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Presumptive income schemes for small Assessees

Amit Bajaj  
on 17 August 2010

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There are many presumptive income schemes for small businessmen engaged in civil construction, transport business, retailers etc. A person covered under these schemes can declare his income under these sections on presumptive basis and can get himself free from the botheration of maintaining regular books of accounts u/s 44AA.
 
However these provisions are optional and an assessee covered under these schemes can also declare income outside such schemes by declaring lower profits as compare to what is required under these presumptive schemes. But in such case he will have not only to maintain compulsory books of accounts u/s 44AA but also will have to get his books of accounts audited u/s 44AB.
 
Presumptive income schemes for small assesses u/s 44AF, 44AD and 44AE, for the benefit of the small businessmen assesses are discussed as follows:
 
Presumptive income scheme for Retailers(Section 44AF): From Assessment year 1998-99 to assessment year 2010-11, section 44AF provides that income of an assessee engaged in a business of retail trade of goods or merchandise having turnover upto Rs 40 Lacs shall be deemed to be 5% of the total turnover from such retail trade or higher income as declared by the assessee.
 
Thus a retailer of goods can declare his income @5% or more of his total turnover and he will be free from the liability of maintaining any regular books of accounts under section 44AA.
 
No deduction u/s 30 to 38 will be provided from such profit declared u/s 44AF and all such deductions are deemed to have been fully allowed already. However in case of partnership firm remuneration and interest on capital paid to partners shall be admissible as deduction from such income declared u/s 44AF subject to the conditions and limits prescribed u/s 40(b).
 
Presumptive income scheme for wholesellers, retailers and other businesses(section 44AD New): W.e.f assessement year 2011-12 section 44AD provides for presumptive taxation scheme of assesses engaged in any business except the business of plying hiring or leasing goods carriages referred to in section 44AE, at a sum equal to 8%, of the total turnover or gross receipts or as the case may be, a sum higher than the aforesaid sum claimed to be earned by the assessee.
 
This scheme applies to resident assessee who is an individual, HUF and Partnership fiem(but not a limited liability partnership firm), whose total turnover doesnot exceed Rs 40 Lacs(Its 60 lacs w.e.f 01-04-2011). The scheme also doesnot apply to an assessee, who has claimed deuction u/s 10A, 10AA, 10B,10BA or deduction under any provisions of section 80HH to 80RRB.
 
No deduction u/s 30 to 38 will be provided from such profit declared u/s 44AD and all such deductions are deemed to have been fully allowed already. However in case of partnership firm remuneration and interest on capital paid to partners shall be admissible as deduction from such income declared u/s 44AD subject to the conditions and limits prescribed u/s 40(b).
 
Assessee declaring income in this section will not be required to maintain any books of accounts u/s 44AA. Consequently of this new 44AD section wherein all business except business u/s 44AE are covered, section 44AF will not be applicable anymore w.e.f A.Y 2011-12.
 
Section 44AD till A.Y 2010-11: Till A.Y 2010-11 section 44AD is applicable only to the contractors engaged in civil work or a contractor for supply of labour for civil work, who can declare a sum of 8% of the gross receipts paid or payable to such contractor, or a sum higher than 8% as may be declared by such assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and Gains from business or profession.
 
The provisions of section 44AD as applicable to civil conractors till A.Y 2010-11 will not apply if the gross receipts of such assessee exceeds Rs 40 Lacs.
 
Presumptive income scheme u/s 44AE: Section 44AE provides presumptive income schemes for persons carrying on the business of plying, hiring or leasing goods carriages. The income of such businesses are estimated as under:
 
(a)    For each heavy vehicle, w.e.f. assessment year 2011-12, a sum of Rs 5000 per month or part of a month, (for A.Y. upto 2010-11 it is Rs 3500 per month), for the period for which it is owned by the assessee. The goods vehicle whose unladen weight exceeds 12000 Kgs. shall be treated as heavy goods vehicle.
(b)   In case of each other vehicle, w.e.f A.Y 2011-12, a sum of Rs 4500 per month or part of a month,(for A.Y. upto 2010-11 it is Rs 3150 per month) for the period for which it is owned by the assessee.
 
  However, if the assessee files a return disclosing a higher income with respect to any vehicle, then such higher income shall be taken to be his income with respect to that vehicle.
 
It should be noted that the provisions of section 44AE apply to assesses who own not more than 10 goods carriages at any time during the previous year and carrying on the business of plying, hiring or leasing those goods carriages.
 
One may also declare income lower than income mentioned above but he will have to comply with the provisions of section 44AA and 44AB.
 
No deduction of insurance charges, depericiation or similar other expenditure shall be allowed in computing income u/s 44AE.However in case of partnership firm remuneration and interest on capital paid to partners shall be admissible as deduction from such income declared u/s 44AE subject to the conditions and limits prescribed u/s 40(b).
 
 
WDV of the assets used in the business whose income is taxable on presumptive basis: The written down value of any asset used for the purpose of business whose income is taxable in any of the presumptive schemes shall be calculated as if the assessee has claimed and has been actually allowed the deduction for depericiation as per the rates prescribed under the Income Tax Rules for each of the relevant assessment years, for which the income is estimated under presumptive income schemes sections under Income Tax Act 1961.
 
Important Decisions: 
 
Unabsorbed Depericiation cannot be set off against the Income computed u/s 44AD, 44AE or 44AF. Where the income is computed on presumptive basis u/s 44AD, 44AE or 44AF, the provisions of section 28 to 43C do not apply. Unabsorbed Depericiation is allowed to be set off u/s 32(2) and not u/s 70 or 72. Hence unabsorbed depericiation cannot be set off against the presumptive income computed u/s 44AD, 44AE or 44AF- DCIT v. Sunil M. Kankariya[2008] 298 ITR (AT) 205(ITAT-Pune).
 
An assessee engaged in retail trade disclosed net profit less than that prescribed u/s 44AF, got his accounts audited and was assessed. Additions u/s 40A(3) was made. Later assessee agreed to be assessed u/s 44AF. Can disallowance be deleted? Similar facts came in the case of Gopal Singh K. Rajpurohit v. ACIT 94 TTJ (Ahd.) 865 wherein it has been held that the additions should be deleted as assessee has agreed to be assessed u/s 44AF
 
 
As per the books of accounts of the assessee, turnover was less than 40 lakhs. But during search operations, additional sales was found and assessee included the same in block assessment. Can the A.O impose penalty u/s 271B for not getting the accounts audited?
Similar Facts came in the case of Brij Lal Goyal v. ACIT [2004] 88 ITD 413 (Del.), wherein it was held that the additional sales found as a result of search, was not recorded in the books of accounts regularly kept in the cource of business by the appellant. Merely because the appellant accepted the additional sales for the purpose of assessment of the relevant year on the basis of entries in the seized documents, the same would not constitute accounts of the appellant maintained in the regular cource of business and on that basis alone liability cannot be fastened on the assessee by holding him to have committed the default.
 
However it should be noted that if the suppression of sales is proved, penalty proceedings u/s 271B and also other sections can be initiated.



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