• Apr
  • 17
  • 2012

Section 44AD – Is it really a palpable transformation?

CA Gautam Joshi

Vide Finance Bill 2011, the Section 44AD has been revised and it is applicable to all businesses instead of only to civil construction business. On the other outset, limit of tax audit u/s 44AB is increased to Rs. 60 lakh from earlier limit of Rs. 40 lakh for financial year 2011-12 and been further increased to 100 Lakh for Financial year 2012-13 and years coming thereafter.

Being an entrepreneur first, I had lot of disappointments on increase of limit as now there will be lesser business men falling under the tax audit bracket. While secondly, I was really happy all business men who want to show profit lesser than 8% fall under the bracket of tax audit though not directly but indirectly.

It won’t be wrong to say that it’s even more difficult now to run a business, that too if you are within income tax limits. See below:

Particulars Action
Turnover less than 100 lakh & profit is less than 8% Through Section 44 AD to Section 44 AA
Turnover less than 100 lakh & profit is more than 8% Section 44 AD
Turnover more than 100 lakh Section 44 AA

It is actually shocking why central government is unnecessarily introduce these conflicting provisions where once audit limit starts from Rs. 100 lakh and on the other side profit percentage if less then @ 8% again attracts maintenance of accounts and conduct of audit. In scheming black transactions, is it that government indirectly curbs the very business itself? Practically, only option remains with all business men is to fix their profit margin @ 8%. How much difficult is for a business to digest its profit margin being decided by drafting authorities? Only a business man knows.

On top of all, question arises why business men should maintain books of accounts if income tax authorities are not going to ask for the same? Actually, books of account throws a clear picture of any business and is the only reliable source for outside parties like insurance companies, visa authorities, financial institutions etc.  One may save few bucks of income tax through these presumptive provisions but then it may be cumbersome for them to get visa, insurance, finance or to sponsor. Think of the situation where you saved few bucks of income tax but you could not show enough wealth for your son’s foreign education just because you followed the presumptive taxation. Section 44 AD could be a escaping window only and can never be an inspiration for tax or wealth planning.

What is suggested here is to always prepare books of account because there is something called self-assessment too.

Author

CA Gautam Joshi, M: 98798 67470., Email:- gautam_bj@yahoo.co.in

(Article was First Published on 13.05.2011 and Republished on 17.04.2012 with amendments)


47 Responses to “Section 44AD – Is it really a palpable transformation?”

  1. Stalin says:

    I feel that 44AD/44AE is not mandatory. If an eligible assessee with eligible business opts for section 44AD benefits and still declares an income less than 8%, then only tax audit would be mandatory.

    The assessee is free to show an income lesser than 8%, keep books of accounts, pay necessary advance tax, without coming under section 44AD/44AE. Only problem is that, IT Dept could take up the case for scrutiny (on the belief that your income should be 8% or more)

  2. Hiteshi says:

    Hello, My client has retail business income of Rs. 130000 & turnover is 3922000 for A.Y. 2011-12. is he cover in sect. 44AD & require audit.

  3. Sandeep says:

    Sir, if follow the provisions of Section 28 to 43c of PGBP. Maintain my books of accounts properly. as per my books Net Profit is below 8% of Gross turnover. and mygross turnover is under 60 Laks should i required to audit u/s 44AB

  4. Gaurav says:

    Dear Sir,
    If i donot have 8% profit and i go for audit u/s44AB what will be my due date for filling of return.
    Will it be 31st july or 30 sept

  5. Durgesh says:

    Res. Sir,

    I read your article on website. Thanks for giving information such like this. I need your help on this point more. I filed return of some client under 44AD. I need to know that if their 8% profit cross limit of I.T. then are they claim 80C? E.G. Gross receipt 35,00,000.00 T.D.S DEDUCTED 70,000.00 UNDER 44AD @8% 2,80,000.00 THIS INCOME IS MORE THEN I.T. RULES & HIS TAX LIABILITY 28,840.00 ON 8% PROFIT. NOW WHAT HAPPEN HE GET THE LESS REFUND OR CLAIM 80C? REFUND -70,000.00 AS PER 26AS BUT IF HE CAN NOT CLAIM 80C THEN HIS REFUND IS LESS BY 28840.00

    I hope may you like to help me on this point.

