• Nov
  • 15
  • 2011

Compulsory Maintenance of books of account under Income Tax

It is generally seen that there is confusion among taxpayers about maintenance of books of accounts under Income Tax Act like who is required compulsorily to maintain the books of accounts and for how many years one has to keep his books of accounts.  Some views are expressed on this topic as follows:

Maintenance of books of accounts by Professionals: Section 44AA of Income Tax Act and rule 6F of Income Tax rules deal with the provisions regarding maintenance of books of accounts under Income tax Act. As per section 44AA(1) read with rule 6F the persons carrying on any of the profession as mentioned below are required to maintain books of accounts and other documents as may enable the assessing officer to compute his total income, if yearly gross receipts of the profession exceeded  Rs 150000.

1) Legal
2)Medical
3)architectural
4)engineering
5)accountancy
6)technical consultancy
7)interior decoration
8)authorized representative
9)film artist
10)any other profession as is notified by the board

When no books of accounts are required to be maintained by professionals covered u/s 44AA(1): Proviso to Rule 6F (1) provides that if the gross receipts of a profession do not exceed Rs 150000 in any one of the three years immediately preceding the previous year or where the profession has been newly setup in the previous year, his total gross receipts in the profession for that year are not likely to exceed the said amount, then such professional need not to maintain any books of accounts as mentioned in sub rule 2 of rule 6F.

It means that if the gross receipts of a profession exceed Rs 150000 in all the three years preceding the previous year only then the books of accounts will be required to be maintained, if the gross receipt exceed the prescribed limit in the two preceding years but not in the third preceding year then there will be no need to maintain books of accounts as contemplated in sub rule 2 of rule 6F.

Maintenance of Books of accounts by other Persons covered u/s 44AA (2): In relation to any other persons engaged in any other profession or carrying on any business other than section 44AA (1), the requirement of compulsory maintenance of books of accounts applies if- either the income from business or profession exceeds Rs 120000 or the turnover or gross receipts exceed Rs 10 Lakhs in any one of the three years immediately preceding the previous year.

When no books of accounts are required to maintained by other persons covered u/s 44AA (2): If the Income or the gross receipts or gross turnover of a person carrying on business or profession other than profession as mentioned u/s 44AA (1) do not exceed in any one of the three years preceding the previous year then no books of accounts will be required to be maintained u/s 44AA (2).

Presumptive Income scheme: The  persons who are filling their return of income under the presumptive income scheme like under section 44AD or 44AE or 44AF etc are not require to compulsorily maintain books of account u/s 44AA. However where the profits and gains from the business are deemed to be profits and gains u/s 44AD or 44AE or 44AF or 44BB or 44BBB as the case may be, and the assessee has claimed his income to be lower than the profits or gains so deemed, then the books of accounts will be required to be maintained u/s 44AA.

Maintenance of books of accounts in case of new 44AD section: A new clause IV has been added to sub section 2 of section 44AA w.e.f. 01-04-2011 which provides that where the profits and gains from a business are deemed to be profits and gains of the assessee under new section 44AD which is also applicable w.e.f 01-04-2011 and the assessee has claimed such income to be lower than the profits and gains so deemed i.e. below 8% and the income of the assessee exceeds the maximum amount which is not chargeable to income tax during previous year then in such case such person shall keep and maintain such books of accounts and other documents as may enable the assessing officer to compute his total income.

Thus it means that if a person declares his income below the 8% of his total turnover or gross receipts as required u/s 44AD which is applicable w.e.f 01-04-2011 and his income is above the exempted limit then he will have to compulsorily maintain his books of accounts. But if his total income is below the exempted limit and profits are also declared below 8% of gross turnover or gross receipts then he will need not to maintain compulsory books of accounts.

What books of accounts are required to be maintained by persons covered u/s 44AA(1): As per Rule 6F(2) the following books of accounts and documents are required to be maintained:
1) cash book,
2)Journal, if the accounts are maintained as per mercantile system of accounting,
3)ledger
4)carbon copies of bills, serially numbered and carbon copies or counterfoils of receipts issued in respect of sums exceeding Rs 25,
5)original bills for expenses exceeding Rs. 50 and payment vouchers for petty expenses. However in a case where the cash book maintained by the person contains adequate particulars in respect of the expenditure incurred, then vouchers are not necessary in respect of expenses upto Rs 50.

Persons engaged in medical profession are, in addition, required to maintain daily case register in the prescribed Performa (Form No. 3C) and inventory, as at the beginning and end of the year, of stock of drugs, medicines and other consumables accessories used for the purpose of the profession.

Books or books of accounts have also been defined u/s 2(12A) as including ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device.

Document has been u/s 2(22AA) as including an electronic record as defined in clause (t) of sub section (1) of section 2 of the Information Technology Act, 2000.

