Scrutiny assessment for an assessee who filed his /her return u/s 44AD

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Bikas (Querist)
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24 June 2016 Good morning everyone, Which types of document can the A.O. demand at the time of scrutiny assessment from an assessee who has paid tax u/s 44AD or 44AE?

Rupesh Jain

Rupesh Jain (Expert)
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24 June 2016 u/s 44AD. 44AE secrutiny normally not take by hte deptt, due this is section give by the deptt when you are not maintaining any books of account and documents by the assessee.

Bikas

Bikas (Querist)
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25 June 2016 yes u r right. but if the A.O. wants to scrutiny then?

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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23 July 2025 When an assessee files their return under **Section 44AD** (presumptive taxation for small businesses) or **Section 44AE** (for businesses involved in plying, hiring, or leasing goods vehicles), the **taxpayer is not required to maintain detailed books of accounts**. However, if the Assessing Officer (A.O.) decides to scrutinize the return, they **can demand certain documents and clarifications**, even though the normal requirement of maintaining detailed books is waived under these sections.

### Here’s what the A.O. can ask for during scrutiny under Section 44AD or 44AE:

#### 1. **Proof of Business Activity**

* The A.O. might ask for documents that show **proof of business activity**. These could include:

* **Invoices** or **vouchers** related to business transactions.
* **Bank statements** showing the business income and expenditure.
* **Bills** for goods purchased or services rendered.

#### 2. **Bank Statements**

* Bank statements of the **business account** can be requested to ensure that the income declared aligns with deposits or withdrawals.

#### 3. **Details of Gross Receipts**

* For Section 44AD, the A.O. may ask for a **detailed breakup of receipts** and ensure that the gross receipts do not exceed the prescribed limit for opting for presumptive taxation (i.e., Rs. 2 crore).
* The A.O. may also cross-check if the income declared is consistent with the turnover reported.

#### 4. **Details of Expenses (if any)**

* Even though the assessee is not maintaining books of accounts, the A.O. may ask for **details of any major expenses** that were claimed (e.g., purchases, expenses for repairs and maintenance, etc.). This helps confirm the presumptive tax calculations.
* The A.O. might also ask for **travel bills, salary details**, or any **capital expenditure details** to ensure the claimed expenses are reasonable.

#### 5. **GST Returns (if applicable)**

* If the business is **GST registered**, the A.O. may ask for the **GST returns** (GSTR-1, GSTR-3B, etc.) to verify the turnover.

#### 6. **Details of Fixed Assets or Stock**

* If relevant, the A.O. might ask for a **list of assets or stock**, especially if the assessee claims any adjustments related to depreciation, or if the business deals in significant stock items.

#### 7. **Tax Computation Sheet**

* A **computation of income** showing how the final taxable income was arrived at under Section 44AD or 44AE, and the corresponding tax paid.

#### 8. **Other Income Sources (if any)**

* The A.O. might ask for documents that explain **other sources of income** (if the income reported is not strictly from the business under the presumptive scheme). This could include interest income, rental income, etc.

#### 9. **Other Business Details (for vehicles under Section 44AE)**

* In the case of **Section 44AE (for goods vehicles)**, the A.O. may ask for details about the **number of vehicles**, their **registration numbers**, **proof of ownership**, and **running expenses**.

#### 10. **Self-Assessment or Advance Tax**

* The A.O. may also want to verify if the **self-assessment tax** or **advance tax** has been properly calculated and paid.

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### Points to Keep in Mind:

* **Section 44AD** and **44AE** are designed for simplicity, so the scrutiny may be limited in terms of document demands, but it is still possible for the A.O. to ask for supporting evidence if they suspect inconsistencies or if the declared income appears unusually low/high for the nature of the business.

* **If the business turnover is large or the income reported under the presumptive scheme is unusually high or low**, the A.O. might scrutinize further to ensure that the income estimate aligns with the actual financial activity of the business.

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### What Can the Assessee Do?

* The assessee should maintain **basic documents** like invoices, bank statements, and receipts, even though they are not required to maintain books under these sections.

* **Ensure that the gross receipts and income declared are reasonable** and reflect the actual business activity. Any significant fluctuation or discrepancy could raise a red flag for the A.O.

* **Ensure tax compliance** by verifying the advance tax/self-assessment tax paid and ensuring it corresponds to the declared income.

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### Conclusion:

While Section 44AD and 44AE are designed for small businesses and allow simpler tax compliance, the **A.O. can still demand certain documents and records** during scrutiny. The key is to maintain **basic documentation** of business activity and **ensure that income is reported honestly**. If you're ever unsure, it’s a good idea to consult a professional or CA to navigate the scrutiny process.

Would you like help with preparing for a potential scrutiny assessment or need specific details on any of the documents the A.O. might ask for?

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