Profit declaration u/s 44ad vis a vis book profits

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channabasaveshwar (Querist)

01 November 2011 Dear Sirs, I wanted to know, how the book profit should be adjusted, if it is more or less than the profit declared u/s 44AD (i.e., is profit declared u/s 44AD is less than the actual book profit, then how to reduce the book profit and vice versa), as it affects the capital balances of the proprietor / partners. Pls guide me.

CMA Ashutosh Kumar Gupta

CMA Ashutosh Kumar Gupta (Expert)

02 November 2011 In my view Section 44AD of the IT Act attempts to clarify the eligible business vis a vis assessees (Individual, HUF, Partnership firm, not being LLP)whether required to maintain the books of accounts auditable under section 44AB or not, hence provided that in the case of an eligible assessee engaged in an eligible business, a
sum equal to eight per cent of the total turnover or gross receipts of the assessee
in the previous year on account of such business or, as the case may be, a sum
higher than the aforesaid sum claimed to have been earned by the eligibleassessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”.The term book profit does not find any place here.

channabasaveshwar

channabasaveshwar (Querist)

05 November 2011 Of course, but if profit declared U/s 44AD is less than that of actual books maintained, and that assessee doesnot wish to declare the profit higher than u/s 44AD, how the profit should be reduced, so as to distribute it to owner, especially in case of partnership, as the capital balance of the partners have to be shown in the ITR. Could this be clearified?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

07 November 2011 Where Book Profit is higher, it is advisable to show higher income U/s 44AD.
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The profit can be reduced only by debiting certain Bogus Expenditures, like conveyance expenses, Travelling Expenses etc. to P&L A/c and crediting these to the respective partner's capital account.
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The modes operandi may invite the attention of the tax authorities.
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It is better, to advise the partners to show the real profits.

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