Discussion on section 44AD of IT Act

[ethan hunt]

L'il off topic, but important:

LT capital loss (from shares) is not adjusted or carried forward (it is a complete loss), so it is better to book ST capital loss (sell before the holdings completes 1 year) & adjust / carry forward.

Holdings can be bought again subsequently.

 

[ethan hunt]

One more thing I was told is that if I do audit

Apart from this the profits earned can be offset against the business expenses incurred.

office rent, telephone, internet, computer bills plus staff.

Does it mean suppose I make profit of 1 lac in a year and show business expenses of 1.25 lacs. Can i show it as loss of 25 k and carry forward the loss?

Even audit fees is also an expense.

 

[Smart_trade]

One more thing I was told is that if I do audit

Apart from this the profits earned can be offset against the business expenses incurred.

office rent, telephone, internet, computer bills plus staff.

Does it mean suppose I make profit of 1 lac in a year and show business expenses of 1.25 lacs. Can i show it as loss of 25 k and carry forward the loss?

Assessing officer will take a view whether expenses are legitimate and reasonable expenses for earning income and whether they are supported by proper bills and receipts.

Audit Fees is allowable expense. So are data charges,internet charges,depreciation on computers and laptops,books,periodicals...

Smart_trade

 

[canikhil]

It is interesting to see the variety of opinions are floating around on this issue primarily because this issue never got to any tribunal or high court level. But it is nice to see that the moderator has been able to cover most of the issues that plague taxation for derivatives.

I am a chartered Accountant and deal with a lot of F&O cases. In case of any queries, I would glad to share my views in addition to what "Smart_trade" has already shared.

You can also ask queries on my caclub profile at http://www.caclubindia.com/profile.asp?member_id=206964

 

[ritesh.bafna88]

Re: General Trading Chat

It was there last year too.....

your third point is wrong...if income is less than Rs 2 L even then you require audit if your TO is > 1 Cr OR TO < 1 Cr and profits < 8% of TO...the Section 44AD needing audit is an independent section.

So even if you trade few trades and make profits less than 8 % of TO and even though your total income is less than 2 L you need audit under section 44AD. That is the real issue with this section.

Smart_trade

This post is old but i thought i should share my view on it

With all due respect,

i contradict your view on this topic.

firstly Section 44AD is

" (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) 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."


as you can see that Audit requirement statement is framed with "and" & not with "or" that means both the statements are needed to be true for audit to be attracted.

(in case "or" would had been used than any one confirmed statement would had been enough for audit)

let me illustrate with example

1. in case the turnover of FNO is Rs 25,00,000/- the 8% of the same comes to Rs.2,00,000/- now lets say that actual profit lies around Rs. 50000/- & if income from any other source does not cross Rs. 2,00,000/- and hence the total income does not cross Rs. 2,50,000/- (inclusive of FNO actual profit)
in such case 44AD is not attracted and there is no need get accounts audited. the proper itr to file in this case is ITR 4. no need to maintain accounts too.

2. same way if there is say loss of Rs 50,000/- than the total income comes to Rs. 1,50,000/- again audit is not warranted. ITR 4 is to be fillled before 31st July (this year 31st August) loss can be carried forward. no need to maintain accounts too.

same way is loss is Rs. 50,000/- and income from any other source is say Rs. 3,25,000/- than total income comes to Rs. 2,75,000/- in this case audit is needed. ITR 4 is to be filled before 30th September and loss can be carried forward. need to maintain accounts.

lastly if 8% profit is declared than no need for audit file ITR 4S along with proper addition of other income.

note: keeping in mind the set-off of loss is dependent on the relevant provisions of income tax act. For example Salary income cannot be set-off against any loss.

Many would also think if the ITR 4 can be filled without maintained accounts. the answer is yes.

further to add on the topic, there are certainly many ambiguities on this topic and no clarification is issued by the government hence interpretation on the basis of bare reading of act along with proper representation is the key. after all the efforts of any individual are limited to how the authority sees the particular situation in this case INCOME TAX Department.

In My View One of the reason for the same topic to never reach the bench of ITAT, HC, SC is because not one knows the correct application.

Regards
CA. Ritesh Bafna

 

[nirav_j]

ICAI should do some actual research and recommend simplified and straightforward suggestions, which are NOT open to interpretation, to the Finance ministry instead of lighting candles and patting each others back wearing silly gowns.

Its a matter of shame that no 2 Chartered Accountants can come to the same conclusion for F&O taxation, even in 2015 !

Everyone ends up giving a different view. :annoyed:

 

[ritesh.bafna88]

ICAI should do some actual research and recommend simplified and straightforward suggestions, which are NOT open to interpretation, to the Finance ministry instead of lighting candles and patting each others back wearing silly gowns.

Its a matter of shame that no 2 Chartered Accountants can come to the same conclusion for F&O taxation, even in 2015 !

Everyone ends up giving a different view. :annoyed:

It is the ICAI suggestion which actually led to turnover calculation.

in every profession there will be difference of opinion.

Law cant be barbaric in nature, it is open for interpretation.


if this amounts to shame in your eyes than look around there are more amusing stuff in our world that too in 2015...:thumb:

 

[nirav_j]

It is the ICAI suggestion which actually led to turnover calculation.

in every profession there will be difference of opinion.

Law cant be barbaric in nature, it is open for interpretation.


if this amounts to shame in your eyes than look around there are more amusing stuff in our world that too in 2015...:thumb:

Law should be open to interpretation.Are you kidding me ?
No wonder the push for modern day CAs is inventive accounting to please clients and eventually rob the govt in the process.but all fine as long as its "non barbaric"

 

[ritesh.bafna88]

Law should be open to interpretation.Are you kidding me ?
No wonder the push for modern day CAs is inventive accounting to please clients and eventually rob the govt in the process.but all fine as long as its "non barbaric"

then why don't you enlighten all as to what LAW should be if not open to interpretation?

let see how forward is your intellect!!!

 

[nirav_j]

then why don't you enlighten all as to what LAW should be if not open to interpretation?

let see how forward is your intellect!!!

I'll answer that with a counter question.

Should a traffic cop , while dealing with a motorist who broke a red signal , "interpret" the law as per his cognitive skills or fine him ?
The law btw is clear and says fine him.