MAINTENANCE OF BOOKS OF ACCOUNT BY CERTAIN PROFESSIONALS OR BUSINESS

[Mr. M. GOVINDARAJAN]

Section 44AA (1) of the Income Tax Act, 1961 (‘Act’ for short) provides that every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette 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.

Section 44AA (2) of the Act provides that every person carrying on business or profession, other than in Section 44AA (1) of the Act, if-

1. if his income from business or profession or total sales, turnover, gross receipts exceed Rs.1.20 lakhs (for individuals and HUF – Rs.2.50 lakhs) or if the same exceeds Rs.10 lakhs (for individual and HUF – Rs. 25 lakhs) during previous year
2. where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed Rs.1.20 lakhs (for individuals and HUF – Rs.2.50 lakhs) or his total sales, turnover or gross receipts, as the case may be, in business or profession are or is likely to exceed RS.10 lakhs, (for individual and HUF – Rs. 25 lakhs) during such previous year; or
3. where the profits and gains from the business are deemed to be the profits and gains of the assessee under-

• section 44AE – Special provisions for computing profits and gains of business of plying or hiring or leasing goods or carries; or
• section 44BB – Special provisions for computing profits and gains of business of exploration etc., of mineral oils; or
• section 44BBB – Special provisions for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in relation to turnkey power projects; and

the assessee has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, during such previous year; or

4. where the provisions of section 44AD (4) are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, 

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.

Rules

Section 44AA gives power to Central Government to make rules and prescribe-

• the books of account and other documents (including inventories, wherever necessary) to be kept and maintained;
• the particulars to be contained therein and the form and the manner in which and the place at which they shall be kept and maintained;
• the period for which the books of account and other documents to be kept and maintained.

Books of Accounts

Rule 6F (2) provides that every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or authorized representative or film artist shall keep and maintain the following books of account and other documents -

• a cash book - a record of all cash receipts and payments, kept and maintained from day-to-day and giving the cash balance in hand at the end of each day or at the end of a specified period not exceeding a month;
• a journal, if the accounts are maintained according to the mercantile system of accounting;
• a ledger;
• carbon copies of bills, whether machine numbered or otherwise serially numbered, wherever such bills are issued by the person, and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by him;
•  original bills wherever issued to the person and receipts in respect of expenditure incurred by the person or, where such bills and receipts are not issued and the expenditure incurred does not exceed fifty rupees, payment vouchers prepared and signed by the person.

The above provisions shall not apply in relation to any previous year in the case of any person if his total gross receipts in the profession do not exceed Rs.1.50 lakhs in any one of the 3 years immediately preceding the previous year, or, where the profession has been newly set up in the previous year, his total gross receipts in the profession for that year are not likely to exceed the said amount.

Authorized representative

The expression ‘Authorized representative’ is defined under Explanation (a) of this section as a person who represents any other person, on payment of any fee or remuneration before any Tribunal or authority constituted or appointed by or under any law for the time being in force, but does not include an employee of the person so represented or a person carrying on legal profession or a person carrying on the profession of accountancy.

Film artist

The expression ‘film artist’ is defined under Explanation (C) of this Section as means any person engaged in his professional capacity in the production of a cinematograph film whether produced by him or by any other person, as-

• an actor;
• a cameraman;
• a director, including an assistant director;
• a music director, including an assistant music director;
• an art director, including an assistant art director;
• a dance director, including an assistant dance director;
• an editor;
• a singer;
• a lyricist;
• a story writer;
• a screen-play writer;
• a dialogue writer; and
• a dress designer.

Medical profession

 A person carrying on medical profession shall, in addition to the books of account and other documents as specified above, keep and maintain the following-

• a daily case register in Form No. 3C;
• an inventory under broad heads, as on the first and the last day of the previous year, of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession.

Place of maintenance

The above-mentioned books of account and other documents other than those relating to a previous year which has come to an end shall be kept and maintained by the person at the place where he is carrying on the profession or, where the profession is carried on in more places than one, at the principal place of his profession.  Where the person keeps and maintains separate books of account in respect of each place where the profession is carried on, such books of account and other documents may be kept and maintained at the respective places at which the profession is carried on.

Period

The books of account and other documents specified above shall be kept and maintained for a period of 6 years from the end of the relevant assessment year.  Where the assessment in relation to any assessment year has been reopened within the period specified in section 149 of the Act, all the books of account and other documents which were kept and maintained at the time of reopening of the assessment shall continue to be so kept and maintained till the assessment so reopened has been completed.

Penalty

Section 271A of the Act provides that if any person  fails to keep and maintain any such books of account and other documents as required by section 44AA or the rules made thereunder, in respect of any previous year or to retain such books of account and other documents for the period specified in the said rules, the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum of Rs.25000/-.

In KAMLA NEHRU COLLEGE VERSUS THE INCOME TAX OFFICER WARD-2, KORBA (C.G.) - 2024 (3) TMI 663 - ITAT RAIPUR, the A.O. treating the assessee as being in default for not maintaining books of accounts as required per the mandate of Section 44AA of the Act, saddled it with penalty under section 271A of the Act of Rs. 25,000/-. The
ITAT held that considering the fact that the assessee had uploaded the relevant extract of his cash book for the year under consideration (as was called for by the Assessing Officer in the course of the assessment proceedings), the ITAT was  unable to comprehend why and on what basis it had been concluded by the Assessing Officer that the assessee was not maintaining its books of accounts.  Therefore the ITAT set aside the order imposing penalty on the appellant.