There is confusion about presumptive taxation.
One view is that the tax payer is supposed to declare his actual income and 8% is the mere minimum that needs to be declared. So if the tax payer earns 25% , then the profits declared under 44AD should be 25% and not 8%.
Another view is that the section was brought in especially for those tax payers who do not have the resources to compute actual profits and hence 8% is considered as the presumptive rate, and the income tax officer cannot levy a higher rate than that declared by the tax-payer.
There has been a judgement in 2020 that can be viewed as precedence hereon perhaps. The assesse failed to disclose additional 5 lacs turnover and the officer was not accepting 8% on this undisclosed turnover. But the ruling disallowed this questioning by the officer.
Assesse Name : Sri. Girish V.Yalakkishettar Vs ITO (ITAT Bangalore)
Appeal Number : ITA No. 354/Bang/2019
Date of Judgement/Order : 27/01/2020
Related Assessment Year : 2013-14
Courts : [All ITAT]
Asking to prove 92% of expense defeats purpose of presumptive taxation: ITAT Bangalore
Against, this the assessee is in appeal before us. The Ld. AR submitted that the there was a difference between the turnover declared by the assessee and the turnover declared in form 26AS at Rs.5,05,050/-. It was submitted that it is on account of inclusion of certain advances received in the turnover. He submitted that the entire amount of Rs.5,05,050/- cannot be considered as income of the assessee. At best, the income of 8% of the amount of Rs.5,05,050/- may be considered as income of the assessee since it is part of the business turnover of the assessee.
On the other hand, the Ld. DR submitted that the entire amount is to be considered as the income of the assessee since the undisclosed income u/s. 44AD of the Act cannot be offered.
I have heard the rival submissions and perused the record. Admittedly, there is difference in the turnover declared by the assessee and the turnover declared in Form 26AS which is at Rs.5,05,000/- and it is to be part of the business turnover of the assessee. Being so, it should be included in the total turnover of the assessee and income of 8% is to be estimated on it. In other words, the entire undisclosed turnover of Rs.5,05,050/- cannot be considered as income of the assessee. The AO is directed to consider 8% of the income of Rs.5,05,050/-. Thus, this ground of appeal of the assessee is partly allowed.
So here is a summary
1. The officer questioned because the turnover was calculated wrong. Apparently he wasn’t questioning about 8% otherwise.
2. The judgement states the assessee has to be only charged 8% even for the misreported turnover.