Well. Interpretation of law can be different from different people.
If you ask me.
Can I show profits at 6 percent and file my returns?
Yes.
Will the return be process successfully?
Most of the time.
But then there are a lot of things to be considered.
Income Tax is self assessment tax. We have to assess our income and declare it.
If AO is satisfied, then itâs accepted.
If he isnât then he will ask for more information by issuing a SCN
I wonât get into the sections in detail but will just try to put in simple words.
When we say we have 6 percent profit we are indirectly saying we have 94 percent expenses. If thatâs the case then your assets during the year shouldnât exceed more than the income you have declared. Basically your cash flows should match.
Letâs say. I sell OTM options and all of them expire worthless. In this case my turnover is 1 crore. And profit is also 1 crore. According to 6 percent I show only 6lalks as income. And then may investment of 90lalks during the year. How is this justified. The AO has to power to deem it as income.
Plus, if you are talking about business income out of FNO you are clearly maintaining books of accounts. The brokers themselves maintain for you. How can you say you donât know your profits.
You are giving a declaration that you have declared income to the best of your knowledge. But are you ??
Since itâs a debatable topic I will leave it out for you guys to figure it out.
Just to cite a case law. Itâs a mere copy paste. You can skip to conclusion directly.
Ahmedabad bench of ITAT in the case of Shivani Builders Vs. ITO [2007] 295 ITR (AT) 281. The relevant paragraphs of the order reproduced below brings out the import of the presumptive sections which we are discussing: It is, thus, clear that the law envisages all the three situations by laying down appropriate procedure for all of them, i.e., the assessee disclosing a higher, lower, or an amount equal to the presumptive income (reckoned at the rate of 8 per cent of the turnover). â In the instant case, the assessee contended to have declared its income at the presumptive rate, being covered by the provisions of section 44AD, of which, clearly, there was no doubt, it being engaged in the civil construction of residential flats. The provision of section 44AA i.e., with regard to mandatory maintenance of books of account, would apply to an assessee engaged in such business, only, if the assessee chooses to be taxed at lower than the presumptive rate of 8 per cent, which is clearly in the nature of a, and the only, concession accorded by the statute to the relevant class of assessees, to which assertion of the assessee, there could be no doubt, it being statutorily recognized/ enacted. However, where the assessee, despite the said concession, chooses to maintain the books of account, preferring to rely thereon for various other purposes, both apart from and under the Act, it cannot ignore the book results and claim to be entitled to a lower presumptive rate of income than that revealed by such books. The law does not accord a privileged status to the assessee engaged in this line of business but only, considering the vagaries that attend thereto, draws a higher bar for the purpose of maintenance of books, i.e., than that normally obtains under section 44AA. As such, it cannot be said that though the assessee, admittedly, earns more, he would still be liable to be assessed to income-tax at a lower income by virtue of the said concession. Section 44AD would not operate to curtail the scope of income as defined under section 2(24), read with section 5, so that where the assessee admittedly earns a higher income, the character of which as income is undoubted, it would be liable to tax on that basis, that is, on the basis of real income, even as held by the Commissioner (Appeals). The assesseeâs plea of the said interpretation as amounting to be penalizing it for the maintenance of its books, was wholly misconceived; the act of paying tax on the basis of income earned cannot, by any stretch of imagination, be considered as amounting to being penalized; the law is not creating a privileged class out of such assessees, but thereby only is providing a window of concession for a limited purpose.
Conclusion
From above discussion, following points can be concluded
- An assessee filing the return of income is under an obligation to offer its correct and true income in accordance with the provisions of the Act.
- The presumptive scheme of taxation allows taxpayers to offer income higher than the prescribed rate. In short, it is the minimum rate u/s 44AD which has to be considered and higher income option is open for the taxpayers which have to be used if taxpayers have higher income. 3. The powers of the AO are very wide & exhaustive. AO can assess correct income on the basis of investment if they have sufficient documentary evidence which is very much possible during survey, search & assessment proceeding. AO can bring to tax the higher income in such cases
- Though the presumptive scheme of taxation is introduced with an aim to relieve the taxpayers form the requirements of maintaining the books of accounts, however, it doesnât not relieve the taxpayers from justifying its investment sources. In short, it may not be taken as a permission to show lower income even if taxpayers are earning higher income.
- The concept of making disclosure in the ITR forms with respect to few Balance Sheet data in income tax returns seems to have been introduced with this concept only.
- Not offering true or correct income may even result in the application of section 69, 69A or section 69C of the Act if the investment or the expenditure is in excess of the returned income.
- Section 44AD does not give a license to the assessee to declare lower income despite the assessee having a higher income