    Thanks & Regards
    Durgesh-9825611338

  6. ASHOK AGGARWAL says:

    Here the point is applicability of section 44AD to all types of business including manufacturing and services which is welcome step for streamling the complicated provision for allowance or disallowance of deductions claimed and avoid litigation.

  7. veerendra singh says:

    sec. 44ad is purely an absured section no need to increase in limit of sec 44ab audit limit

  8. Ishrat Ali says:

    Whether we can return file till March -2012 if turnover less than 60Las & Profit Less Than 8% of turnover after audit u/S 44AD

  9. mohit says:

    Hi,
    I am a software engineer and work on my own. No company registered. I earned 15 lac this year. All of this came into my bank account through my paypal. However, my expenses is around 11 lac.(as I have to get my work done by other software engineers). However, i will get only 4 lac.

    so as per section 44AD, there is no tax.

    My question is:

    is it mandatory to register a company to file for 44AD

    I do not have any company name registered.

    thank you.

  10. navnit kumar says:

    Sir,
    I file the income tax returns on September 2011 for the a.y. 2011-2012 u/s 44AB.That time my tds is missing but i got my tds certificate , I want claim the tds and Increasing the turnover. May i Increasing the Expenses or not? What is rule?
    Thanking you

  11. Pratik Ardeshana says:

    I had one question regarding to Audit and account maintain:

    My firm is partnership firm and my turnover is below 60lakh and profit is more than 8%, so is it required for me to do audit and maintain account??

  12. Ragavan says:

    Healthy discussion:

    My view

    The intention of the department was not to cover all biz which show below 8% to be tax audit.

    Reasons:

    1) If they intended they wud have directly amended the section 44AB a)limit is 60 lacs b) below 60 lacs and show profit less than 8% then 44AB applicable.

    2) The widening of 44AD to all business is to promote small enterprises do take this a sopportunity to get taxes paid.

    We mistake this and think it is amended like 44AD ll control all provisions and all r covered by 44AD if go below 8%

  13. Nagesh Garg says:

    Dear Sir

    My friend is a professional who had received Rs. 75,000/- as gross receipt in previous year, he has filed his income tax return with profit of Rs. 4100/- and no tax audit was made. would it be scrutined compulsory or not and what should i do?

    Thanks & regards
    Nagesh Garg

  14. Nagesh Garg says:

    Dear Sir

    my business is readymade garments of wholesale. A.y. 2011-12,my sales is 42 lacs and profit is shown 5.5% and no audit was made. Now i found, it should be 8% u/s 44AD or tax audit is compulsory which i have filed my return.
    can u please advice what should i do, can it will be scrutinised or any other action.

  15. Venu Madhav says:

    sir,
    I am a wholesale dealer in general goods. The Net Sales for the Fin.Year 2010-11 is Rs.48 Lakhs. My Net profit margin is below 8%.I want to know, whether I am liable for tax audit u/s 44AB, and if so, how can i escape from such audit. kindly help me in these matter.

  16. CA Amit Mandhan says:

    Dear Murli,

    Incase of Firm if there is loss and turnover is below 60 lacs whether we have to maintain books of accounts and also required to be audited. How we look section 44AD in this case?

  17. Murli Krishnamurthy says:

    Dear all,

    The provision of the new Sec.44 AD is very skewed.

    Imagine a commission agent who gets 59 lakhs as receipt during the year on sale of property, mutual funds etc.

    He hardly would have any expense and thus the entire 59 lakhs minus overhead ( for purposes of discussions, let us put it at 10%) of Rs.5.9 lakhs would be his income, amounting to 5310000.

    If he were to opt for the presumptive taxation u/s.44AD, his income declared would be Rs.472000/-.

    This would leave an undisclosed income of Rs.48,38,000/-.

