Clarification on Sec 44AD

Dear Sir,

I think that the capital income will be surplus remained after deducting all the expenses as per the P & L a/c. If the assessee wants to prove lower tax benefit he will have to maintain books of acounts (other than the ones in rule F) so as to enable the A.O. to compute the income as per I.T. act.

Dear Pankaj,

First of all, in capital only the profit is added and not the tornover. Hence, only amount of Rs.80,000 can be added.

Secondly, 44 AD specifies the minimum percentage i.e.8%. Its not the max %.

Max. his CA/ Assessee can decide and claim as profit. And if you go below 8%, you need do prepare books.

I hope Im clear.

Bye

I agree with Nihar

I do agree with everyone but the query here is not about declaring income below 8% etc.It is quiet clear that if we want to declare less than 8% we have to maintain books of accounts. I would like to explain my query in a different manner. Suppose the same assessee has been filing ROI for 4 continuous years say Gross Recipt = 10 Lacs X 4 = 40Lacs so he would have declared an income of Rs80000X4=320000 in total. Now suppose after 4 years he owns assets of around 30lacs. He owns 30 lacs since he actually earned more profit than 80000. But since he opted for 44AD so he was never required to calculate the actual profit.

Now do you think ITO has power to add back 30Lacs-3.2Lacs ie 26.8 Lacs as unexplained assets.

My view is assessee would always say I am a small assessee and never thought of how much profit I actually earner and I opted for for 44AD so why should I calculate my actual profit. If I have to calculate my actual profit in any case what is the use of section 44AD.

Regards

Pankaj

Dear Pankaj,

I agree with Nihar,

Just want to put it in different way -

Capital is the requirement of Books of accounts & if u r falling u/s 44 AD then there is no need to maintain Books of Accounts. And if u r maintainig it then Income Tax is least bothered..

Agree with Nihar & Aamir. But if the AO can reopen the assessments of previous years if he has a reason to believe that the income declared must have be higher and can assess the incomes as per the act.  But then this will amount to scrutiny of assessments.

Agree with Nihar & Aamir, if u r falling u/s 44 AD then there is no need to maintain Books of Accounts.

capital shall be increased by only 8%.

Originally posted by : Pankaj Gupta
	I do agree with everyone but the query here is not about declaring income below 8% etc.It is quiet clear that if we want to declare less than 8% we have to maintain books of accounts. I would like to explain my query in a different manner. Suppose the same assessee has been filing ROI for 4 continuous years say Gross Recipt = 10 Lacs X 4 = 40Lacs so he would have declared an income of Rs80000X4=320000 in total. Now suppose after 4 years he owns assets of around 30lacs. He owns 30 lacs since he actually earned more profit than 80000. But since he opted for 44AD so he was never required to calculate the actual profit. Now do you think ITO has power to add back 30Lacs-3.2Lacs ie 26.8 Lacs as unexplained assets. My view is assessee would always say I am a small assessee and never thought of how much profit I actually earner and I opted for for 44AD so why should I calculate my actual profit. If I have to calculate my actual profit in any case what is the use of section 44AD. Regards Pankaj

Pankaj,

In my view if profits of the business are more than 8% it would be advisable to maintain books of accounts to avoid such a predicament of having made to prove ones own legal income. Although Tax should be paid considering taxable income as 8% of turnover as prescribed u/s. 44AD