For how many years books of accounts are required to be preserved: Every year the record of books of accounts grows up and the cupboards filled up more and more. Every assessee wants to know for how many years he should keep the records of his books of accounts.

Rule 6F(5) provides that the books of accounts and other documents  are to be kept for at least 6 years from the end of relevant assessment year. That means from the assessment year 2009-10 one should keep books of accounts upto the assessment year 2003-04 i.e. books of accounts of financial year 2002-03.

The time limit for issuing notices for assessment or reassessments have been prescribed u/s 149, after the end of such prescribed time no notice can be issued and no assessment can be framed, therefore the assessee will not need books of accounts of the concerned year. Keeping in mind the time limit as provided u/s 149 for issuing notice the following suggestions are made regarding preservation of books of accounts:

1) If the assessee has made an appeal against any assessment order of any year then the books of accounts of such year should be preserved until the final decision of such appeal.

2) Where the assessment in relation to any Year has been reopened u/s 147 within time u/s 149, in such case all the books of account and documents shall continue to be kept till the assessment so reopened has been completed.

3)Books of accounts for only 7 financial years should be preserved. Therefore the taxpayers should keep books of accounts of only financial year 2002-03 and onwards.

Where the books of accounts should be kept: The current year’s books of accounts should be maintained and kept at the principal place of business or profession as per Rule 6F(3). There is no specific rule as to where the books of accounts of earlier years should be kept.

Consequences for failure to maintain books of accounts: Failure to maintain books of accounts and other documents or to retain them as required u/s 44AA attracts penalty of Rs. 25000 u/s 271A. The penalty can be imposed by the assessing officer or CIT (Appeal).

Important decisions: The Income Tax Appellate Tribunal Delhi in its decision (1998) 97 Taxmann 273(Magzine)/60T.T.J. 278 has held that there is no rule made to the effect that which books of accounts are required to be made by the persons carrying on business covered u/s 44AA (2), therefore if the assessee has kept the details of Incomes and expenditures then no penalty shall be levied u/s 271A.

Similar decision was made by Amritsar bench of Tribunal in case of Sujan Singh v. AO [2007] 110 TTJ (Asr.) 818 wherein it was decided that Rule 6F has not been made applicable to the persons carrying on business or Profession other than those mentioned u/s 44AA(1) and covered u/s 44AA(2). The case of the assessee falls u/s 44AA (2), as the assessee was carrying on a business of poultry farm. the board has not specified or notified the books of account to be maintained by persons covered under sub-section 2 of section 44AA.Therefore, rule 6F is not applicable to the case of the assessee- ITO v. Dinesh Paper Mart [1999] 64 TTJ (Nag.) 674 : [1999] 70 ITD 274(Nag.) relied on.

After levying penalty for non maintenance of books of accounts, no penalty can be levied for not getting the books of accounts audited: Guwahati high Court has held in its decision (1996) 222 ITR 691 that if the penalty u/s 271A has been levied on an assessee for non maintenance of books of accounts then thereafter no penalty shall be levied u/s 271B for not getting the books of accounts audited.

Amit Bajaj Advocate, Jalandhar
Email:
amitbajajadvocate@hotmail.com
M +919815243335

Above Post was First Published on 8th June 2010


20 Responses to “Compulsory Maintenance of books of account under Income Tax”

  1. shah bhavesh says:

    AS PER IT RULE HOW MANY YERAS THE BOOK OF ACCOUNTS TO BE PRESERVED

  2. vinay says:

    dear sir
    iam doing job & my salary is 200000/- P.a & iam supplying raw material in construction company (bricks etc). my turn over is approx 2500000 lac per annum iam not maintaining any books, so guide me plz how much i can show profit on my trading turnover so that book maintain should not be necessary.

  3. K.S.Vasanth says:

    We had started a surgicals and chemicals in2012 june. What are the books to be maintained, and when we have to pay tax. What are the deductions we will get for this source of income. From other sources we got an information that till the completion of one year therewill be no tax payments for this type of business.is it true. kindly give us information regarding this.

    Thank you

  4. B.P. YOGANANDAN says:

    As per income tax act, if you are earning professional income you are supposed to file the Return in ITR 4 in that you can show Rs.38000/- in the Schedule OS seperately and you can file your return. thanks

  5. padmanabhan says:

    I am a 56 year old individual who after working as a Senior Executive in large companies for over 30 years have started in March 2012 to do business consulting. I earned in the year 2011-12 ( in March 2012) Rs.38000/- as professional fees. I have Salary income from my last employer. Do I file teh return under ITR2 or ITR 4 given the above. If I can file under ITR 2 where do I show the Professional Fees. Appreciate a quick response as  I have to file the return in the next few days.

    Thanks

    Padmanabhan

  6. Raju Ganjigatti says:

    we have opened new Fertilizer Shop to sell fertilizers,seeds and pesticides. so i want to know what all documents and books i have to maintain under income tax act which should help to ease the income tax filing procedures and please let me know the procedures also.

