Comment on Taxation Simplified

vinayak commented on 27 Jul 2014, 12:23 AM

I have been trying to find a definitive answer for past few days for precisely this question (entirely out of theoretical interest – I don’t really have any business income; made very small day-trades by mistake in which I had a very small loss – I’m going to show 8% profit next year)

If you file 8% presumptive you may find yourself in soup later. Law is NOT clear on this.

section 44ad supersedes sections 28 to 43 but nothing else. Which means sections 2 and 5 (defining what is income very broadly) and 69, 69a and 69b remain intact.

Some CAs suggest you show the true income, others will tell you that you have a right to show 8%

One High court case (Ahmedabad) settled that where an assessee has maintained books of account he will have to claim full income; however other cases from later dates (including one from Chandigarh) negate that.

What is certain is that if an assessee is eligible for 44AD, and refuses to disclose books of account to AO then he can’t insist for those – he can still find those in a raid (search and seizure) and if so found they will be used. Also AO can ask for everything else, contract notes, bank accounts … and computing real profits (to a very good approximation if not totally accurately) once he has those is fairly straight forward. The moment he does that – you have unaccounted income which means section 69 is applicable (along with other sections)

One CA suggested that the assessee show 8% profits but then not show the rest in capital account books – I’m not sure how easy that is for someone whose only income is F&O and/or day trading where all transactions happen via banks.

Almost the only way of getting away with 8% in (as much as possible) a watertight manner seems to be if you have a business that deals with cash (that too in large enough quantities) – then the AO will have no way of ascertaining income/expenses related to that leg of transactions in the absence of books of account.

It seems the “benefit to assessee” in 44AD is only freedom from getting an audit done – and not much of a benefit there too.

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