Sec 44ad taxation & books

CA J.Alamelu lakshmi (Chartered Accountant) (852 Points)

22 February 2014  

Hello frenz,

A doubt regarding Sec 44AD. Take the case of a Partnership firm. Turnover is Rs.80 lacs (less than Rs.1 Crore). So no Tax Audit. Their Profit as per Accounts is Rs.  20 lacs.

But in order to pay lesser tax amount, it was decided to use sec44AD minimum 8% profit on Turnover which comes to Rs.6,40,000. 

Now the profit being 640,000 the maximum allowable remuneration to partners is Rs.474,000. (Ignore interest on capital).

And tax payment is made for Rs.166,000 @ 30% which is Rs.49,800.00

Now the firm is approaching a bank for a loan. The bank wants Financial Statements for the previous year.

Now in the Accounts, Profit is 20lacs. Remuneration is Rs.12 lacs. ( which are different from the Income Tax Return Viewpoint)

Wont this look absurd? Or it is very much correct and acceptable to present such statements which are not in sync with the Income Tax Return??

Thanx in Advance.