RATIONALISATION OF THE PROVISIONS FOR MAINTENANCE OF BOOKS OF ACCOUNT AND TAX AUDIT

Under the existing provisions of section 44AA of the Income-tax Act, 1961, a person carrying on business or profession is required to maintain books of accounts if, inter alia, the total turnover of the assessee in any of the three years prior to the previous year is more than Rs 10 lakhs or the total income is more than Rs 1.2 lakh. Further, an assessee who claims his income to be lower than the amount determined under the various provisions relating to presumptive income are also required to maintain books of accounts.

In addition, section 44AB of the Income-tax Act, 1961 mandates a person to get his books of accounts audited if he is carrying on a business and his total turnover exceeds one crore rupees. However, in the case of a professional, he is required to get his books of accounts audited if his total receipts exceed twenty five lakh rupees. Further, a person who claims his income to be lower than the amount determined under the various provisions relating to presumptive income is also required to get his books of accounts audited.

As would be noted, the provisions relating to maintenance of books of account and audit are not fully aligned; there is a category of persons who are required to maintain books of account but not get them audited. Accordingly, the Committee recommends the alignment of the two provisions.

The Committee also felt that the threshold limits for getting the books of account audited, both in the case of business and profession, need upward revision. Accordingly it is recommended that the threshold limit may be revised from the present one crore rupees to two crore rupees for assessees carrying on business and from the present twenty-five lakhs rupees to rupees one crore for assessees exercising a profession.

Based on the aforesaid recommendation, section 44AA and section 44AB of the Income-tax Act, 1961 should be merged into the following new section:-

Substitution of sections 44AA and 44AB

In the Income-tax Act, for sections 44AA and 44AB, the following section shall be substituted with effect from the 1st day of April, 2017, namely:-

“44AA (1) Every specified person shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.

(2)  The specified person referred to in sub-section (1) shall get the books of account and other documents referred therein audited by an accountant before the specified date.

(3)  The specified person shall, after completion of the audit, furnish by the specified date, the following statements and reports, namely:-

(i)      the statement of assets and liabilities of the specified person as on the last day of the previous year;

(ii)    the profit and loss statement or the income and expenditure statement, as the case may be, for the previous year; and

(iii) the report of tax audit.

(4) The person referred to in sub-section (1) shall be deemed to have complied with the provisions of this section, if –

(i)     the person keeps and maintains the books of account and documents and gets such accounts and documents audited, as required by or under any other law;

(ii)    the person obtains by the specified date the report of the audit as required under such other law; and

(iii) the person furnishes, by the specified date, the statements and report referred to in sub-section (3).

(5) The Board may, subject to the provisions of sub-section (4), prescribe the following in respect of keeping, maintaining, auditing of accounts and documents and furnishing of statements and reports:-

(i)        the books of account and documents to be kept and maintained;

(ii)      the particulars to be contained in the books of accounts and documents;

(iii)    the form and the manner in, and the place at, which the books of account and other documents shall be kept and maintained;

(iv)    the period for which the books of account and documents should be retained;

(v)     the form of the statement and reports and the manner of verification; and

(vi)    the medium in which the statements and reports is to be delivered;

(vii) the income-tax authority, or any other person, authorized to receive the statements and reports; and

(viii) any other matter connected therewith. (6) For the purposes of this section,-

(i)      “accountant” shall have the same meaning as in the Explanation below sub-section (2) of section 288;

(ii)     “profession” shall mean the legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as may be prescribed;

(iii)   “specified date” means the due date for furnishing the return of income under sub-section (1) of section 139;

(iv)   “specified person” shall mean a person carrying on business or profession in the previous year and who fulfils the following conditions, namely:-

“(a) the total sales or turnover in the business exceed or exceeds two crore rupees or the gross receipts in the profession exceed one crore rupees in any one of the three years immediately preceding the previous year;

(b)   the person is carrying on business or profession which is newly set up in any previous year and the total sales, turnover or gross receipts, as the case may be, in business or profession are or is likely to exceed one crore rupees in the previous year; or

(c)   the profits and gains from the business or profession are deemed to be the profits and gains of such person under section 44AD or section 44AE or section 44AF or section 44AG or section 44BB or section 44BBB, as the case may be, and he has claimed such profits and gains of the business to be lower than the profits and gains so deemed in the said previous year.”.

 Source- ​Draft Report of Justice R.V. Easwar (Retd) Committee to Simplify the provisions of Income-tax Act, 1961

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