S. 44 AA
1.Who are the persons that are required to compulsorily maintain books of account ?Every person carrying on legal, medical, engineering or architecturalprofession, orprofessionof accountancy or technical consultancy or interior decoration or any otherprofessionas is notified by the CBDT are mandatorily required to keep and maintain such books of account anddocumentsas may enable the AO to compute histotal incomein accordance with the provisions of the I.T. Act.
Authorised representatives, Film Artists, Company Secretaries andProfessionof Information and Technology have been notified by the CBDT as notified professions.
2.What are the prescribed books of account anddocumentsto be kept and maintainedunder S.44AA(3) by person carrying on specifiedprofession?Rule 6F prescribes books of account ot be maintained by specified persons.
6F(2) – professionals
a)Cashbook
b) Journal, in case of mercantile system ofaccounting.
c) Ledger
d) Carbon copies of bills serially numbered in case of bills or receipts of Rs. 25/- and more
e) Original Bills and receipts in respect of expenditure. Paymentvouchersin case of bills and receipts not issued and the expenditure do not exceed Rs. 50/- (Vouchersmay not be prepared if thecashbook mentioned contains adequate particulars in respect of expenditure incurred.)
‘Cashbook’ means a record of allcashreceipts and payments, kept and maintained from day to day and giving thecashbalancein hand at the end of each day or at the end of a specified period not exceeding a month.
6F(3)-Medical Professional’s- in addition to above-
a) A daily caseregisterin Form No. 3C
b) InventoryRegisterof stock of drugs, medicines and other consumable accessories.
3.Where are the specified books of account and otherdocumentsto be kept ?Rule 6F(4) states thatfor other than those relating to a previous year which has come toan endthe specified books of account and otherdocumentsshall be kept and maintained by the person at the place where he is carrying on theprofessionor, where theprofessionis carried at multiple places, at the principal place of hisprofession.
Where person keeps and maintain separate books in respect of each place ofprofessioncarried on, such books and otherdocumentsmay be kept and maintained at the respective places.
4.For what period should the books of account etc to be kept ?Rule 6F(5)- w.e.f 4-2-2002 the specified books of account shall be kept and maintained for a period of six years from the end of the relevantassessmentyear.
However, ifassessmentis reopened u/s 147 within period specified in section 149, then all books anddocumentswhich were kept and maintained at the time of reopening shall be retained till the reopenedassessmentis completed.
5.Whether persons carrying on a non-specifiedprofessionor carrying on business arerequired to compulsorily maintain books of account ?Every person carrying on business or aprofession(not a specifiedprofession) whosetotal incomeexceeds Rs.1 ,20,000 or his total sales/gross receipts from such business orprofessionexceeds Rs. 10,00,000in any of the 3 years immediately preceding the relevant previousyear.
In case of newly setup business books of account required to be maintained if it is likely to exceed the above mentioned limits.
No specific books and records are specified for the category. However they hare required to maintain such books of account and otherdocumentsas may enable the assessing officer to compute their taxable income under Income Tax Act.
6.Will the non maintenance of stockregisterby an assessee carrying on business amountto contravention of S.44AA ?No books of account were specified by CBDT for the above class of persons. S.44AA provides assessee shall maintain such books of account as will enable the Assessing Officer to compute his business income.Sujan Singh vs AO (2007) 110TTJ(ASR) 818 & ITO v DineshPaperMart 70 ITD 274 (Nag).
7.Will the person carrying on a specifiedprofessionwhose gross receipt does not exceed Rs.1,50,000 in any one of three preceding previous years be required to maintain books of account ?Every person carrying on a specifiedprofessionis required to maintain books of account to enable the Assessing Officer to compute thetotal incomeirrespective of his gross receipts in all the three preceding previous years exceed Rs.1 ,50,000. However if his gross receipts in all the three preceding previous years exceed Rs.1 ,50,000 or if it is a newprofessionand it is likely to exceed Rs.1 ,50,000 in that previous year shall be liable to maintainspecified books ofaccountas per Rule 6F.