    The section clearly says that only if your income is less than 8% of the recipts or turnover do you need to maintain books of accounts. You start the year under the presumption that your income would be less than Rs.60 Lakhs and lo behold! by a quirk of fate, the income crosses Rs.60 lakhs in March.2011. Will he have to fabricate the books and present them for audit in March.2011?

    Thus, if your income is more than 8% of your receipt, you could expose yourself to “undisclosed income”. If your income is below 8% you are subject to tax audit.
    If your income is exactly 8%, then you are O.K.

    This amendment to include all business u/s.44AD was made in the finance Act.2009.Finance ACt 2010 enhanced the amount of the threshhold limit to Rs.60 Lakhs.

    Thus the mandarins in the finance ministry had ample time to gauge the impact of this section on a case like the one above mentioned.

    Since no amendment was made in the subsequent finance bill, the finance minister must have allowed the big fish as in the above case to get away with murder under presumptive taxation, in the hope that the loss of revenue in cases as above would be more than offset by bringing in a lot more of assessees under the tax net. This would result in broadening the tax base.

    Though the provision is meant to broaden the tax base by bringing in a lot more of assessees. But in effect, it lets the big fish go scot free, while getting the smaller fish to pay up more.

    Now imagine in the above case, the assessee has been paying taxes of over Rs.10 lakh every year for the past 10 years. This year, he pays no tax or marginal tax under presumptive taxation. will this anomally not throw up on the computer? Will he be brought under scrutiny?

    Can search proceedings be initiated to gather information on “undisclosed” income?

    Will somebody throw some light on the above issues

  18. Murli Krishnamurthy says:

    Dear Gaurav,

    Sec.44AD(5) states that audit is to be done only if your total income exceeds the maximum amount which is not chargeable to income tax.

    Thus, you need not get your books audited

  19. Murli Krishnamurthy says:

    Dear Sankar,

    I am afraid that you are covered by Sec.44 AD as

    -Your income is less than Rs.60 lakhs. Sec.44 AD(1) starts with ” Notwithstanding anything to the contrary contained in Sec.28 to 43C”.
    - Therefore you must perforce come under presumptive taxation.
    - Sec.44AD(5) states that in caseyour income is less than 8%, then you must maintain such books of accounts and other documents as required under sub section (2) of Sec.44A and get them audited and furnish a report of such audit as required under section 44 AB.

  20. Murli Krishnamurthy says:

    Dear vijay,

    Your client’s income should be treated as Rs.120400/- @8% of the income or receipt, if he so wishes.

    TSec.44AD(1) clearly states “claim” by an eligible assessee for returning a higher income.

    Thus, the assessee may claim a higher income if his actual income is more than 8% of the receipt or the turnover.

    The section does not mention that the income should be a” a rate caluclated @8% or higher income actually computed, whichever is higher”, as in Section 44AE.

  21. Gaurav says:

    It seems to me from the discussion that 44AD is not optional to the assessee.

    does an assessee whose income falls below the basic exemption (1.6 lac) also needs to get his books audited if its lower than 8%? will he be liable to penalty under 271B if he doesnt?

  22. VIJAY KORADIA says:

    one of my clients is comm. agent and he maintained books of accounts as per books of accounts his gross receipt is 1520180 (commisone recd. during year ) and net profit is 350870 the question is that he can file return on 8% sugam or not

  23. Ravi says:

    Dear sir,
    A contractor who is having turnover more than 60laks can estimate his profit @ 8%?

    Is it attracts any penalty for no proper books of accounts?

  24. sankar says:

    sir, i am a small trader, my turnover is 35 lakh and my book profit is rs.205200.00, and i have not interested in 44 ad. Now my accounts will be audited (44ab) or not.
    i regularly books of accounts maintained. please reply

  25. AK Bhargava says:

    Dear friends,

    From the discussion it is emerged that section 44AD (New) applicable on any business below 60 lacs turnover w.e.f. A/y 2011-12 based on 8% deemed income is receiving mixed reactions which include tax experts and professionals. As my personal opinion and view point, I would further submit as under:

