Opinion Of Eminent Legal Luminaries On Controversial Issues

Presumptive taxation- Profits & gains of business on presumptive basis

QUERY: A firm carrying of eligible business having an annual turnover of ₹ 1.25 crore declares income from business as per accounts at ₹ 13 lakhs which is higher than the deemed income of ₹ 10 lakhs u/s. 44AD.
Can such firm claim deduction from its income on account of remuneration/ interest to partners?
One possible interpretation is that it is only when income as per accounts is less than deemed income of 8% and the assessee returns income at 8% the firm will not be allowed to claim such deduction. To put it differently, when income declared is more than 8% (as in the above example), benefit of deduction u/s. 40 (b) would be available.
ANSWER: The presumptive scheme of taxation has been introduced for sparing the small assessee from need for compulsory maintenance of accounts u/s. 44AA and tax audit under section 44AB.
In such case, the assessee shall be assessed on the presumptive income. The section provides the presumptive “‘income @ 8% of the total turnover or gross receipts of 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”.
From the facts, it is clear that assessee is maintaining books of account and wants to offer higher than 8% of the total turnover i.e. real income as per his accounts, then S. 44AD would not be applicable as per the Tribunal in Shivani Builders vs. ITO [295 ITR (AT) 281 (Ahd)]. Therefore, claiming expenses in other provisions of the Act are not prohibited while calculating the business income.

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