40 a (i) does not arise.
CA R K SINGH
(CA CS FINAL CMA INTER)
(372 Points)
Replied 10 August 2011
But there is no provisions in this respect u/s 44AD. Also the Section 44AD mentions that all deductions u/s 30 to 38 shall be deemed to be allowed. But here the question is for section 40(a)(i). Also there is a case of loss of revenue to government.
Amit
(Chartered Accountant B.Com(H))
(453 Points)
Replied 10 August 2011
Section 44AD overrides section 28 to 43C. Hence dissallowance under section 40(a)(i) dose not arise. As for as loss to revenue on account of not deduction and deposit of tax is concern there are other provisions in Income tax act to deal with . For example assessee shall be deemed to be assessee in default under seciton 220 and 221 plus can also be prosecuted. Thus tds and interest can be recovered even if assessee skips section 40(a)(i) by opting presumptive taxation. Moreimortantly the purpose of presumptive taxation is not to go in mombo -jumbo of expenses incuured by certain business category and compute income on lumpsome basis. Once the assessee opt for presumptive taxation he can not claim lesser income even if he has and visa versa. Thus you can say allowability or disallowbility of expenditures are not considered at all under presumptive taxation scheme, otherwise it will negate the basic purpose of the scheme.
CA R K SINGH
(CA CS FINAL CMA INTER)
(372 Points)
Replied 10 August 2011
Thanks Amit for your reply,
But as the section 44AD makes clear that the assessee is not required to comply with the provisions of chapter XVII-C , there is no indication about non-compliance of TDS or TCS provisions.
Also section 44AD gives relief from non-maintenance of accounts only.
Plz reply.
CA Mukul Mittal
(CA in practice)
(384 Points)
Replied 10 August 2011
well, i think the firm will be charged only with the penalty of non-compliance of tds rules and nothing doing with the addition in the income u/s 44AD
Amit
(Chartered Accountant B.Com(H))
(453 Points)
Replied 10 August 2011
(1) Chapter XVII-C -advance payment of tax.-overruled by Section 44AD
Provisions related to deduction at source are covered by chapter-XVII-B.-not overruled by Section 44AD
Provision related to collection and recovery of tax are covered by Chapter-XVII-D-not overruled by Section 44AD
(2) Further section 44AD is not available to following assesee-
1. otherthen individual, huf , firm-
2. business covered u/s 44AE
3. those required to go for tax audit
And Individual, huf , are required to deduct tax only if they are required to go for tax audit. But this concession is not availble to firm.
(3).Section 44AA is required to ask to maintain prescribed books of account. But it dose not mean that assessee is not required to keep books of account at all . If we observe that even where books of accounts are not required to be maintained as per seciton 44AA , assessing officer may call assessee to produce list of debtors and creditors,statement of payments and receipts made with source documet-refer section 142(1)(ii). There are provisions covered by section 200A and 201(3) for determination of TDS liability. And section 220 and 221 read with section 201(1) and (1A) for recovery of the same. These sections are covered under different chapter not overruled by Section 44AD.
thus is short there has been proper mechanism to catch the assessee on failue to deduct tax,even in case of presumptive taxation scheme.
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 10 August 2011
sec 44AD
here the incometax department does not ask the assessee to produce books of accounts and final accounts provided the assesee has declared income over 8% and is below 60 lacs turnover.
mere non production of books of accounts to incometax does not makes the assesee exempt from the maintanance of accounts for other laws and rules of business ( rem the 44AD is applicable to business only, not on profession even), so he has to maintain books for vat/ excise/ service tax/ profession tax and other applicable laws in force.
even to ascertain the turnover , minimum books of accounts is needed........if one say that they DONT have any record then how did they determined the gross turnover for the purpose of 44AD?
However under the rule, disallowance for non TDS is not to be done, but TDS section will work individually and severally to impose penalties and interest for non compliance of TDS rules. as TDS department works independent and there is no time barred limit or assessment procedure so they have own set of measures to fix the assesee under vigil eyes.
Kanhaiya
(Nangia & Co.)
(1981 Points)
Replied 11 August 2011
| Originally posted by : U S Sharma | ||
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sec 44AD here the incometax department does not ask the assessee to produce books of accounts and final accounts provided the assesee has declared income over 8% and is below 60 lacs turnover. mere non production of books of accounts to incometax does not makes the assesee exempt from the maintanance of accounts for other laws and rules of business ( rem the 44AD is applicable to business only, not on profession even), so he has to maintain books for vat/ excise/ service tax/ profession tax and other applicable laws in force. even to ascertain the turnover , minimum books of accounts is needed........if one say that they DONT have any record then how did they determined the gross turnover for the purpose of 44AD? However under the rule, disallowance for non TDS is not to be done, but TDS section will work individually and severally to impose penalties and interest for non compliance of TDS rules. as TDS department works independent and there is no time barred limit or assessment procedure so they have own set of measures to fix the assesee under vigil eyes. |
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truly answered
Dipjyoti Majumdar
(CA in service & CS. dipmaj@ rediffmail.com )
(3468 Points)
Replied 11 August 2011
Dear all
very good practical question and well analysed and answered.
thanks
Amit
(Chartered Accountant B.Com(H))
(453 Points)
Replied 11 August 2011
Ok agreed with Mr.U S Sharma. But i have one more doubt . Cant AO ask assessee to produce documents on the basis of which assessee calculated his turnover to determine profit under presumptive taxation scheme. If not then how would AO do scrutiny in such cases?
vishnupriya
(CA Final)
(1418 Points)
Replied 11 August 2011
Good question Amit! but it is a popular notion that there cannot be a scrutiny of returns filed on the basis of presumptive taxation (Sections 44AD, 44AE ). This is incorrect. The presumption is only as regards the quantum of business income if the other conditions of the respective sections are satisfied. However, the other provisions of the Act such as sections 68, 69, 269SS still continue to apply. Moreover, there could be income other than business income which can be subjected to scrutiny. Although, the books of account are not required to be maintained in such cases, the turnover etc. is required to be proved by necessary evidence.
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 16 August 2011
| Originally posted by : Amit | ||
|
|
Ok agreed with Mr.U S Sharma. But i have one more doubt . Cant AO ask assessee to produce documents on the basis of which assessee calculated his turnover to determine profit under presumptive taxation scheme. If not then how would AO do scrutiny in such cases? |
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when any file is selected for scurtiny all such exemptions related to 44AD ceases, and all statements and accounts would be checked, however the pricipal motto of scurtinty will not add / reduce the profit of the business which is declarated under 44AD, but it will assess the correctness of turnover declared by cross examination to buyers accounts,
under 44AD scurtiny would be projected only if there is additional(concealed) income which is not declared under the return.
CA PARAS BAFNA
(Practising CA )
(33428 Points)
Replied 16 August 2011
In this discussion I would like to add one more interesting point -
.
Individuals and HUFs which are opting for Tax Audit U/s 44AD(5),
.
they are not required to deduct TDS in the subsequent year of such audit-
.
like other Individuals and HUFs who are under tax audit U/s 44AB due to the turnover >60.00 lacs.
CAclubindia