    1. 44 AD – It is a deemed provision under IT Act 1961. One thing is manifestly clear that whosoever follows shall enjoy complete immunity from complicated taxing provisions indulging into variety of time killing explanations. It is chiefly intended towards simplification with core object share the bulky and volume work load at the end of assessee as also with department and give them respite formulating the above simple deemed income provisions which are OPTIONAL. Such schemes for a particular group are operative on lump sum basis in various countries with like yardsticks. By introducing such OPTIONAL beneficial provisions in larger public interest especially covering Tiny -Small and to some extent small medium engaged in various business on small scale basis, by all means It is fair play. Main feature is COMPLETE IMMUNITY coupled with PEACE OF MIND -PAY TAX KARO RELAX………..

    Any who opts for the scheme should first understand the SCOPE and ensure that these provisions are applicable in his case and weigh whether It is beneficial for him to opt or go for regular practice which include maintaining of books, records get them audited in case profit is below 8% of the gross turnover. The only vigilance required from assessee who comes within the ambit of the scheme that While calculating Gross turnover or gross receipts, ensure that It is properly and carefully computed and no receipt goes unnoticed and tax so computed tax is paid in time.

    So there is nothing wrong with the scheme which can raise any question on its bona fide or sanctity. For suitability……………. on case to case basis, there is option inbuilt in the scheme itself.

    2. Another point, payment of taxes helps in building the nation. You should feel proud if you have really good income and opportunity to pay more tax and contribute in growth of your own nation and serve the country in this way. There is no bar in the scheme to disclose income at 8% Only while opting u/s 44AD. In presumptive and deemed income provisions first thing you have to qualify for scheme and for higher side there is no bar and for lower side there is alternate option to justify/prove lower profit by audit option. You can even disclose higher income. In case next year you do not have that slab or income, you can enjoy the benefit of the scheme with its threshold limit that is 8%. In case of income below 8%, option is also available to justify it getting your books audited wherein you are answerable and accountable for even minor or small mistake whether unintentionally occurred….. or lapse occurred due to lack of time or knowledge not only before auditors as also before the department if selected for scrutiny and then penal consequences may cost you higher .

    3. If any one within ambit of above scheme will always find it convenient and safe especially INDIVIDUALS filing returns in 2 to 5 lacs range having adequate provisions for tax relief u/s 80C-D,U etc. Its suitability on case to case basis may yield different results with some variation in tax liability but in all cases, 44 AD (New) for any business- provision is INTACT with inbuilt immunity and peace of mind.

    Regards…

    AK Bhargava
    09425157452

  26. AK Bhargava says:

    Dear friends,

    From the discussion it is emerged that section 44AD (New) applicable on any business below 60 lacs turnover w.e.f. A/y 2011-12 based on 8% deemed income is receiving attention from all sections with mixed reactions which include tax experts and professionals also. As my personal opinion and view point, I would further submit as under:

    1. 44 AD -(New) It is a deemed provision under IT Act 1961. One thing is manifestly clear that It is scheme announced by Ministry of Finance/GOI/CBDT whosoever qualifying for it follows shall enjoy complete immunity from complicated taxing provisions indulging into variety of time killing and panic explanations and penal provisions. It is chiefly intended towards simplification with core object share the bulky and volume work load at the end of assessee as also with department and give them respite formulating the above simple deemed income provisions which are OPTIONAL. Such schemes for a particular group are operative on lump sum basis in various countries with like yardsticks. By introducing such OPTIONAL beneficial provisions in larger public interest especially covering Tiny -Small and to some extent small medium engaged in various business on small scale basis, by all means It is fair play. Main feature is COMPLETE IMMUNITY coupled with PEACE OF MIND -PAY TAX KARO RELAX………..

    Any who opts for the scheme should first understand the SCOPE and ensure that these provisions are applicable in his case and weigh whether It is beneficial for him to opt or go for regular practice which include maintaining of books, records get them audited in case profit is below 8% of the gross turnover. The only vigilance required from assessee who comes within the ambit of the scheme that While calculating Gross turnover or gross receipts, ensure that It is properly and carefully computed and no receipt goes unnoticed and tax so computed tax is paid in time.

