Loss in business - Tax audit - Section 44AD

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This discussion addresses a business owner who incurred a loss in their rental business for the financial year 2020-21. The owner is seeking clarification on whether a tax audit is applicable, given the loss and specific criteria like cash payments. They are also unsure about the applicability of Section 44AD, particularly if it mandates showing a minimum profit, and how to carry forward the business loss if neither Section 44AD nor 44AB applies.

Suraj

Suraj (Querist)
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07 October 2021 Dear All,

My query is as follows:
Mr A purchased a bungalow at one of tourist places in November 2020. From December 2020 onwards, He started his business of giving this bungalow on rent to tourists. Before that he incurred some revenue expenditure like repairs & maintenance, painting, changing toiletries etc on this property. For the year ended 31/03/2021, he has incurred business loss.

I have some confusion:
1) As he has incurred loss in his business, is tax audit applicable? or only revenue, 5% cash payment-receipt criteria is considered for applicability of tax audit?
2) Is section 44AD is applicable as he has loss during FY 2020-21? whether he has to show minimum 8% profit?
3) If Section 44AD & 44AB are not applicable then he can carry forward his loss.... right?

I hope I have clearly plotted my confusion. Kindly guide me.

Thanks & Regards,
Suraj

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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07 October 2021 What is his total turnover?
What is his total income?

Suraj

Suraj (Querist)
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07 October 2021 Rambhia Sir, this rental income for 4 months is Rs. 365,000/- and net loss of Rs. 140,000/- Besides this, he has FD interest income of Rs. 550,000/-

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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07 October 2021 The question arises over your expenditure in the month of November 2020. It is of capital in nature, and not revenue.

Suraj

Suraj (Querist)
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07 October 2021 Sir, most of the expenses are revenue in nature, including depreciation of Rs. 150000/-, salary etc. Repairs & maintenance like electrical work, plumbing work, some tiling work as its big bungalow with 5 rooms, swimming pool etc.
Sir, is loss in business a criteria for tax audit? what about Section 44AD? please guide.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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08 October 2021 In this case, audit not applicable, as there is net loss.

Message likes : 1 times

Suraj

Suraj (Querist)
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12 October 2021 Thank You Rambhia Sir.

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