A has been employed with a TV Broadcasting Company as Program Director. He resigned and started as freelance consultant for making and directing TV serials/ programs.
I request learned members to shed light on the following:
1. Will his income as freelance consultant be treated as Income from Profession or from Business? I think such consultancy should come under profession and not business. Am I right?
2. In the first year he incurs a loss as earning is small and he has to spend on travel, building contacts to get business and in business development. So he declares a loss. Do Sec 44AD and 44AA apply to him or not? Sec 44AD should not apply to him as his income is from profession and not business. Hence Sec 44AA should also not apply. Is this reasoning correct?
3. He has not maintained any books of account. He extracts income and expenses from his bank statement and other notes and filed his ITR 4 as person who has not maintained books of account. CPC Bangaluru has declared his Return as defective, presumably that he has declared a loss (lower than 8% of gross receipts). Is it right?
4. However in response to notice under 139(9), he has provided details of expenses in Part 1 of P & L of ITR 4 and refiled the same. Is he required to get tax audit done and file tax audit report as well? He can not get tax audit as no books of account were maintained.
5. In absence of tax audit report, will income tax department disallow loss from profession and also levy penalty for not maintaining books of account and not getting tax audit report? Kindly give your opinion.
CAclubindia