    So there is nothing wrong with the scheme which can raise any question on its bona fide or sanctity. For suitability……………. on case to case basis, there is option inbuilt in the scheme itself.

    2. Another point, payment of taxes helps in building the nation. You should feel proud if you have really good income and opportunity to pay more tax and contribute in growth of your own nation and serve the country in this way. There is no bar in the scheme to disclose income at 8% Only while opting u/s 44AD. In presumptive and deemed income provisions first thing you have to qualify for scheme and for higher side there is no bar and for lower side there is alternate option to justify/prove lower profit by audit option. You can even disclose higher income. In case next year you do not have that slab or income, you can enjoy the benefit of the scheme with its threshold limit that is 8%. In case of income below 8%, option is also available to justify it getting your books audited wherein you are answerable and accountable for even minor or small mistake whether unintentionally occurred….. or lapse occurred due to lack of time or knowledge not only before auditors as also before the department if selected for scrutiny and then penal consequences may cost you higher .

    3. If any one within ambit of above scheme will always find it convenient and safe especially INDIVIDUALS filing returns in 2 to 5 lacs range having adequate provisions for tax relief u/s 80C-D,U etc. Its suitability on case to case basis may yield different results with some variation in tax liability but in all cases, 44 AD (New) for any business- provision is INTACT with inbuilt immunity and peace of mind and can be safely opted for…….. .

    Regards…

    AK Bhargava
    09425157452

  27. CA GAUTAM JOSHI says:

    Even if it’s not mandatory by words, it’s otherwise mandatory by customs (general practices).

    On the other side, it is not mandatory for genuine tax payers. However, who would like to fight with the income tax authorities (i.e. litigation’s) for business which is genuinely contributing less than 8%? If you are fighting for less than 8%, do tax audit and comply accounts, I think, it would be a threat in itself to invite income tax authorities who knows these days the normal or average level of profit margin in any business.

  28. CA GAUTAM JOSHI says:

    Hi Pratik,

    Nice question. I would laugh out on Income tax authorities and provisions framed, if what you asked comes true.

    Section 44AD is surely not a window to lower down your profit from 50% to 8% and by that way avoiding your tax audit and books of accounts. Make sure these provisions are actually framed to avoid malpractices and not to promote it. Even if, one trespass through this section, there are other provisions (like concealment of income Section 271(1)(c)) in Income tax law which will bring the assessee on track.

    Please avoid calling sir.
    Regards.

  29. CA KIRANKUMAR K JAIN says:

    ONE OF MY CLIENT IS DOIND FRIENCHS BUSINESS IN WHICH TURNOVER WAS 30 LAKHS & GROSS PROFIT IS FIXED @ 3% SO NP COMES @ 1%. IS IT COMPULSORY TO DO THE AUDIT. & IF YES WHAT WILL BE THE DUE DATE OF FILLING INCOME TAX RETURN.

  30. AK Bhargava says:

    Dear Friends,

    Nice information by CA Gautam Joshi ji followed with meaningful discussions.
    New section 44AD extends immunity to those from maintaining books and following accounting standard and stringent taxation laws especially with reference to cash transaction bars and many other complications. It is really good for those who are having nearly 8% NP having below 60 lacs gross turnover to opt for this scheme avoiding various explanation which may attract penal provisions and steal your peace of mind.

    Regards….

    AK Bhargava
    9425157452.

  31. Rupesh Barbhaya says:

    i think it is better to go for 44ad best provision by income tax,i will attach a case study which affirms what i say,

