Maintenance of books of account: Practical issue (Updated FA 2017) Series 1

Maintenance of books of account: Practical issue(Supported by updated Statutory Provisions)

Issue

Mr. Yash is running a proprietary concern under the name of Yash & Co. He does not know whether the provisions of section 44AA relating to maintenance of books of account are applicable to him or not. Hence, he approaches you for advice. As a consultant, advise Mr. Yash in this regard.

Solution

The provisions relating to maintenance of books of account can be classified as follows:

1.Provisions relating to a person engaged in specified profession.

2.Provisions relating to a person engaged in non-specified profession.

3.Provisions relating to a person engaged in business.

The provisions relating to maintenance of books of account as given under section 44AA are applicable to a person who is carrying on any business and, hence, the provisions of section 44AA are applicable to Mr. Yash and he is either liable to maintain such books of account and other documents as may enable the Assessing Officer to compute his taxable income under the Income-tax Act or would not be liable to maintain any books of account, depending upon the details of his income and total turnover/gross receipts from such business for the last three years immediately preceding the previous year.

Refer limit mentioned u/s 44AA(2)

(2) Every person carrying on business or profession [not being a profession referred to in sub-section (1)] shall,

(i)		if his income from business or profession exceeds [one lakh twenty] thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds [ten lakh] rupees in any one of the three years immediately preceding the previous year; or
(ii)		where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed [one lakh twenty] thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession are or is likely to exceed[ten lakh] rupees,[during such previous year; or
(iii)		where the profits and gains from the business are deemed to be the profits and gains of the assessee under [section 44AE] [or section 44BB or section 44BBB], 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
[(iv)		where the provisions of sub-section (4) of section 44AD are applicable in his case and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,]

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.

Following first and second provisos shall be inserted to sub-section (2) of section 44AA by the Finance Act, 2017, w.e.f. 1-4-2018 :

Provided that in the case of a person being an individual or a Hindu undivided family, the provisions of clause (i) and clause (ii) shall have effect, as if for the words "one lakh twenty thousand rupees", the words "two lakh fifty thousand rupees" had been substituted :

Provided further that in the case of a person being an individual or a Hindu undivided family, the provisions of clause (i) and clause (ii) shall have effect, as if for the words "ten lakh rupees", the words "twenty-five lakh rupees" had been substituted.

Issue

Miss Malini is a teacher. She does not know whether the provisions of section 44AA relating to maintenance of books of account are applicable to her or not. Hence, she approaches you for advice. As a consultant, advise Miss Malini in this regard.

Solution

The provisions relating to maintenance of books of account can be classified as follows:

1. Provisions relating to a person engaged in specified profession.

2. Provisions relating to a person engaged in non-specified profession.

3  Provisions relating to a person engaged in business.

As per section 44AA and rule 6F, the profession of “Teacher” is a non-specified profession and, hence, the provisions of section 44AA are applicable to her and she is either liable to maintain such books of account and other documents as may enable the Assessing Officer to compute her taxable income under the Income-tax Act or would not be liable to maintain any books of account, depending upon the details of her gross receipts from such profession for the last three years immediately preceding the previous year.

Issue

Mr. Rai a “Film artist”. However, he does not maintain any books of account as per the provisions of section 44AA in respect of his profession since as per his views the provisions of section 44AA relating to maintenance of books of account do not apply to persons engaged in any profession. Is he correct?

Solution

The provisions relating to maintenance of books of account can be classified as follows:

1. Provisions relating to a person engaged in specified profession.

2.Provisions relating to a person engaged in non-specified profession.

3. Provisions relating to a person engaged in business.

As per section 44AA and rule 6F, the profession of “Film artist” is a specified profession and, hence, the provisions of section 44AA are applicable to him and, hence, he is either liable to maintain books of account prescribed by rule 6F or such books of account and other documents as may enable the Assessing Officer to compute his taxable income under the Income-tax Act depending upon the details of his gross receipts from such profession for the last three years immediately preceding the previous year. Thus, Mr. Rai is not correct.

Refer extract of Rule 6F(2) for details of books of accounts maintained by specified professional

(2) The books of account and other documents referred to in sub-rule (1) shall be the following, namely:—

(i)		a cash book;
(ii)		a journal, if the accounts are maintained according to the mercantile system of accounting;
(iii)		a ledger;
[(iv)		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:
		Provided that nothing in this clause shall apply in relation to sums not exceeding twenty-five rupees;]
(v)		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:
		[Provided that the requirements as to the preparation and signing of payment vouchers shall not apply in a case where the cash book maintained by the person contains adequate particulars in respect of the expenditure incurred by him.]

Issue: 

Mr. Deepak is a Surgeon. The details of his annual gross receipts from such profession for the past three years are as follows:

Financial year 2016-17 : Rs. 10,52,000
Financial year 2015-16 : Rs. 7,84,000
Financial year 2014-15 : Rs. 5,25,000

He does not know which books of account he is liable to maintain and, hence, approaches you for advice. As a consultant advise Mr. Deepak in this regard.

Every person carrying on specified profession, whose gross receipt from such profession exceeds Rs. 1,50,000 in all the three years immediately preceding the previous year (in case of new profession if the gross receipts of the first year are likely to exceed Rs. 1,50,000), shall maintain such books of account and other documents as are prescribed by rule 6F.

The medical profession (i.e., practitioner of any system of medicine – physicians, surgeons, dentists, pathologists, radiologists, vaids, hakims, etc.) is covered under the definition of specified professions. Hence, a person engaged in the medical profession has to maintain the books of account specified under rule 6F if the gross receipt from such profession exceeds Rs. 1,50,000 in all the three years immediately preceding the previous year.

In the given case the gross receipts of Mr. Deepak for the preceding three years exceeded Rs. 1,50,000 and, hence, he has to maintain books of account specified under rule 6F. In other words, Mr. Deepak has to maintain following books of account:

(i) A cash book, (ii) A journal in case of mercantile system, (iii) A ledger, (iv) Carbon copies of bills (whether machine numbered or, otherwise serially numbered) exceeding Rs. 25, issued by the person and carbon copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by the person, (v) Original bills/receipts issued to him in respect of expenditure (payment vouchers if bills/receipts are not issued and amount of expenditure does not exceed Rs. 50).

In addition to above, Mr.Deepak  has to maintain following items since he is engaged in the medical profession: (i) A daily case register in prescribed form (i.e., Form 3C) and (ii) An inventory under broad heads as on the first and last day of the previous year of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession.

Refer extract of Rule 6F for updated limit for FY 2017-18

6F. (1) 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) :

[Provided that nothing in this sub-rule shall apply in relation to any previous year in the case of any person if his total gross receipts in the profession do not exceed one lakh fifty thousand rupees in any one of the three 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.]

Refer format of Form 3C:

Refer extract of Section 44AA & Rule 6F: Maintenance of accounts (Updated by FA 2017) on following links:

https://incometaxindia1.blogspot.in/p/maintenance-of-accounts-by-certain.html