8.Are assesses covered under S. 44AD & 44AE required to maintain books of account ?An assessee carrying on a business and covered u/s 44AD, 44AE claims that the income from the said business is lower than the deemed profits or gains computed under the above relevant sections, then the assessee shall keep and maintain such books of account and otherdocumentsas may enable the Assessing Officer to compute thetotal incomein accordance with provisions of I.T. Act.
w.e.f AY 2011-12, where profits and gains of assessee from business are deemd to be profits and gains of the assesssee under section 44AD and claims such income to be lower than the deemed profits and his income exceeds the maximum amount which is not chargeable to income-tax during such previous year, he shall keep and maintain such books of account and otherdocumentsas may enable the Assessing Officer to compute histotal income.
9. What are the consequences of failure to keep accounts ?
S.271A prescribes penalty provisions for failure to keep and maintain books of account, etc., and also for not retaining them for the prescribed period. The quantum of penalty imposable is Rs.25,000.
InMehta Parvesh v ITO (1998) 60 TTJ 278 (Del –Trib)and inITO v. Papelal Gaur (1994) 49 TTJ (Nag-Trib) 126it was held that No penalty can be levied if it is possible for the assessing officer to compute thetotal incomebased upon thedocumentsthough the books of account were not maintained.
InC.H. Aboobacker Haji v. ITO (2007) 109 TTJ (Coch-Trib) 408,it was held that the assessing officer cannot come to the conclusion that he was unable to compute the income of the assessee due to the non-maintenance of the day book and ledger without completing theassessment. Hence penalty u/s 271 A cannot be levied unless theassessmentis completed.
Summary of 44AA:
Category / Applicable Persons / Books to be maintainedCat “A” / Specified Professions- Gross Receipts
does not exceed Rs.1 ,50,000 in any of
the 3 preceding years / Such books of accounts as may
enable the AO to compute the
total income. No books
prescribed.
Cat “B” / Specified Professions- Gross Receipts
exceed Rs.1 ,50,000 in all the 3
preceding years / Books as prescribed in Rule 6F
to be maintained.
Cat “C” / Non Specifiedprofessionor business- if
income does not exceed Rs. 1,20,000
AND the total turnover does not exceed
Rs.1 0,00,000 in ALL the 3 preceding
years. / No need to maintain any books.
Cat “D” / Non Specifiedprofessionor business- if
income exceeds Rs. 1,20,000 OR the
total sales, turnover or gross receipts
exceed Rs.1 0,00,000 in any of the 3
preceding years. And also includes
assesses covered u/s 44AD and 44AE. / No books prescribed by the
board. But should maintain the
books so as to enable the AO to
compute thetotal income.
10. Who are the persons who are compulsorily required to get their accounts audited?
According to S. 44AB, every person carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed Rs.100 Lacs (Rs.60 Lacs upto A.Y. 2012-13) in any previous year, get his accounts of such previous year audited by anAccountantbefore the specifieddate andfurnish by that date the report of such audit in the prescribed form, duly signed and verified, by suchaccountantand setting forth such particulars as may be prescribed.In case of a person carrying onprofession, the provisions are applicable if his gross receipts inprofessionexceed Rs.25 Lacs (Rs.15 Lacs upto A.Y. 201 2-1 3) in any previous year.
Further, if any person who is carrying on the business and covered u/s 44AE, 44BB or 44BBB and claims that his income from the said business is lower than the deemed profits and gains shall have to get his accounts audited.
Similarly, every person carrying on the business shall, if the profits and gains from the business are deemed to be the profits an gains of such person u/s 44AD and he has claimed such income to be lower than the profits and gains so deemed to the profits and gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year, get his accounts of such previous year be audited.
