This article delves into the comparison and contradiction between Section 44AA and Section 44AB of the Income Tax Act 1961. It explains the obligations related to maintaining books of account and undergoing audits, raising awareness about the existing confusion and proposing potential solutions to resolve the inconsistencies.
44AA and 44AB of Income Tax Act 1961 dealt with in this article
44AA(1)
every specified profession shall (compulsorily) maintain books of account.
44AB(b)
every person carrying on profession shall if his gross receipts from profession exceeds Rs 50 lakhs in any previous year get his accounts audited by an accountant.
44AA(2)(i)
every person carrying on business or profession other than profession referred to in section 44AA(1), shall maintain books if his income/turnover exceeds the specified limit in any one of the three years immediately preceding the previous year.
Section 44AB(b) used the expression profession, whereas section 44AA(1), used the expression only specified profession. Specified profession is an exhaustive list.
The classification used in section 44AA is specified profession & other than specified profession, whereas the classification used in section 44AB is business & profession (shown in picture above).
Section 44AA(1) mandates the compulsory maintenance of books of account for every specified profession, while Section 44AB(b) requires individuals engaged in a profession to get their accounts audited if their gross receipts exceed Rs 50 lakhs in a previous year. However, the classification of professions in these sections differs, leading to a juxtaposition between Section 44AA and Section 44AB.
Juxtaposition
There are some professions which are not specified in 44AA(1) and hence there are situations where these non-specified professions need not maintain books due to 44AA(2)(i) or does not maintain due to declaring profit under 44AD. But even such non specified professions are professions who needs to get their accounts audited when one strictly go through 44AB(b) if their current year’s gross receipt exceeds Rs 50 lakhs. A harmonious interpretation of 44AA & AB may need to be taken.
Position of Direct Tax Code Bill (DTC)
In the Direct Tax Code (DTC) Bill, Clause 87 corresponds to Section 44AA, while Clause 88 corresponds to Section 44AB. The classification used in the DTC aligns with that of Section 44AA and Section 44AB (mentioned in picture above). However, Clause 88 of the DTC introduces clarity by stating that accounts need to be audited for a financial yeat only when a person is required to keep & maintain books of accounts.
Author’s suggestion
To address the confusion caused by the juxtaposition between Section 44AA and Section 44AB, a suggested solution involves amending Section 44AB to include an explanation that that profession means profession which are specified under section 44AA(1). This proposed amendment would provide clarity on when audits are mandatory for specific professions.
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The author can be reached at sivaraman004@gmail.com
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