Compulsory maintenance of accounts [Section 44AA] :
This section provides that every person carrying on the legal, medical, engineering or architectural profession or accountancy or technical consultancy or interior decoration or any other profession as has been notified by the Central Board of Direct Taxes in the Official Gazette must statutorily maintain such books of accounts and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of the Income-tax Act. The persons carrying on these professions are statutorily obliged to maintain the prescribed books of account and other documents regardless of the quantum of their income and also regardless of the question whether the profession was set up prior to or after the coming into force of this new provision.
The professions notified so far are as the profession of authorised representative; the profession of film artiste (actor, camera man, director, music director, art director, editor, singer, lyricist, story writer, screen play writer, dialogue writer and dress designer); the profession of Company Secretary; and information technology professionals.
Every taxpayer carrying on any business or profession (other than the professions specified above) must maintain the books of account prescribed by the Central Board of Direct Taxes in the following circumstances:
(a) in cases where the income from the business or profession exceeds Rs 1,20,000 or the total sales turnover or gross receipts, as the case may be, in the business or profession exceed Rs 10,00,000 in any one of three years immediately preceding the accounting year; or
(b) in cases 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 1,20,000 or his total sales turnover or gross receipts, as the case may be, in the business or profession are likely to exceed Rs 10,00,000 during the previous year;
(c) in cases where profits and gains from the business are calculated on a presumptive basis under section 44AE or 44BB or 44BBB and the assessee has claimed that his income is lower than the profits or gains so deemed to be the profits and gains of his business;
(d) in cases where the profits and gains from the business are deemed to be the profits and gains of the assessee under section 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his business and his income exceeds the basic exemption limit during such previous year.
In such cases, compulsory tax audit would also become necessary.
The Central Board of Direct Taxes has been authorised, having due regard to the nature of the business or profession carried on by any class of persons, to prescribe by rules the books of account and other documents including inventories, wherever necessary, to be kept and maintained by the taxpayer, the particulars to be contained therein and the form and manner in which and the place at which they must be kept and maintained. Further, the Central Bo ard of Direct Taxes has also been empowered to prescribe, by rules, the period for which the books of account and other documents are required to be kept and maintained by the taxpayer.
Rule 6F of the Income-tax Rules contains the details relating to the books of account and other documents to be maintained by certain professionals under section 44A.
As per Rule 6F, every person carrying on legal, medical, engineering, or architectural profession or the profession of accountancy or technical consultancy or interior decoration or authorised representative or film artist shall keep and maintain the books of account and other documents specified in sub-rule (2) in the following cases :
– if his gross receipts exceed Rs 1,50,000 in all the 3 years immediately preceding the previous year ; or
– if, where the profession has been newly set up in the previous year, his gross receipts are likely to exceed ` 1,50,000 in that year.
Note : Students may note that professionals whose gross receipts are less than the specified limits given above are also required to maintain books of account but these have not been specified in the Rule. In other words, they are required to maintain such books of account and other documents as may enable the Assessing Officer to compute the total income in accordance with the provisions of this Act.
Sub-rule (2) of Rule 6F: The following books of account and other documents are required to be maintained.
(i) a cash book;
(ii) a journal, if accounts are maintained on mercantile basis ;
(iii) a ledger;
(iv) Carbon copies of bills and receipts issued by the person whether machine numbered or otherwise serially numbered, in relation to sums exceeding Rs 25;
(v) Original bills and receipts issued to the person in respect of expenditure incurred b y the person, or where such bills and receipts are not issued, payment vouchers prepared and signed by the person, provided the amount does not exceed ` 50. Where the cash book contains adequate particulars, the preparation and signing of payment vouchers is not required.
In case of a person carrying on medical profession, he will be required to maintain the following in addition to the list given above:
(i) a daily case register in Form 3C.
(ii) an inventory under broad heads of the stock of drugs, medicines and other consumable accessories as on the first and last day of the previous year used for his profession.
The above books of account and documents shall be kept and maintained for a minimum of 6 years from the end of the relevant assessment year. However, where the assessment in relation to any assessment year has been reopened under section 147 within the period specified in section 149, all the books of account and other documents which were kept and maintained at the time of reopening the assessment shall continue to be so kept and maintained till the assessment so reopened has been completed.
The books and documents shall be kept and maintained at the place where the person is carrying on the profession, or where there is more than one place, at the principal place of his profession. However, if he maintains separate set of books for each place of his profession, such books and documents may be kept and maintained at the respective places.