SECTION 44AD(4)


(Querist)
13 October 2019
Hi,

Section 44AD(4) prescribes as" where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1)."

Hence the Query: ----the words declares profit u/s 44AD(1) for ANY previous year - this means any previous year even before this ammendment or after this ammendment..?

for instance, if prior to FY 18-19, an assessee has been declaring profit u/s 44AD(1) for last 6 financial years i.e. FY 11-12 to FY 17-18...now if in FY 18-19 he opts out of Sec 44AD(1),

in this case..can he not opt to re-enter 44AD(1) from FY 19-20, since he declares profit u/s 44AD(1) AND has also been declaring profit u/s 44AD(1) for more than 5 consecutive financial years subsequent to such previous year..FY 11-12...then he should be allowed to re-enter 44AD in FY 19-20 even if he opts out of sec 44AD(1) in FY 18-19...

although from FY 19-20 onwards the condition to declare the profit u/s 44AD(1) for 5 consecutive financial years succeeding that FY 19-20 would become applicable to him again

So, the query - from which year onwards Sec 44AD (4) mandates to check continous declaration of Profit u/s 44AD(1) --ANY year which may even be prior to FY 17-18 or w.e.f. FY 17-18 onwards only...

Awaiting expert opnions with supported reasonings..Thanks


CA R SEETHARAMAN (Expert)


Click to Talk 13 October 2019
1 ANY previous year - this means any previous year even before this amendment.
2 He can opt to re-enter 44AD(1) from FY 19-20
3 Sec 44AD (4) mandates to check continous declaration of Profit u/s 44AD(1) --ANY year which may even prior to FY 17-18.


Darshan Jain (Expert)
13 October 2019
In my opinion the previous year referred to in S. 44AD(4) is the previous year after the amendment, because if that is not the case, a person who has opted for 44AD in FY 2013-14, opted out of scheme in FY 2014-15 and again opted for FY 2015-16 would become ineligible for FY 2016-17 i.e. from the year the provision is inserted. This would lead to a situation wherein the assessee would be penalized for something that he did not know at the time of opting out in FY 2014-15. It is the fundamental rule of law that a statute must be so constructed as to make it effective and operative "Ut Res Magis Valeat Pereat". Moreover, if the legislative intent would have been to check the years prior to the amendment, it would have been inserted retrospectively.

Thus, since he has opted out of 44AD for FY 2018-19, he would not be eligible to opt in during FY 2019-20 and 4 more succeeding years thereafter.

MOHIT (Querist)
14 October 2019
Hello Friends, Thanks for your reply..

@ Darshan Ji - To my understanding, if an assessee opts for Sec 44AD(1) even after inconsistent opting in and out of Sec 44AD(1), even then he is not denied benefit u/s 44AD(1) but the only condition remains that from that FY 16-17 (as in your example), he would be required to continuosly opt for Sec 44AD(1) for 5 consecutive succeeding financial years after such FY 16-17 in which he declares Profit u/s 44D(1)

So, in your case - FY 16-17 becomes - ANY year (1st part of condition of Sec 44AD(4) - in which assessee declares Profit u/s 44AD(1)

AND

Declares Profit u/s 44AD(1) for 5 consecutive financial years succeeding such Financial Year 2016-17

So, there seems no penalisation out of any past options he excercised before ammendment, while at the same time securing the intent of this amendment that if an assessee is opting 44AD(1), he can keep flip flopping in and out as per his convenience.

You may pls share your view..Thanks

Darshan Jain (Expert)
25 October 2019
Well @Mohit bhai its a convenient way of interpreting 44AD(4). I would also go with your interpretation. The construction is ambiguous, but then don't you think that in FY 2022-23 when you opt out of 44AD after opting for the scheme in FY 2021-22; that any previous year would be FY 2021-22 and 5 succeeding year shall include FY 2022-23 i.e. the year in which you have opted out.

Certainly, your interpretation should also hold the ground. Unique in a way!


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