    Where assessee files its return u/s 44AD, it is not under obligation to explain individual entry of cash deposit
    January 26, 2011 in Income Tax Case Laws by admin
    Once under section 44AD exemption from maintaining of books of account has been provided and presumptive tax @ 8% of the gross receipt itself is the basis for determining the taxable income, the assessee is not under obligation to explain individual entry of cash deposit in the bank unless such entry has no nexus with the gross receipts.
    CASE LAWS DETAILS
    DECIDED BY: HIGH COURT OF PUNJAB AND HARYANA , IN THE CASE OF: CIT v. Surinder Pal Anand, APPEAL NO: ITA No. 156 of 2010, DECIDED ON June 29, 2010
    FACTS
    The assessee filed its return of income on 16.11.2005 declaring an income of Rs.1,40,120/-. The said return had been filed showing the business income of Rs.1,60,120/- under Section 44AD of the Act. The Assessing Officer did not accept the return and made an addition of Rs.14,95,300/- in respect of the cash deposited in the bank account during the year. On appeal, the Commissioner of Income-tax (Appeals) accepted the appeal of the assessee vide order dated 8.1.2009 (Annexure A-2) holding that the assessee was not required to maintain regular books of account as the return had been filed under Section 44AD of the Act as the turnover was below Rs.40 lacs. Unless the turnover was disputed, the addition made by the Assessing Officer was not justified. It was also recorded that since the cash deposits in the bank statement were lower than the business receipts shown by the assessee and in the bank statement there were withdrawals as well as deposits, the addition was unjustified.
    HELD
    Section 44AD of the Act was inserted by Finance Act, 1994 w.e.f. 1.4.1994. Sub-section (1) of Section 44AD clearly provides that where an assessee is engaged in the business of civil construction or supply of labour for civil construction, income shall be estimated at 8% of the gross receipts paid or payable to the assessee in the previous year on account of such business or a sum higher than the aforesaid sum as may be declared by the assessee in his return of income notwithstanding anything to the contrary contained in Sections 28 to 43C of the Act. This income is to be deemed to be the profits and gains of said business chargeable of tax under the head “profits and gains” of business. However, the said provisions are applicable where the gross receipts paid or payable does not exceed Rs.40 lacs.
    Once under the special provision, exemption from maintaining of books of account has been provided and presumptive tax 8% of the gross receipt itself is the basis for determining the taxable income, the assessee was not under obligation to explain individual entry of cash deposit in the bank unless such entry had no nexus with the gross receipts. The stand of the assessee before Commissioner of Income-tax (Appeal) and the ITAT that the said amount of Rs. 14,95,300/- was on account of business receipts had been accepted. Learned counsel for the appellant with reference to any material on record, could not show that the cash deposits amounting to Rs.14,95,300/- were unexplained or undisclosed income of the assessee.
    JUDGMENT
    ADARSH KUMAR GOEL, J.
    1. This appeal has been filed by the revenue under Section 60A of the Income Tax Act, 1961 (in short, “the Act”) against the order of the Income Tax Appellate Tribunal (ITAT) dated 29.05.2009 (Annexure A-3) for assessment year 2005-06 proposing the following substantial question of law:-
    “Whether on the facts and in the circumstances of the case and in law the order of the ITAT is perverse in deleting the addition made by the Assessing Officer, holding that the cash credits were out of business receipts falling u/s 44AD when at no stage the assessee had filed any evidence to show the nature of business and the details of parties from whom so called contract receipts were received and also ignoring the fact of non-deduction of tax on these so called contract receipts.”
