[Section 44AA and Rule 6F]- Maintenance of Accounts by Certain Persons carrying on Business and Profession – Direct and Indirect Taxes with Tax Ready Reckoner

As per Section 44AA and Rule 6F, persons carrying on Business and Professions specified below are mandatorily required to maintain their books of accounts.

Table of Contents

1. Person carrying on certain professions [Section 44AA(1)]:

Every person, carrying on legal medical, engineering or architectural profession, or profession of accountancy or interior decoration or any other profession as is notified by the Board in the Official Gazette is compulsorily required to keep and maintain such books of account and documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of the Income-tax Act.

Authorised representatives, film artists, company secretaries and profession of Information Technology have been notified for this purpose.

The Board may prescribe by rules the books of account, etc to be kept:

As per section 44AA(3), the Board may, having regard to the nature of the business or profession carried on by a class of persons, prescribe by rules, 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. Rule 6F has prescribed the books of account to be maintained by specified persons (See later in this para).

1. ‘Authorised representative’ means 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.

2. ‘Film artist’, for the aforesaid purpose, 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, a music director, an art director, a dance director, an editor, a singer, a lyricist, a story writer, a screen play writer, a dialogue writer and a dress designer.

Prescribed books of account and documents to be kept and maintained under section 44AA(3) by person carrying on certain professions [Rule 6F]:

As per rule 6F(1), any 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 is required to maintain prescribed books of account and documents.

The prescribed books of account and other documents under Rule 6F(2) are as follows: (a) a cash book; (b) a journal, if the accounts are maintained according to the mercantile system of accounting; (c) a ledger; (d) carbon copies of bills, whether machine numbered or otherwise serially numbered wherever such bills are issued by the person and carbon copies or counter foils of machine numbered or otherwise serially numbered receipts issued by him excepting if the bill or receipts of an amount less than ₹25; and (e) 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 vouchers mentioned above may not be prepared if the cash book maintained by the person contains adequate particulars in respect of the expenditure incurred by him.

As per rule 6F(3) a person carrying on medical profession shall, in addition to the above books of account and documents, keep and maintain the following also: (a) a daily case register in Form No. 3C; (b) 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.

(1) Rule 6F(4):

The specified books of account and other document specified in rule 6F(2) and (3) above (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. However, 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.

(2) Rule 6F(5):

(i) The specified books of account and other documents specified in rule 6F(2) and (3) above shall be kept and maintained for a period of six years from the end of the relevant assessment year: [Notification No. 21/2002, dated 4.2.2002]

(ii) Where the assessment in relation to any assessment year has been reopened under section 147 of the Act 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.

Circumstance where maintaining the prescribed books of account shall not be necessary:

The above rule 6F(2) of maintaining the prescribed books of account and other documents shall not apply in relation to any previous year in case of any person—

(a) if his total gross receipts in the specified profession do not exceed ₹1,50,000 in any one of 3 years immediately preceding the previous year, or

(b) where the specified profession has been newly setup in the previous year, his total gross receipts in the profession for that year are not likely to exceed ₹1,50,000.

However, such person shall have to maintain such books of account and other documents as may enable the Assessing Officer to compute his total income.

Thus a person carrying on a specified profession shall be required to maintain specified books of account:

(a) if his gross receipts in all the three preceding previous years exceed ₹1,50,000, or

(b) if it is a new profession which is set up in the previous year, it is likely to exceed ₹1,50,000 in that previous year.

2. Person carrying on a non-specified profession or carrying on business [Section 44AA(2)]:

Every other person carrying on a business or a profession (not being a profession referred to in above) shall keep and maintain books of account and other documents,—

I. In case of a Person (other than Individual or HUF) [Section 44AA(2)]

Every person (other than individual or HUF) carrying on any business or profession (other than the notified professions referred to in section 44AA(1)) above, must 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 the income-tax Act, 1961 in the following circumstances:

(i) In case of existing business or profession [Section 44AA(2)(i)1: 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

(ii) In case of newly set up business or profession [Section 44AA(2)(ii)1: 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.

IA. In case of Individual or HUF [First and second proviso to section 44AA(2)]:

An Individual or HUF carrying on any business or profession (other than notified professions specified in section 44AA(l)) must 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 the Income-tax Act, 1961 in the following circumstances:

(i) Existing business or profession: In cases where the income from the existing business or profession exceeds Rs.2,50,000 or the total sales, turnover or gross receipts, as the case may be, in the business or profession exceed Rs.25,00,000 in any one of three years immediately preceding the accounting year; or

(ii) Newly set up business or profession: 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.2,50,000 or his total sales, turnover or gross receipts, as the case may be, in the business or profession are likely to exceed Rs.25,00,000 during the previous year.

II. In case the assessee has claimed his income under section 44AE, section 44BB and section 44BBB to be lower than the profits or gains so deemed to be the profits and gains of his business [Section 44AA(2)(ill)j:

Where the profits and gains from the business are deemed to be the profits and gains of the assessee under section 44AE (relating to goods carriages) or section 44BB (relating to business of exploration, etc., of mineral oils in case of non-resident) or section 44BBB (relating to foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects), as the case may be, 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, he shall keep and maintain books of account and other documents.

III. In case of an assessee in whose case provisions of section 44AD(4) are applicable [Section 44AA(2)(iv)]:

Where the provisions of section 44AD(4) (see box below) are applicable in the case of an assessee and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year.

As per section 44AD(4), where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of section 44AD( 1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of section 44AD( 1).

3. When maintenance of books of account is not necessary

There is no need to maintain any books of account and documents if the following conditions are satisfied:

(i) Assessee is carrying on a business or a profession (not being a profession referred to in para -1 above); and the income or total sales or gross receipts, as the case may be, is less than the specified amount.

(ii) If he is covered under sections 44AD, 44ADA, 44AE, 44BB or 44BBB, he should not declare income lower than that which is prescribed under these relevant sections.

In case an assessee is carrying on a specified profession, maintenance of books of account is compulsory except when he is covered under section 44ADA. Further, in some cases, the books of account have been prescribed under the rules.

4. Consequences of failure to keep accounts, etc:

Section 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 fixed at ₹25,000.