CEILING ON TAX AUDITS
11.What is the ceiling for Number of tax audit assignments that can be accepted by a CA ?A. As per Notification dated 13.12.1989 published in Part III section 4 of the Gazette of India dt.04.02.1989 bearing No. 1-CA(7)/3/88 Explanation 1, In the case of a CA in practice or a proprietory firm, 30 tax audit assignments, in a financial year, whether in respect of corporate or non corporate assesses. In the case of a firm of CAs in practice, 30 tax audit assignments per partner in the firm, in a financial year whether in respect of corporate or non corporate assesses.
The limit of 30 tax audits has been enhanced to 45 in the ICAI Central Council’s 268thmeeting held from 30th April to 2nd May 2007.
12.Whether audit of branches are counted separately for the ceiling ?A. As per the above mentioned notification, Explanation 4 states the audit of the H.O. andbranch office of a concern shall be regarded as one tax audit assignment. As perexplanation 5 the audit of one or more branches of the same concern by one CA in practice shall be construed as only one tax audit assignment.
13.When audit for F.Y. 2011-12 and F.Y. 2012-13 are conducted during September 2013,whether both are counted for the ceiling for the no. Of audit assignments during F.Y.2013-1 4.A. As per the Notification mentioned above, a CA in practice shall be deemed to be guilty of professional misconduct, if he accepts more than 45 tax audit assignments in a financial year.
As per explanation 2 of the above mentioned notification“ in computing the specifiednumber of tax audit assignments each year’s audit would be taken as a separateassignment.
14.Whether audit u/s 44AB (c) and (d) i.e. 44AD & 44AE audits are counted for the ceiling ofaudit assignments ?A. As per para 9.16 of Guidance Note on Tax Audit u/s 44AB of the Income Tax Act, a memberof the institute in practice shall be deemed to be guilty of professional misconduct if heaccepts in a financial year more than 30 tax audit assignments or such other limit as may beprescribed by ICAI from time to time u/s 44AB. Further, as per a council decision, audits of accounts of persons carrying on business covered by sections 44AD, 44AE or 44AF or 44BB or 44BBB is not included in the aforesaid limit.
15. How the ceiling is computed in respect of CA partnership firms where the partner is alsoa partner in another CA firm.
A. As per the 2ndproviso to the Notification, where any partner of the firm is also a partner of any other firm or firms of CAs in practice, the number of tax audit assignments which maybe taken for all the firms together in relation to such partners shall not exceed the specifiednumber of tax audit assignments in the aggregate.
As per thejdproviso to the Notification, where any partner of a firm of CAs in practice accepts one or more tax audit assignments in his individual capacity, the total number ofsuch assignments which may be accepted by him shall not exceed the “specified number of tax audit assignments” in the aggregate
S.44AB
16. Whether Tax audit is applicable for commission Agents. What does CBDT Circular No.452 clarify ?
A. The CBDT has advised that so far as kachha arahtias are concerned, the turnover does not include the sales effected on behalf of the principals and only the gross commission has to be considered for the purpose of section 44AB. But the position is different with regard to pacca arahtias. A pacca arahtia is not, in the proper sense of the word, an agent or even del credere agent. The relation between him and his constituent is substantially that between the two principals. On the basis of various court pronouncements, the following principals of distinction can be laid down between a kachha arahtia and a pacca arahtia :
(i)a kachha arahtia acts only as an agent of his constituent and never acts as a principal. A pacca arahtia, on the other hand, is entitled to substitute his own goods towards the contract made for the constituent and buy the constituent’s goods on his personal account and thus he acts as a principal as regards his constituents.
(ii)A kachha arahtia brings a privity contract between his constituent and the third party sothat each becomes liable to the other. The pacca arahtia, on the other hand, makes himself liable upon the contract not only to the third party but also to his constituents.
(iii)Though the kachha arahtia does not communicate the name of his constituent to thethird party, he does communicate the name of the third party to the constituent. In otherwords, he is an agent for an unnamed principal. The pacca arahtia, on the other hand, does not inform his constituent as to the third party with whom he has entered into a contract on his behalf.