Question And Answer
Subject: Whether Declaration of higher income under preemptive taxation scheme than prescribed under Section 44ADA of Income-tax Act, 1961
Querist: Kartik Jain
Answered by:
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Date: May 17, 2021
Query asked by Kartik Jain

Dear Sir, Ma’am, the query is as follows –

Both Section 44AD and Section 44ADA prescribe a minimum threshold of declaration of income of 6%/8% and 50% of the turnover respectively in order to opt for presumptive taxation scheme, otherwise tax audit becomes applicable. These provisions also allow the assessee to declare income higher than the prescribed limit of 6%/8% and 50% in the return of income.

A question arises whether declaring such higher income is compulsory in case where the actual income of the Assessee exceeds these threshhold limits or can the assessee continue to opt to declare income only on the basis of the prescribed limit ?

If yes, then the capital accrual of the Assessee in the form of savings shall exceed the income declared in ITR and it may become hard to explain high-value expenditure. For e.g – Assessee engaged in profession has a turnover of INR 45 lakhs from business & profession chooses to declare income @50% i.e. INR 22.5 lakhs in the income tax return. However, his actual income is INR 42 lakhs and he uses this actual income to purchase a house worth INR 30 lakh. If questioned by the income tax department regarding the source of such expenditure, he will find it difficult to explain income of INR 22.5 lakhs while expenditure is INR 20 lakhs

Conversely if the answer is no, then the presumptive taxation scheme becomes redundant since the Assessee is anyways required to compute his actual income and also maintain books of accounts to support such calculations which does not appear to be the intent of these provisions.

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Answer given by

Section 44AD and section ADA are special provision start with the provision “ Notwithstanding anything to the contrary —– therefore special provision will override the general provision . In Maruti Udyog Ltd. v. Ram Lal & Ors. (2005) 2 SCC 638 the Court held that where there is a conflict between the provisions of two special Acts, the provisions of the later special Act must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non obstante clause it means that the Legislature wanted that enactment to prevail then it could provide in the later enactment that the provisions of the earlier enactment would continue to apply. The assessee may take the decision accordingly consulting his tax consultant .

There is a detailed article titles “ Presumptive taxation -Showing Higher income than Bench mark Given a Choice or an obligation ? by CA Pankaj Agrwal and CA Sandeep Kumar Jain which is published in www.itatonline .org the Assessee may refer for detailed study .
Presumptive Taxation – Showing Higher Income Than Benchmark Given – A Choice Or An Obligation?

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