Person opting for getting accounts audited u/s 44AE will be subject to complete scrutiny?

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Person opting for getting accounts audited u/s 44AE will be subject to complete scrutiny?

 

Why there is a reference to section 143(3) in section 44AE. It’s a food for thought. The more you read, the more you get to know about it. Let us know more about section 44AE. 

 Persons have an option to opt or not to opt for the benefit available under presumptive scheme of taxation. However, person covered by presumptive scheme of taxation decides not to opt for presumptive scheme of taxation then such taxpayers have to

  1. Maintain the books of accounts
  2. Get its books of accounts audited.

If the person covered by section 44AE i.e., Person engaged in the business of plying, hiring or leasing such goods carriages and owning not more than ten goods carriages at any time during the previous year, decides not to opt for section 44AE then his case would be subject to complete scrutiny? One need to see if there is one hidden consequences attached u/s 44AE if the person covered by presumptive scheme of taxation decides not to opt for it? How and why is the next question which everyone would ask.

Let us first revisit section 44AE which reads as under:

Special provision for computing profits and gains of business of plying, hiring or leasing goods carriages.

44AE. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee, who owns not more than ten goods carriages at any time during the previous year and who is engaged in the business of plying, hiring or leasing such goods carriages, the income of such business chargeable to tax under the head “Profits and gains of business or profession” shall be deemed to be the aggregate of the profits and gains, from all the goods carriages owned by him in the previous year, computed in accordance with the provisions of sub-section (2).

54[(2) For the purposes of sub-section (1), the profits and gains from each goods carriage,—   (i) being a heavy goods vehicle, shall be an amount equal to one thousand rupees per ton of gross vehicle weight or unladen weight, as the case may be, for every month or part of a month during which the heavy goods vehicle is owned by the assessee in the previous year or an amount claimed to have been actually earned from such vehicle, whichever is higher;

 (ii) other than heavy goods vehicle, shall be an amount equal to seven thousand five hundred rupees for every month or part of a month during which the goods carriage is owned by the assessee in the previous year or an amount claimed to have been actually earned from such goods carriage, whichever is higher.]

(3) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed :

Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.

(4) The written down value of any asset used for the purpose of the business referred to in sub-section (1) shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.

(5) The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.

(6) Nothing contained in the foregoing provisions of this section shall apply, where the assessee claims and produces evidence to prove that the profits and gains from the aforesaid business during the previous year relevant to the assessment year commencing on the 1st day of April, 1997 or any earlier assessment year, are lower than the profits and gains specified in sub-sections (1) and (2), and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee and determine the sum payable by the assessee on the basis of assessment made under sub-section (3) of section 143.

(7) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in sub-sections (1) and (2), if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.

Explanation.—For the purposes of this section,—

55[(a) the expressions “goods carriage”, “gross vehicle weight” and “unladen weight” shall have the respective meanings assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988);

(aa) the expression “heavy goods vehicle” means any goods carriage, the gross vehicle weight of which exceeds 12000 kilograms;]

 (b) an assessee, who is in possession of a goods carriage, whether taken on hire purchase or on instalments and for which the whole or part of the amount payable is still due, shall be deemed to be the owner of such goods carriage.

The most important part of the section is sub section 6 which reads as under:

(6) Nothing contained in the foregoing provisions of this section shall apply, where the assessee claims and produces evidence to prove that the profits and gains from the aforesaid business during the previous year relevant to the assessment year commencing on the 1st day of April, 1997 or any earlier assessment year, are lower than the profits and gains specified in sub-sections (1) and (2), and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee and determine the sum payable by the assessee on the basis of assessment made under sub-section (3) of section 143

 There is nothing in section 44AD & 44ADA which resembles like section 44AE(6). Section 44AE(6) can be summarized in short as under:

Person covered by section 44AE (1) & (2) offers income lower than the specified rate then the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee and determine the sum payable by the assessee on the basis of assessment made under sub-section (3) of section 143.

It is in the section 44AE itself that makes the assessment U/S 143(3) mandatory for the AO in case person covered by section 44AE don’t opt for it compulsorily.

Whether section 44AE is a beneficial provision and penalizing provision is what taxpayers need to ascertain. If taxpayers agree, you will get the benefit. If not, taxpayers would be penalized. In such case, audit and accounts are not the end but taxpayers have to go through the assessment proceeding u/s 143(3).

Income Tax Act is an interesting piece of legislature which operates differently at different section. There is no such stipulation in section 44AD & 44ADA which also operates on similar concepts.

Why there is a reference to section 143(3) in section 44AE. It’s a food for thought.

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