I am running an ITeS business with gross annual revenue below the presumptive taxation limit of 2 crore. The business earns over 50% profit.
I was considering switching to presumptive taxation scheme. If I switch to presumptive taxation, can I pay tax for just 8% of the revenue, or do I have to pay tax for the actual profit as I do now? Is declaration of the actual profit required, when it is easy to calculate the actual profit?
I have come across the following judgement by the Income Tax Appellate Tribunal
The judgement notes
11. Putting the above analysis, in converse, it can be easily inferred that the same is also true for the expenditure of the assessee. If 8% of gross receipts are 'deemed' income of the assessee, the remaining 92% are also 'deemed' expenditure of the assessee. Meaning thereby that actual expenditure may not be 92% of gross receipts, only for the purposes of taxation, it is considered to be so. To take it further, it can be said that the expenditure may be less than 92% or it may also be more than 92% of gross receipts.
also
17. The crucial words in the said section for the purposes of present appeal are 'any financial year an assessee has incurred any expenditure'. But can we say on the facts & circumstances of the present case that the assessee has 'incurred' any expenses. From an analysis of section 44AD of the Act contained hereinabove, we have already held that the assessee had not incurred the expenses to the extent of 92 % of the gross receipts. Therefore, in the present case, the provisions of section 69C of the Act cannot be applied. Asking the assessee to prove to the satisfaction of the Assessing Officer, the expenditure to the extent of 92% of gross receipts, would also defeat the purpose of presumptive taxation as provided under section 44AD of the Act or other such provision.
Does the above points mean that it is not mandatory to declare and pay tax on the actual profit? If so, what is the state of the remaining profit? Since it is not unaccounted expense, will it be considered as unaccounted/black money?
The above text is immediately followed by
Since the scheme of presumptive taxation has been formed in order to avoid the long drawn process of assessment in cases of small traders or in cases of those businesses where the incomes are almost of static quantum of all the businesses, the Assessing Officer could have made the addition under section 69C of the Act, once he had carved out the case out of the glitches of the provisions of section 44AD of the Act. No such exercise has been done by the Assessing Officer in this case.
What does "carving the case out of the glitches of the provisions of section 44AD of the act" mean? Does it mean that assessing officer can dispute the application of presumptive taxation scheme, if he/she suspect tax avoidance?
