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Sec 44ad

Pankaj Bajaj (CEO) (38 Points)

19 June 2017

We are a proprietorship running a guest house with annual turnover of Rs. 16 lakhs & having a profit @ 25% of about Rs . 4 lakhs. Can we claim the benefits under Sec 44AD & declare profits @ 8%. Can the assessing officer question us , why have the profits reduced from 25% to 8%. Also our capital & assets would be increasing by much more that 8% since our actual profits would be around 25%. Can the AO question this increase of capital & assets which would be more than the deemed profits of 8% u/s 44 AD, even if there is nothing in the act which prohibits this.

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10 Replies

Poltu Ghosh (Job) (1865 Points)
Replied 19 June 2017

If you declare income u/s 44AD there is no need to keep any books of accounts. So question of ascertaining profit does not arise. Increase in capital, assets etc are relevant only when books are maintained. You can easily declare income @ 8% and no question will be asked.

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rocky (accountant) (948 Points)
Replied 20 June 2017

you can also show profit more than 8% in 44 ad

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PRABIR PAUL (*****Accountant***** Never insult to any person for any kind of lack of knowledge or misread.) (1443 Points)
Replied 20 June 2017

Forget about asset because asset doesn't generate any proft and loss........

In this topic you have to make your decision:---

If you honestly follow U/s 44AD then you can't declare @ 8% becuase your actual profit @ 25%....

Section 44AD said you shall be declare 8% or actual profit whichever is higher....

So you shall be declare profit @ 25%.....

But if still if you want to declare 8% then you can because once you declare 8% that means you doesn't maintain book of accounts..

If you get any query then you have a point to say that you don't have book of accounts that's why you declared 8%..

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Pankaj Bajaj (CEO) (38 Points)
Replied 22 June 2017

If u/s 44AD we declare a profit of 3 lakhs/year and a total of 12 lakhs in 4 years. However, our Bank balances & investments (which can be verified even without maintaining books of accounts) increase by Rs. 20 lakhs and we purchase a flat at the end of 4 years. Can we be questioned about the source of increase of the assets, since we only declared Rs. 12 lakhs in 4 years but actual increase in 4 years was 20 lakhs.

rocky (accountant) (948 Points)
Replied 22 June 2017

yes, you will be questioned . your assets should not be more than your capital.

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novice (learner) (36 Points)
Replied 22 June 2017

"If you honestly follow U/s 44AD then you can't declare @ 8% becuase your actual profit @ 25%.... Section 44AD said you shall be declare 8% or actual profit whichever is higher...
"

Hi, I think your understanding is wrong. Can you provide a reference for analysis? Thank you.

Poltu Ghosh (Job) (1865 Points)
Replied 22 June 2017

Forget about any such type of question. If you acquire any asset then the source will be your business income. It's simple.

Poltu Ghosh (Job) (1865 Points)
Replied 22 June 2017

Forget about any such type of question. If you acquire any asset then the source will be your business income. It's simple.

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Poltu Ghosh (Job) (1865 Points)
Replied 22 June 2017

The only thing you need to keep safe is the records and details of turnover which must corroborate with the bank accounts. If there is any kind off mismatch then you may be in trouble

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PRABIR PAUL (*****Accountant***** Never insult to any person for any kind of lack of knowledge or misread.) (1443 Points)
Replied 22 June 2017

Originally posted by : novice
	"If you honestly follow U/s 44AD then you can't declare @ 8% becuase your actual profit @ 25%.... Section 44AD said you shall be declare 8% or actual profit whichever is higher... " Hi, I think your understanding is wrong. Can you provide a reference for analysis? Thank you.