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44AD

Vishal ( CA student) (394 Points)

07 March 2017

Notwithstanding anything contrary to the sec 28 to 43CA? means.. Clarify..
What do you mean by contrary here..

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(Guest)

it means that even if something is written that is opposite in meaning to the provision; the provision will still apply. It is a formal way of saying, that the provision will ALWAYS apply.

Sanjay S (Chartered Accountant) (1375 Points)
Replied 07 March 2017

The section 44AD actually starts as:

(1) Notwithstanding anything to the contrary contained in sections 28 to 43C,

This means once you opt for presumptive taxation under section 44AD, you wont be able to claim any benefit/deductions under the sections ranging from 28 to 43C. Hence a sum of flat 8% of total turnover shall have to be offered to tax.

Vishal ( CA student) (394 Points)
Replied 07 March 2017

Then
An eligible assessee make cash payment of 28000 to a supplier of goods in a day. He opted for section 44AD.
What will be the consequences..

Sanjay S (Chartered Accountant) (1375 Points)
Replied 07 March 2017

It will get disallowed under section 40A(3).

Actually i would like to modify my previous answer as:

Regarding the "Notwithstanding....." clause

For instance, as per section 28:

"The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",—

(i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year;"

But, the above provision is contrary to section 44AD, since section 28 requires ALL profits from B/P of ALL Assessees to be charged to tax under PGBP. But 44AD requires only 8% of total turnover of ELIGIBLE assessees to be charged to tax under PGBP. Hence, the initial words of 44AD(1) helps avoid this contradiction by stating that 44AD shall prevail in case of any such controversies. This does not mean that section 28 to 43C is completely not applicable. It only implies that in case of contradictions, 44AD shall prevail.

Regarding cash payment to supplier

As per 44AD(2), Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed

Hence section 40A(3) is not covered here and is applicable even if 44AD scheme is opted.

Vishal ( CA student) (394 Points)
Replied 07 March 2017

Sir not understood yet.. Clarify in simple words rather in bare act language.. If possible..

Sanjay S (Chartered Accountant) (1375 Points)
Replied 07 March 2017

Okay Vishal. Let me break it down to you, with an example:

Eg., Section 28 requires all profits (not 8%) of all assessees (not just ELIGIBLE) to be taxed under PGBP.

Section 44AD requires only 8% (Not All profits) of Total turnover of ELIGIBLE Assessees to be taxed as income under PGBP.

Just imagine, If both the above sections applied simultaneously, there could be a lot of confusion. Here, we see section 28 provisions are contradicting (or contrary to) section 44AD. Hence, to avoid this, section 44AD starts with the words, 'Notwithstanding anything to the contrary contained in sections 28 to 43C'.

This means section 44AD provisions shall prevail over section 28 - 43CA. Hence, in above example, only 8% is taxable under PGBP, not all profits. Its the same case with the other sections upto 43CA.

It does not mean that section 28 to 43C is completely not applicable. It only implies that in case of contradictions, 44AD shall prevail.

1 Like

Vishal ( CA student) (394 Points)
Replied 07 March 2017

Sir it means,

Anything which prevail in 28 to 43C does not get overruled.. Further it means..

Any matter which is specified in 44AD.. Then in such a case section 28 to 43C overrule..

For example, depreciation would deemed to be allowed while applying 44AD.. Because 44AD specifically does not allow the claim of depreciating..

no further deduction can be claimed for depreciation for any assets.

But if, in an assessee has made a payment in excess of 20000 which has not specifically mentioned in 44AD..then in such a case Section 40A(3) shall prevail..

And such payment will be disallowed while applying 44AD..

Correct me if I wrong..

Sanjay S (Chartered Accountant) (1375 Points)
Replied 07 March 2017

Originally posted by : Vishal
	Sir it means, Anything which prevail in 28 to 43C does not get overruled.. Further it means.. Any matter which is specified in 44AD.. Then in such a case section 28 to 43C overrule..

Yes. This is Correct.

28 to 43CA -> overruled by 44AD only in case of contradiction

30 to 38 -> not at all applicable if 44AD opted - since its deemed to have been claimed - 44AD(2)

Vishal ( CA student) (394 Points)
Replied 07 March 2017

Thanks for the information and help.. I understood finally..

CA Gurvin Arora (PROPRIETOR) (22 Points)
Replied 07 March 2017

THAT MEANS
EVEN IF SOMETHING IS WRITTEN, THAT IS OPPOSITE IN MEANING TO THE PROVISION; TE PROVISION WILL STILL APPLY
ACTULLY THIS MEANS TO SAY : THE GVEN PRVSN WILL ALWAYS APPLY

SO CONTRARY HERE MEAN: OPPOSITE

Vishal ( CA student) (394 Points)
Replied 07 March 2017

if it is written that,

Notwithstanding anything contained in the the act.. It means anything contained in the act will get overruled..

But if it written that on contrary to this provision.. Then in such a case.. Specific provision shall prevail rather normal provision..

Refer my answer in this post regarding section 44AD and 28 TO 43CA..

Tarun Jain (JAO) (31 Points)
Replied 08 March 2017

purchase is expenditure which I claimed in 28 to 38 I don't claim that in 402A hence cash purchase shall still be allowed and if that is not allowed then where it will be taxed

CA Syed Parvez Ali (None) (458 Points)
Replied 08 March 2017

If you opt for presumptive taxation and pays some expenses exceeding Rs. 20,000 in cash, AO cannot disallow the same. Since the 8% rate considers everything and there won't be any dissallowance or allowances to it.

ashish (article) (151 Points)
Replied 08 March 2017

Wow vishal, great question..... Even I am now one cross question that so the crux of above is that - 8%of turnover will be taxed+ separate tax on part of cash payment exceeds 20000... Please correct if I am wrong...... If above is not correct then whether this can be used as tax loophole to do cash transaction...