Clause wise discussion on form 3CD Clause 9 (a) to (c), meaning of books of account

[Tax Audit Report]

(a) Whether books of account are prescribed under section 44AA, if yes, list of books so prescribed.

(b) Books of account maintained. (In case books of account are maintained in a computer system, mention the books of account generated by such computer system.)

(c) List of books of account examined.

[Clause 9 (a) to (c)]

Clause 9(a) is applicable to the persons carrying specified professions viz. legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or authorised representative, company secreatary, information technology person or film artist (actor, cameraman, director including asstt director, music director, including asstt. music director, art & dance directors including asstt directors, editor, singer, lyricist, story writer, screen play writer, diaglogue writer, dress designer) only.

Clause 9(b) & 9 (c) is applicable to all the persons carrying on business or profession.

Section 2 (12A) of the Income Tax Act, defines the term - books of account as under:

‘“books or books of account” includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device."

[Tax Audit Report]

The list of books of accounts prescribed, maintained and examined has to be stated under this clause.

There may be difference between the 3 lists.

For example :

Books of accounts may have been prescribed but all the prescribed books might not have been maintained or the entire books of accounts maintained might not have been produced for examination.

The tax auditor should exercise his professional judgment and skill in order to arrive at the conclusion whether such a situation warrants any disclosure or qualifications while forming his opinion on the matters covered by reporting requirements in Form No.3 CA or 3CB.

[Tax Audit Report]

Whereas the CBDT has prescribed the books of account and other documents to be kept and maintained by the specified professional persons in Rule 6F, it has not yet prescribed the books of account to be maintained by those falling under sub-section (2) of section 44AA. As such, every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or authorised representative, company secreatary, information technology person or film artist (actor, cameraman, director including asstt director, music director, including asstt. music director, art & dance directors including asstt directors, editor, singer, lyricist, story writer, screen play writer, diaglogue writer, dress designer) and whose total gross receipts exceed One Lac Fiftty 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 likely to exceed the said amount, is required to maintain the following books of account:

1. Cash book.

2. Journal, if the accounts are maintained according to the mercantile system of accounting.

3. Ledger.

4. carbon copies of bills/receipt whether machine numbered or otherwise serially numbered above Rs. 25/- per bill or receipt.

5. original bills of expenditure and vouchers for expenses upto Rs. 50/-

Apart from the aforesaid books of account, a person carrying on medical profession is required to keep the following:

a) daily case register in Form No.3C showing data, patient's name, nature of professional services rendered, fees received and date of receipt; and

b) an inventory under broad heads, as on the first and the last days of the previous year, of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession.

No books of accounts have been prescribed so far in respect of any other class of persons but such persons having income from business or profession exceeding one lakh twenty thousand or sales, turnover or gross receipts exceeds ten lakh rupees in any one of the three year immediately preceding the previous year

or

in case of newly setup bussiness or profession, such income or sale likely to exceeds Rs. 1.20 lakhs or 10.00 respectively during the previous year i.e. financial year, then such person shall keep and maintain such books of account & other documents as may enable the AO to compute his total income as per the provisions of the Income Tax Act, 1961.

[Tax Audit Report]

If books of account have been prescribed under rule 6F, the list of books so prescribed have to be stated under clause 9(a).

It may be noted that the daily case register and the inventory under broad heads do not constitute books of account and hence they need not be mentioned under clause 9(a). Para 20.3 of the Guidance Note of ICAI but this para needs to be reviewed as per section 2(12A) which was inserted by Finance Act, 2001 which probably could not be considered while revising this guidance note in 2005.

In the view of the author, at least the additional records prescribed for medical profession will be covered under this clause.

Sometimes an assessee may carry on a combination of activities. Books of account might have been prescribed for one of the activities. In that case, mention may be made of the activity for which books have been prescribed.

[Tax Audit Report]

The tax auditor should obtain from the assessee a complete list of books of account and other documents maintained by him (both financial and non-financial records) and make appropriate marks of identification to ensure the identification of the books and records produced before him for audit.
The list of books of account maintained by the assessee should be given under this clause.

[Tax Audit Report]

Section 44AA(2) provides that persons carrying on business or profession, other than those specified in sub-section (1), 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 the Income-tax Act, if his income from business or profession exceeds the monetary limits prescribed under section 44AA(2) or his total sales, turnover or gross receipts in business or profession exceed the monetary limits prescribed under section 44AA(2) in any one of the three years immediately preceding the previous year.

The tax auditor will have to verify that the assessee has maintained such books of accounts and documents as prescribed under sub-section (3).

[Tax Audit Report]

For a person whose accounts of the business or profession have been audited under any other laws, the requirement for maintenance of books of account is contained in the relevant statutes. (Para 20.6 of the Guidance Note on Tax Audit issued by ICAI)

In the case of other assessees, normal books of account to be maintained will be cash book/bank book, sales/purchase journal or register and ledger.
Assessees engaged in trading/manufacturing activities should also maintain quantitative details of principal items of stores, raw materials and finished goods.

While giving his report in Form No. 3CB about maintenance of proper books of account, the tax auditor should ensure that they are maintained in accordance with the above requirements.

[Tax Audit Report]

As to the requirement regarding the mentioning of the books of accounts generated by the computer system only such books of account and other records which properly come within the scope of the expression “proper books of account” should be mentioned. The tax auditor should insist on proper print-outs of books of account being taken out.

[Tax Audit Report]

Books of account examined would constitute the books of original entry and the other books of account.
While the assessee is required to maintain proper evidence in the form of bills, vouchers, receipts, documents, etc., it may be noted that these are essential to support the entries in the books of account and no reference to such supporting evidence need be made under this clause.

[gopalji]

Though Section 2(12A) of the Income Tax Act 1961 has defined the meaning of books of account still the various courts have interpreted the meaning of the most important phrase of the accounting world as under:

In the case of Sheraton Apparels v. Asstt. CIT [2002] 256 ITR 0020 (Bom.), the expression ‘books of account’ was explained as under :

“...In traditional term, Books means collection of sheets of papers bound together with intention that such binding shall be permanent and papers used are kept collectively in one volume. It may also be assumed that it connotes the intention that it should serve as a permanent record. At the same time, term of account, i.e., to account means to reckon, and it is difficult to conceive any accounting which does not involve either additions or subtractions or both of these operations of arithmetic. A book which contains successive entries of items may be a good memorandum book; but until those entries are totalled or balanced, or both as the case may be, there is no reckoning and no accounts. A book which merely contains entries of items of which no account is made at any time, is not a ‘books of account’ in commercial sense.”