    2. The assessee filed its return of income on 16.11.2005 declaring an income of Rs.1,40,120/-. The said return had been filed showing the business income of Rs.1,60,120/- under Section 44AD of the Act. The Assessing Officer did not accept the return and made an addition of Rs.14,95,300/- in respect of the cash deposited in the bank account during the year. On appeal, the Commissioner of Income-tax (Appeals) accepted the appeal of the assessee vide order dated 8.1.2009 (Annexure A-2) holding that the assessee was not required to maintain regular books of account as the return had been filed under Section 44AD of the Act as the turnover was below Rs.40 lacs. Unless the turnover was disputed, the addition made by the Assessing Officer was not justified. It was also recorded that since the cash deposits in the bank statement were lower than the business receipts shown by the assessee and in the bank statement there were withdrawals as well as deposits, the addition was unjustified. The relevant observations of the Commissioner of Income-tax (Appeals) are as under:-
    “11. I have carefully considered the rival submissions. The main issue is in regard to the addition of Rs.14,95,300/- on account of the cash deposits. In appeal, the ld counsel filed the written submissions and it was explained that the assessee could not furnish a reply to the notices issued by the assessing officer as he remains on tour. It was tressed that the assessee has filed return u/s 44AD wherein the assessee need not maintain the books of accounts. It was explained that in the bank statement there was withdrawal as well as deposits. The assessing officer has made additions on account of entries credits in the bank statement and did not look into the withdrawals made by the assessee. It was explained that these are the business receipts and the assessee has already shown income of Rs.1,60,120/- i.e. 8% of the gross receipts of Rs.20 lacs. The total cash credits in the bank statement are lower than the business receipts shown by the assessee.
    12. The non-compliance made by the assessee appears to be on account of his nature of work and having no fixed place of business. He remains on tour, etc. In fact, the notices sent by this office could also not be served on the assessee as he was not available. I am in agreement with the contention of the assessee that it is no account case and the return was filed u/s 44AD. The assessee is not required to maintain regular books of account if the turnover is below Rs.40 lacs and the assessee files return u/s 4AD. In view of these facts, the addition made by the assessing officer is deleted and this ground of the assessee is allowed.”
    3. On further appeal, the ITAT upheld the order of the Commissioner of Income-tax (Appeals).
    4. We have heard learned counsel for the appellant.
    5. It was submitted on behalf of the appellant that since from the information available in respect of the cash deposit in bank account of the respondent-assessee, the total deposits made during the year amounting to Rs.14,95,300/- had been made in the said bank account, the assessee having failed to explain the source of the said amount, the addition made by the Assessing Officers was justified.
    6. We have considered the submission of learned counsel for the appellant and do not find any merit in the same.
    7. Section 44AD of the Act was inserted by Finance Act, 1994 w.e.f. 1.4.1994. Sub-section (1) of Section 44AD clearly provides that where an assessee is engaged in the business of civil construction or supply of labour for civil construction, income shall be estimated at 8% of the gross receipts paid or payable to the assessee in the previous year on account of such business or a sum higher than the aforesaid sum as may be declared by the assessee in his return of income notwithstanding anything to the contrary contained in Sections 28 to 43C of the Act. This income is to be deemed to be the profits and gains of said business chargeable of tax under the head “profits and gains” of business. However, the said provisions are applicable where the gross receipts paid or payable does not exceed Rs.40 lacs.
    8. Once under the special provision, exemption from maintaining of books of account has been provided and presumptive tax @ 8% of the gross receipt itself is the basis for determining the taxable income, the assessee was not under obligation to explain individual entry of cash deposit in the bank unless such entry had no nexus with the gross receipts. The stand of the assessee before Commissioner of Income-tax (Appeal) and the ITAT that the said amount of Rs. 14,95,300/- was on account of business receipts had been accepted. Learned counsel for the appellant with reference to any material on record, could not show that the cash deposits amounting to Rs.14,95,300/- were unexplained or undisclosed income of the assessee.
    9. In view of the above position, we are unable to hold that any substantial question of law arises in this appeal.
    10. The appeal is dismissed.
    Tags: CIT v. Surinder Pal Anand, Section 44AD
    1 Comment »