    Thank you

  7. Sandip Chowdhury says:

    I am doing accounts in tally. Do I also required to maintain books of accounts

  8. J S Ahuja says:

    Is there any exemption for senior citizens engaged as Consultants not to maintain books of accounts.
    I am 71+ and am working as Consultants on payment of a fixed Consulting Fee , with a Company engaged in Surveying & Mapping .Do I need to maintain books of Accounts.

  9. Subramanya says:

    How do you differentiate between profession and service business. For e.g, consultancy.

  10. sharad choudhary says:

    i want to know what is the section for not paid to cash above Rs.20000/-

  11. Amit says:

    since ur profession is not covered in profession referred in sec 44AA(1) hence sec 44AA(2) applicable on u, in FY 07-08 ur income from business profession was 140000 (exceeding 120000) so u r liable to keep & maintain books and other documents for FY 08-09 as per sec 44AA.

  12. mangal deep singh says:

    no

  13. mangal deep singh says:

    i want to know that if the gross receipts of the professional does not exceed rs 150000. then he/she is liable to maintain the books of accounts

  14. Subramanya says:

    Is there a list of professions (other than the 9 listed above) notified for the purpose of Sec 44AA? Where can I get it?

  15. moiz nadir says:

    i had marry in year 2000 after 1 yr my wife started giving tution by this $ from other sources she has earned 2 lac. rupees. quetion is till now we have not fill any income tax return, what should we do. Note all this amount has deposit in her bank A/C

  16. CA Sudhir Indapurkar says:

    One of my clients received notice u/s 153C on 31/10/2008 to file Income Tax Returns for A.Y.1998-99 to A.Y.2004-05.I have raised objection for notice for A.Y.1998-99 to A.Y.2002-03 on the ground that notice cannot be issued beyond period of six years.AO not accepted the objection and huge demand is raised against these years.I have filed Appeal against these orders.Is there any alternate remedy?

  17. soniya tanwani says:

    this is my statement showing gross receipts, gross profit,expenses,net profit and

    savings i.e.cash-in-hand for last 7 years immediately preceding the Assessment year 2009-10.I

    have received a notice u/s 143(2) of the income tax act 1961 from A.O. jurisdiction at Raipur

    chhattisgarh.A week earlier income tax intimation u/s 143(1) was also recceived from CPC

    bangalore since I submitted my Return ITR-4 ONLINE(electronically transmitted) for AY 2009-10 on

    30.03.2010.In this intimation u/s 143(1) it was said “ITR processed no demand no refund”.

    I submitted ITR-4 in No ACCOUNT CASE as a professional ( fashion designer code 0602)

    working in fields sewing,knitting and embroidery. My total income is Rs 181000 as a Indivisual-

    WOMAN-Resident in India while tax rates applicable to this i.e. woman is NIL up to Rs 180000.So I

    paid Rs 103 for my tax liability.
    Now my problem is that at Income Tax Office A.O. is asking for books of accounts in support

    of the return filed by me. And I am seeking the answer from you- Am I required compulsorily to

    maintain the books of accounts for the AY 2009-10 under Income tax Act As per both section 44AA

    (1) and 44AA(2)read with proviso to Rule 6F(1) as gross receipts of my profession do not exceed

    Rs 150000 in any one of the 3 years immediately preceding the previous year(u/s 44AA(1) OR either

    the income from business or profession do not exceed Rs 120000 or the gross receipts do not

    exceed Rs 10 Lakhs in any one of the 3 years immediately preceding the previous year(u/s 44AA(2).
    Sir,Please reply at the earliest so as I can attend the office of the A.O. with your answer.
    Thank you.
    F.Y. Gross Receipts Gross Profit Expenses Net Profit Drawings Savings
    Cash-in- hand
    2002-03 38000 38000 3000 35000 5000 30000
    2003-04 48000 48000 3000 45000 6000 39000
    2004-05 54000 54000 4000 50000 5000 45000
    2005-06 70000 70000 5000 65000 8000 57000
    2006-07 144000 144000 8000 136000 9000 127000
    2007-08 150000 150000 10000 140000 20000 120000
    2008-09 211000 211000 30000 181000 25000 156000
    Total 715000 715000 63000 652000 78000 574000

  18. Manisha Palav says:

    I am Manisha from Mumbai, I am working in HRM Solutions IT co. as a Accountant, I asked about professioanal Tax that is Professional Tax assesment is complasory or not please suggest me.

  19. b.n. venkataramu says:

    limit is 150000/ and service tax limit is 10laks
    it is mis matching
    and authorities should
    match this
    regards

  20. b.n. venkataramu says:

    if is pegged at @8% it falls below the basic limits
    IT authorities should keep
    minimum of 20% above it sound better
    regards

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