In short, you should see in which position you are benefitted more.

For the moment forgot about profit and loss and compute your income as per S.44AD which is 8% of the gross receipts. Note this 8% is your deemed income and tax would be computed thereon.

Estimate the tax on TOTAL INCOME.

After this consider cost of audit fees and maintenance of proper books and add these costs [since audit fees is deductible expense] Now recompute the loss.

Estimate the tax ON TOTAL INCOME

[You should  consider the TAX EFFECT of transaction, eg if loss is 40,000 and your tax bracket is 10% the tax effect is only 4000, which would be LESS than the audit fees alone and hence it would be beneficial to pay tax than to get the accounts audited.]

See under which position you are benefited, whether by declaring loss or by accepting income.

One more point which you should consider is your willingness to continue such transactions in further years. But most important thing is to establish the equilibirium, the break even point for tax audit. One might take over 5k for this

See if the benefit of carry forward of loss worth it?

The above post was edited at 11:32

Re-read

What would be the audit fee in general? I did check with a CA but he quoted a minimum of 20k and the rest depends on turnover. But again, for my case, he said that audit may not be required since my loss is just about 34k.

The losses are due to intra-day trading. How should I calculate Gross receipts. Is it the sum of difeerences (buying price - selling price) or sum of (buying price + selling price). If I consider the latter option it would be close to 50 lacs but If I consider the first option, it would be 36k (35k loss + 1k profit). On which amount the tax is applicable? I can benefit only from the second scenario.

The gross receipts are sum of differences. In that negative or positive , both are to be added. It is not the contract value of purchase and sale to be considered separately but the difference in it that has to be considered. Hence in your case 36000 will be the turnover.

Now coming to the fees of audit, CA charges based on type and extent of work to be done. However it is professional misconduct on the part of CA if he quotes his fees based on turnover. 

@ Z:

Yes I agree it is at the option of the assessee  as to whether to claim the loss or not but in this case the assessee has already filed the return claiming the loss and he has to reply in response to 139(9) I know the provisions of Sec 44AB and 44 AD. But here situation is different. Here he has already claimed the losses and he has to respond to the notice issued

@ Rinkal, does it mean that now I have no option but to go for an audit?

But assessee may disclaim the loss now. I do not think it is necessary to get the accounts audited.

What in your opinion is most favourable stand for the assessee? 

Alternatively I am in view that return can also be revised u/s 139(5)and loss can be disclaimed. The provisions of 139(9) and 139(3) is applicable if assessee wants to claim the loss. 

Please provide detailed reply.

@ Chandra Prakash:

In my opinion, it will be mandatory to get the books audited and claim the loss, if other income amt exceeds the basic exemption limit. Since the notice also suggest you same thing that you need to retain the information in the ITR with necessary rectification. 

@ Z:

Where does 139(3) come into picture in the given case? The assessee could be having other incomes else there will not be any reason of getting the books audited since in that case total income does not exceed the maximum amt chargeable to tax.

Also 139(5) cannot be applied because the assessee is already chosen for 139(9). Hence he needs to rectify all the defects that he has made in response to the notice.

Had it been it was not chosen for 139(9) then the assessee could have rectified it u/s 139(5). 

All you would require is the dp statements and contract notes and the bank statements where the funds were parked in and out for intrraday transactions will be required for the CA as documents for tax auditing. 

Get it audited and file a response before it is too late that your return turns invalid

I asked in the expert section and I was told that one may declare the income even after receiving the notice u/s 139(9). This can be done via rectification in 139(9) alone.

If you have any source to which I can refer to it would be very nice of you.

Hi Rinkal,

Today I met another CA and he said for a loss of 35k, there will be no audit required (he has looked into all my transactions as well). He even suggested me to rectify it by myself by simply filling information in Balance Sheet.

Can you please look into the information I have provided and let me know what fields should I fill?

@ Chandra Prakash:

Follow as he says. He would have definitely given you such an opinion as he may have experienced it or have handled such a situation. I have not come across such a situation yet. But if it comes even then I would have followed what I have suggested. Because looking at the provisions and your case having already filed the return and changing the notice particulars, I am not able to suggest you to not go for audit. 

Even if you are not going for audit, you atleast have to show 8% of the turnover and calculate the total income accordingly. You cannot do both- not going for audit and not showing 8% income of the turnover

I mean there is no such provision in the act. 

All you can do is recompute the total income a fresh and file the return accordingly as if you are revising the return. Only difference here is you are filing in response to sec 139(9)

Experts please comment on it. If you have any information regarding it, please share it.

@ Z :

Thanks for the information. But how can one rectify entire facts. I mean can anyone change the figures from loss to 8% profit. Wouldn't it be considered as manipulating the facts?

@ Rinkal, honestly both CAs whom I have met, did not look completely into it. They have just looked at the notice and the loss and the turn over and confirmed that audit is not required (for such a small amount).  

Originally posted by : Ms. Rinkal
	But how can one rectify entire facts. I mean can anyone change the figures from loss to 8% profit. Wouldn't it be considered as manipulating the facts?

There is no manipulation, as S.44AD itself gives an assessee the OPTION.

You yourself said

"All you can do is recompute the total income a fresh and file the return accordingly as if you are revising the return. Only difference here is you are filing in response to sec 139(9)"

We can rectify any/all particulars so long as they are genuine (so I think)

I do not know why other CA said that audit should not be done, in my knowledge also if loss is required to be carried forward then audit is compulsory. Since there are 2 people who are saying so I am myself thinking that there might be something which they noticed and we didn't.

My view was based on understanding of S.44AD(5) read with 44AB

I have already asked in expert section once, will it be possible for you to reframe the querry giving all the details and also take note of my view point and ask their opinion on the same? Once you post it there kindly share the link with us.

I will also ask from my seniors and will let you know what they opine.

@ Z:

I have told to follow what his CA have told. Read the post properly. Clarification was made with reference to if he does not go for audit. You misunderstood my statement.

I still stick to my words. According to me, he should go for audit to avoid any problems at a later stage.

I also believe the same thing that assessee is given an option, but here option has already been chosen by the assessee by filing loss in the original return. Hence there is a confusion to me whether such revision can happen in response to notice u/s 139(9). If it was 139(5) also, it could be done but I m not so sire regarding 139(9).

And definitely I can post it in the expert zone if CHANDRA PRAKASH allows me to do so. And that he provides me with all the details here as regards to other incomes details etc