Is this practice valid under section 44ad

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

15 April 2016 I came across a person who have genuine business and have purchasing of 30 lakh per annum .He shows sale of same at 50L per annum. and Shows stock in hand of 10L.
In short 100% profit on stock sell.No issue with me.

But he uses section 44AD and pays tax on 50L at 8% rate at 400000 profit.He uses 80C too and pays no tax on 20Lakh profit .as total goes to 2.5lakh.

Want to know is this practice valid or illegal .As far as i my knowledge is the person has that extra money in bank in his FDs and pays tds and tax if any on it properly.

But my question remains the person pays peanuts on 20 lakh profit.So what he doing is correct or not?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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16 April 2016 Whatever he is doing is legally correct.

Message likes : 1 times

Querist : Anonymous

Querist : Anonymous (Querist)

19 April 2016 What if the person has purchase of say 50 lakhs and sales of say 1crore.

Say he pays via 44AD @10% declaring 10 lakh profit.He invests further 1.5 lakh in ppf and pays tax on 850000 properly.

1::Will the A.O take action on him stating he has not pay tax properly as his profit is 100%?

2::If still its allowed should one follow such practice?If not why so?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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20 April 2016 1 If he opt for 44AD and declares 8% or more profit no questions will be asked by AO. No books of accounts can be demanded by AO.
2 It is legally permitted and can be followed.

Querist : Anonymous

Querist : Anonymous (Querist)

20 April 2016 Thanks for the clarity.

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