sir, Assessee is in retail trade with turnover of Rs.200 lakhs. It is 100% cash business and deposits cash from sales into the bank. He offers 8% of turnover as income ( Rs. 16 lakhs) u/s 44AD of the Act. In the bank account there is closing balance of Rs.60 lakhs . The assessee uses the Rs.45 lakhs to purchase a plot of land.
The assessee opines that since he has offered 8% as income as required u/s 44AD the IT department cannot question the excess money of Rs.44 lakhs (60 – 16) standing in bank account and free to utilise to purchase the plot of land . Is the stand of the assessee correct?. What are the implications ?
If you are opting for section 44AD, you can declare a fixed percentage of your turnover as profit. It is assumed that the assessee is unable to maintain proper books of accounts and hence has opted for 44AD.
However, in case a scrutiny arises you should be able to justify the source of these funds.
I absolutely concur with the write up. AO can not ask for books of accounts ( presumed as not maintained , nor obligated by law) ,nor increase taxable income beyond 6%/8%, if turnover declared is justified by the assessee. I.tax deptt reaching upto ITAT on a clear law matter tantamounts to harassment.