Jul 252018
 

Non applicability of Section 44AD in certain cases

Substituted by the Finance Act, 2016, w.e.f. 1-4-2017 [Subsection 4 of section

 44AD]:

Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1).

Analysis of the above provision:

Provision Analysis Example
Previous year: Eligible assessee declared profit under presumptive scheme. That means in the previous year assess ascertain his profit @ 6% / 8% of gross sales as the case may be. Take current previous year as example: Previous year : 2018-19
For next five assessment years: in any such assessment year he declares profits not in accordance with this provision. After previous year, in any one out of next five years he declares his profit as per normal calculation, i.e., as per his profit and loss account. 1st AY after PY 2018-19.      is 2020-21

2nd AY after PY 2018-19.   is 2021-22

3rd AY after PY 2018-19.    is 2022-23

4th AY after PY 2018-19.    is 2023-24

5th AY after PY 2018-19.    is 2024-25

 

In any one the above assessment years he declares profit as per his profit and loss account.

Result: He shall not be eligible to claim the benefit of the provisions of this section for five subsequent assessment years Thus, the assessee under consideration shall not be eligible to claim benefit of above provision for next five assessment years from the assessment year in which he has not claim profit as per section 44AD. Let suppose he has not claim profit for AY 2023-24 as per section 44AD. Now from AY 2024-25 to 2028-29 he is not eligible for section 44AD benefit. He shall have to claim profit as per normal computation.

 

Explanatory notes to the above provision:

It has been further provided that where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five consecutive assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of this section, he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of this section.

Case study:

An eligible assessee claims to be taxed on presumptive basis under section 44AD for Assessment Year 2017-18 and offers income of Rs. 8 lakh on the turnover of Rs. 1 crore. For Assessment Year 2018-19 and Assessment Year 2019-20 also he offers income in accordance with the provisions of section 44AD. However, for Assessment Year 2020-21, he offers income of Rs.4 lakh on turnover of Rs. 1 crore.

In this case since he has not offered income in accordance with the provisions of section 44AD for five consecutive assessment years, after Assessment Year 2017-18, he will not be eligible to claim the benefit of section 44AD for next five assessment years i.e. from Assessment Year 2021-22 to 2025-26.

Conclusion:

Thus, now as per above provision an assessee is bound to claim 44AD benefit for at-least 5 consecutive assessment year. If he does not do so in any one assessment year is not eligible for benefit for next five years.