44AD Basis of calculating Turnover

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Pushkraj Sathe (Querist)
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20 November 2007 What should be the basis of calculating turnover while calculating 8% as profit U/s 44AD? Can it be cash basis ? The ITO claims that when books of account are not maintained, the assessee can not claim that he follows cash basis.On the contrary the ITO is compelling the assessee to follow Mercantile basis on the basis of TDS certificates available with the assessee.Can anybody throw more light on this?Moreover section 44AD does not override section 145.

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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20 November 2007 Section 44AD does not specify turnover. It is only gross receipts.
It can not be on cash basis, for, it mentions paid or payable to the assessee in the previous year. Therefore it is accrual basis.
Because it is a special provision for computing profits, the provisions of this section prevail in my opinion.

vishal

vishal (Expert)
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22 November 2007 Hi Mr. Pushkraj i m totally difering from above learned expert because the word is paid or payable means it can be on the basis of method of accounting employed by assessee the word payable to assessee means which he earned & not yet received.
Thanx

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Pushkraj Sathe

Pushkraj Sathe (Querist)
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20 December 2007 I Thank Dear Vishal and S.Srinivasaraghavan(SS) for your inputs.
Dear SS agreed it is a special provision,when the AO claims that the assessee can not claim that cash basis is adopted because books are not maintained,then the AO also is barred from compelling the assessee to follow mercantile basis.
What do you think,Deas SS? Please opine.

kartik_somu

kartik_somu (Expert)
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21 March 2008 When TDS certificates are available, u have to compute 8 % following mercantile basis only.

Pushkraj Sathe

Pushkraj Sathe (Querist)
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22 March 2008 Dear Kartik Somu,
Please explain why do you say like that.
What will happen when I receive the arrears of contract receipts amounting to Rs. 45 lacs in a particular year after shwing 8% on Mercantile basis.I will have to keep on explaining again that I had shown these receipts on Mercantile basis and hence not taxable this year and no Tax Audit is applicable.Was this the intention behind Section 44AD of our Parliament?

Dear Somu Consider this, you as a CA maintain books on Cash Basis.You get Audit of Bank 'A' for FY 2007-08.You do the audit in 2008-09 and receive fees in 2008-09.The Bank has to deduct tax in 2007-08 for Audit of 2007-08 and issues you a certificate but you receive the fees in 2008-09.OK? only because you have the TDS certificates would you show the fees in your income of 2007-08 as per your logic?

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