  32. soumitra basu says:

    I do not agree with Mr. Gautam. The moot point is that section 44AD is a deeming provision. You are not bound by that provision. If you do not want to maintain books of accounts and would like to avoid unnecessary additions and disallowance then it is good to take the shelter under the deeming provision. However, you are at liberty to maintain books of accounts, satisfy the assessing officer, jumping into various litigation, pay taxes, pay penlaty etc.
    It is a very good position. I admit that the actual percentage of profit may be lower in lot of cases. But for getting someting you have to lose something.

  33. goyal says:

    sir

    my minor brother got interest from ifci bonds on which they have deducted TDS at 20%. and issued me a 16A along with the cheque. Now i want to club the above said income in my mother’s return and claim a refund. Now tell me that i can get refund as the ifci didi not mention any PAN in their return and no data is available in 26AS. i want to file the return online. advise me

  34. CA Priyank Sanghavi says:

    Dear Sir,

    My query is something different, interesting and practical.

    Facts of case:
    One of my client has achived turnover of Rs. 30 lacs during the financial 2010-11. He actually earns Rs. 15 lacs out of it. Entire sales are made for tender so very genuine proof of income is available.

    Questions are:
    1. Can my client shows his income @8% and file his return as if his income Rs. 2.40 lacs.

  35. abc says:

    Yes if you claim your profit to be less than 8% (In case of turnover less than 60 lac) you need to maintain books of accounts as well as audit of books of accounts.

    If there is loss , you need to get maintain books of accounts and audit.

  36. abc says:

    It is true. Why should we fix our profit to limit of 8%. It can be less than 8%.

  37. Raja says:

    Kindly read sec 44AD(5) which is mandatory and not optional.

    raja

  38. Raja says:

    sec 44AD(5) lays down that when income is less than 8% then provisions of both sec 44AA and 44AB have got to be followed which means maintenance of books of accounts as well as audit of accounts even if the total turnover is less than 60 lacs. Am I correct. If so every business will have to get the books audited whether it is not required under any other law.

    Secondly in case of business loss ( that is profit is below 8 % ) again audit will be required. Is it right.

    Raja

  39. Gautam Joshi says:

    Dear Ketan,

    The tax audit u/s 44 AD should not come under the limit of tax audit u/s 44 AB. However, I doubt there is any specific clarification by ICAI on the same.

    Profit as per this provision is presumptive profit i.e. as if all the effects of depreciation and other deductions are already given in the net profit. Refer the detailed provision for the same.

  40. Gautam Joshi says:

    Dear Kunjal,

    What I meant by saying that 8% margin will be the only option for the business men is only when he does not want to maintain books of accounts and to be audited as well. In that case, it is the only option available to him. It is really subjective and so not wrong.

  41. ca kunjal modh says:

    with all due respect to u ,i think, ther is some confusion in section 44AD.
    1st point is , 44AD IS APPLICABLE AT THE OPTION OF THE ASSESSEE.
    IF ASSESSEE IS NOT GOING TO SHOW MIN PROFIT OF 8%, THEN, HE WILL NOT AVAIL THE OPTION OF 44AD.
    SO, UR LITERAL MEANING THAT, ANY BUSINESS IN INDIA NOW, HVE TO SHOW MINIMUM PROFIT OF 8% (FOR NON AUDIT CASE )IS TOTALLY WRONG.

  42. Ketan Upadhyay says:

    audit done below 8% will count in limit u/Sec. 44AB or not
    This 8% Profit means net profit or Gross profit

  43. VIshwanth M.B says:

    Dear Sir,

    I thimk the ection 44 AD of I.T ACT shoul be scraped out though an assessee declares his inome on Presumtive basis, But at the time of Scrutiny, the Dept itself is not going to accept the same and again it is asking all financial statements to conclude the assessments.

  44. Muthuswamy says:

    Books are maintained by every business entity, big or small. Otherwise it is not possible for the businessmen to run the business. What Income Tax provisions call for is the minimum profit which the business men should show for tax purposes. It has nothing to do with any other compliance elsewhere for the business men.

  45. Gautam Joshi says:

    Dear Amit,

    Yes. Unfortunately, it is true that if your profit is less than 8 % of your turnover, it is mandatory to get books of account audited.

    TDS and advance tax provisions are not applicable to Individual and HUF when they are going for presumptive taxation as per Section 44 AD. Remember, these provisions are for small business man.

    As far as audit fees are concerned, they depend on area, amount of work, nature of business and audit firm so it can never be generalised.

    Regards.

  46. Lalit Jain says:

    Good Compilation

  47. Amit Somaiya says:

    Sir,

    Is it really mean that if your profit is less than 8 % of your sales , it is mandetory to get books of account audited . ?

    Also, in case of individuals and HUF , TDS provosions will also be implemented from next Fin Year ?

    What could be Audit Fees and additionl Fees which a Small Businessman has to bear in case he is not declaring profit of 8 % ?

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