Is it Compulsory to maintain Books of Accounts even if the Tax Payer opts for presumptive taxation u/s 44AD, 44ADA or 44AE?

44AD, 44ADA or 44AE

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Is it Compulsory to maintain Books of Accounts even if the Tax Payer opts for presumptive taxation u/s 44AD, 44ADA or 44AE?

A very big confusion that exists is as to whether it is compulsory to maintain Books of Accounts if the Tax Payer opts for presumptive taxation u/s 44AD, 44ADA or 44AE.

It is presumed that taxpayer opting for 44AD, 44ADA or 44AE are not required to maintain the books of accounts u/s 44AA.

However, lot many notices are issued by Central Processing Cell (CPC), Bengaluru requiring the taxpayers to submit the details of balance sheet as their turnover or receipts or profit exceeds the limit given u/s 44AA.

Without any legal basis, how these notices can be issued is the question posed by the tax professionals. Let us know about it. The relevant part is incorporated in subsection 5 to section 44AD which reads as under:

Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.   

The above provision says that the Books of Accounts is required to be maintained & audit is mandatory if assessee does not opt for Section 44AD.

As a result, it can be reasonably presumed by the tax payer that persons opting for 44AD are not required to maintain the books of accounts u/s 44AA and the question of audit does not arise.

One need to carefully note that: Section 44Ad nowhere provides immunity from the provision of Section 44AA. Further, the section overrides Sections 28 to 43C as it begins with the words-
“Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”. Provided that this sub-section shall have effect as if for the words “eight per cent”, the words “six per cent” had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.”

In short section 44AD do overrides section 28 to section 43C but it does not override Section 44AA. In short, technically person opting for 44AD do not have any immunity from Section 44AA.

However, Central Board of Direct Taxes (CBDT) should grant the immunity from 44AA for the reason that section 44AD was introduced to simplify the taxation system for small taxpayers & to provide freedom from cumbersome process of maintaining the Books of accounts.

The same logic prevails for Sections 44ADA and 44AE as well.

It will be in the interest of the businessman if CBDT issues suitable clarificatory circular to this effect.

Any one listening?

 


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