Ambiguity of section 44ad

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Namit (Querist)
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11 June 2014 Suppose an individual has started business and he has claimed benefit f sec.44ad regarding non maintenance of books of a/cs and he takes such benefit for 5-6 years. Suppose after 6 yrs he is now liable for tax audit than in such case: 1) how will he prepare/show balance sheet? 2) how will he value opening and closing stock? 3) how will be fixed assets valued? 4) how will gross block be calculated? 5) how capital account be arrived at?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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12 June 2014 1. there is no ambiguity

2. for opening stock, you need to gather information about stock lying at the start of the year and value it on the basis of invoices available (non-maintenance of doesn't mean that invoices are not be kept on record)

3. for fixed assets, you need to consider WDV on the assumption that all the depreciation has been provided in previous years. gross block will be calculated on the basis of invoices

4. capital account will be the balancing figure.

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Namit

Namit (Querist)
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12 June 2014 ok...but if after 8 yrs dealer has destroyed the invoices also than how to calculate gross block & WDV.
Which method to be used for stock valuation and how to value such stocks if dealer wants to adopt wt. avg. method?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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12 June 2014 Given the tax rates applicable in income tax act, there would barely be anything left after providing for 8 years of depreciation. Wt avg method is not permitted in income tax

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