tomwedding
New member
I am writing about what will happen when people invest surplus, undeclared profits( over 50% @burning___bush 44ADA or over 8% @burning___bush 44AD) and who were sent a notice for the same. I am attaching a case law sheet on this topic at the end. The reason this is important for personal finance is because if it is possible to freely invest the balance, it would lead to a substantial increase in the size of available pool of investments for Individuals.
Tl;dr:
This is not simply my opinion, but something that has been ruled by judiciary over and over.However, this also begs the question "What is books of Accounts?" And there is no answer to that(Ha! got you). However, there is an answer to what is NOT books of Accounts.
Demat statements and Bank statements are NOT books of Accounts. They are not maintained by you and they are not maintained for you. They are simply statements issued by the respective Banks and brokers/ depositories of your Balance available with them.And that is all. Or so you thought, that this will be another wall of text that leaves your core question
Your Actual profit is more than 6/8/50% ! Income tax department, if they ask you, you have no answer to it.
And here is the part 2:
As much as I could simply refer cases upon cases(link to my excel file below), the point is you want to hear from judiciary that what you are doing is fundamentally correct.
Hence, you should see Paragraph 10 of ITAT Chandigarh judgement on Nand Lal Popli vs DCIT- ITAT Chandigarh case.
The ITAT(Income tax judicial body) clearly states that 8%/50% is the presumed profit for tax purposes. The actual profit may be higher or lower than that.
Another Interesting case is that of Smt.Honey Rahulan, Alappuzha vs The Ito, Alappuzha where the Assesse had made investments and expenditures of Rs. 12 lakhs, while the profit declared during the year was merely 4 lakhs, however, the same was allowed by ITAT as well, citing Nand Lal Popli's case.Feel free to ask me any questions you have.
Link to my case law file
Tl;dr:
- Income tax department can not claim you have unexplained investments as you need to be maintaining books of accounts for that(It is how law is framed). DEMAT statement/ Bank statement is not books of accounts.
- Income tax department can not claim that your actual profit is higher and hence more tax is payable. 8% or 50%(44AD or 44ADA) is your tax profit. Your actual profit may.
- For DIY people who have been avidly researching this and other tax related topics, it will be hard for you to take anything coming from my mouth related to selling you tax services seriously, however, if you were to apply your hourly rate to the time you spent researching about taxes, what would be your annual cost? And with how much surety can you say that there is nothing that you don't know that you don't know? How has spending your time doing research helped you save money or make money compared to simply hiring a top notch CA?
- Being "caught" with surplus money will essentially mean either of or a combination of two things:
- You are caught with surplus assets (cash/ bank balances, MF/Equity, property etc.) leading to unexplained money or assets.
- You are caught with personal expenditure which is greater than what is expected from someone earning your level of profit.
- Bank account statement or DEMAT statement is NOT books of accounts. They are simply statement of assets maintained in capacity of agent, debtor or creditor.(CIT vs. Bhaichand N. Gandhi)
- These cases will be only for 44AD(and not 44ADA) as that is the older section(1994 vs 2017), hence has material for research. However, the wording of both sections as to calculation of profits of taxpayer opting for the respective sections is same.
- Unexplained deposits in Bank( Section 68)
- Unexplained money( Section 69A)
- Unexplained/ partially explained investments(69 and 69B)
Code:
As a freelancer, you are not required to maintain books of Accounts, hence, you can not be convicted under these sections.
This is not simply my opinion, but something that has been ruled by judiciary over and over.However, this also begs the question "What is books of Accounts?" And there is no answer to that(Ha! got you). However, there is an answer to what is NOT books of Accounts.
Demat statements and Bank statements are NOT books of Accounts. They are not maintained by you and they are not maintained for you. They are simply statements issued by the respective Banks and brokers/ depositories of your Balance available with them.And that is all. Or so you thought, that this will be another wall of text that leaves your core question
Code:
unanswered.
Your Actual profit is more than 6/8/50% ! Income tax department, if they ask you, you have no answer to it.
And here is the part 2:
As much as I could simply refer cases upon cases(link to my excel file below), the point is you want to hear from judiciary that what you are doing is fundamentally correct.
Hence, you should see Paragraph 10 of ITAT Chandigarh judgement on Nand Lal Popli vs DCIT- ITAT Chandigarh case.
The ITAT(Income tax judicial body) clearly states that 8%/50% is the presumed profit for tax purposes. The actual profit may be higher or lower than that.
Another Interesting case is that of Smt.Honey Rahulan, Alappuzha vs The Ito, Alappuzha where the Assesse had made investments and expenditures of Rs. 12 lakhs, while the profit declared during the year was merely 4 lakhs, however, the same was allowed by ITAT as well, citing Nand Lal Popli's case.Feel free to ask me any questions you have.
Link to my case law file