Sec 44ad

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Ca Siddharth Mehta (Querist)
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11 February 2012 Assessee is engaged in Clearing and forwarding business which mainly include reimbursement of freight, C&F expenses and agency charges. gross receipt in his bank account is more than 1.5cr Rs.(during A.Y.2011-12) due to reimbursement of various expenses however in 26AS its amounting to Rs. 70 lakhs as client is deducting TDS on reimbursement charges also.
Actual turnover of agency charges is only 55 lakhs including profit on reimbursement charges.
1.Whether assessee can opt for Presumptive Taxation(44AD) since actual turnover is less than 60 lakhs? OR
2.we have to do Audit u/s 44AB (Due date has passed for audit)? OR
3.we can file return without doing audit showing gross turnover as 55lakhs.

Kindly Help on the above matter.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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11 February 2012 In the given circumstances, it is better to manage this issue with Tax Audit as prima facie gross turnover, here, includes all the receipts including the reimbursements. Without incurring such expenditure (on behalf of the client) you could not clear the assignment given to you. The only difference in your charges and expenditure being reimbursed is that, you are not adding your profit margin in the later part of your receipt.
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Ca Siddharth Mehta

Ca Siddharth Mehta (Querist)
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11 February 2012 However Assessee has not deducted TDS on Expenses incurred by him. so will this all expenses will be disallowed?

Give supporting since assessee is not interested in getting his account audited.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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23 July 2025 ### **Clarification on Section 44AD and Related Queries**

Your query involves the application of **Section 44AD** for presumptive taxation and the challenges around determining the gross receipts, TDS compliance, and tax audit requirements. Let's address each point clearly.

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### **1. Can the Assessee Opt for Presumptive Taxation under Section 44AD?**

* **Section 44AD** applies to businesses with **turnover** or **gross receipts** up to **Rs. 2 crores** and is applicable only for **eligible businesses**. It is meant for businesses where the **profits are presumed to be 8%** of turnover (or gross receipts).

* In your case:

* The **actual turnover** of the **agency charges** (which includes profit from reimbursements) is Rs. **55 lakhs**.
* **Reimbursement of freight and C\&F expenses** (which are not part of the income of the business but rather passed through the business to the client) would typically **not** be included in the gross turnover for **Section 44AD** purposes. Therefore, the **actual business turnover** of Rs. 55 lakhs (after excluding reimbursements) could be considered for **presumptive taxation** under **Section 44AD**.

**Conclusion for Point 1**:

* If **Rs. 55 lakhs** is the actual income from agency charges (after deducting reimbursements), the **assessee can opt for Section 44AD** as the turnover is well within the limit of **Rs. 2 crores**.
* However, it's important that only the **actual income (agency charges)** and not the **reimbursements** are considered for calculating the turnover.

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### **2. Is Audit Required under Section 44AB?**

* **Tax Audit under Section 44AB** applies if the **turnover** exceeds **Rs. 1 crore** (or **Rs. 2 crore** if the business opts for **presumptive taxation under Section 44AD** but the profit is declared at a rate **lower than 8%**).

* Since your total **gross receipts** in the bank account are **Rs. 1.5 crore**, but this includes reimbursements (which are not part of taxable income), you need to calculate the **actual taxable turnover**.

* If your **gross receipts** include reimbursements, **only the agency charges (Rs. 55 lakhs)** should be considered when determining whether a tax audit is required.
* Since **Rs. 55 lakhs** is below the **Rs. 1 crore threshold**, **audit under Section 44AB** would **not** be required **if** you opt for **Section 44AD**.

**Conclusion for Point 2**:

* If you declare **8% of Rs. 55 lakhs** under **Section 44AD**, there is no need for a **tax audit under Section 44AB**, as the income from **agency charges** is less than Rs. 1 crore.
* However, if your actual income (after adjustments) is greater than Rs. 1 crore, you may be required to get a tax audit under **Section 44AB**.

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### **3. Can We File the Return Without Doing Audit (Showing Gross Turnover of Rs. 55 Lakhs)?**

* **Yes**, you can file the return showing **gross turnover of Rs. 55 lakhs**, provided this represents the actual income from agency charges **and not the reimbursements**.

* Under **Section 44AD**, if the **actual income** (excluding reimbursements) is below **Rs. 1 crore**, you can file the return with **presumptive taxation** based on the **8%** profit of turnover (which in this case would be 8% of Rs. 55 lakhs).

* The tax liability will be calculated as **8% of Rs. 55 lakhs**, which is **Rs. 4.4 lakhs**.
* No **tax audit** will be required as long as your income is **below Rs. 1 crore** from the actual business activity.

**Important Note**:

* You must ensure that you properly segregate **reimbursed expenses** and **agency charges** to avoid including **non-taxable receipts** in the turnover. This would also affect whether you opt for **Section 44AD** or another section.

**Conclusion for Point 3**:

* You can file the return showing **Rs. 55 lakhs** as the turnover from **agency charges** (after excluding reimbursements) and opt for **Section 44AD** to claim the **presumptive 8% profit** without requiring a tax audit.
* However, if you have already included reimbursements in the turnover (which should not be included), it could lead to issues, and you may need to reconsider your filing approach.

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### **On TDS Compliance and Disallowance of Expenses**

* **TDS on Expenses**: If the assessee has made payments related to expenses (like freight, C\&F, etc.) and **failed to deduct TDS** where applicable (under **Section 194C**, etc.), the expenses could be **disallowed** by the Assessing Officer under **Section 40(a)(ia)**. This could result in additional tax liability.

* **Reimbursements**: Since **reimbursements** are passed through and are not income, they should not affect your business profits. However, if the business doesn't deduct TDS where required (on payments made for services), such amounts could be disallowed.

**Conclusion on TDS**:

* If **TDS** should have been deducted on the **expenses** related to reimbursement charges (and if no TDS was deducted), then those expenses may be **disallowed** by the AO. It’s essential to **comply with TDS provisions** to avoid such disallowances.

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### **Summary of Actions to Take**:

1. **Opt for Section 44AD** if the **actual income** from agency charges is **Rs. 55 lakhs** (excluding reimbursements), and **turnover does not exceed Rs. 1 crore**. In this case, you will be taxed on **8% of Rs. 55 lakhs** without the need for an audit.
2. If your **gross receipts** include reimbursements, be sure to **exclude those** when calculating **taxable turnover**.
3. **TDS compliance** is critical—ensure you’ve deducted TDS on applicable expenses to avoid disallowance.
4. If the audit has been missed (and the filing deadline has passed), **file the return as soon as possible** to minimize penalties for late filing.

Let me know if you need further assistance or clarification on any point!

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