“Such documents as may enable assessing Officer to compute the Income” & the Rules regarding the maintenance of books of accounts under Income Tax Act

 

It may be noted that ITAT Delhi in the case of Mehta Parvesh vs ITO has made the following observation which will be highly relevant for understanding the requirements of books of accounts under the Income Tax Law:

I have carefully considered the submissions made by the learned representatives of the parties. The assessee submitted the computation of income for both the years under consideration at an income of Rs. 40,000 and Rs. 42,000 respectively. The assessee also enclosed with the returns of income a statement of affairs giving the details of assets and liabilities as at the beginning of the year as well as on the close of the year. The declared income was estimated by taking into consideration the net increase in assets along with the tradings made by the assessee-firm and the household expenses. The details so furnished by the assessee could enable determination of taxable income in a reasonable manner. The provisions of s. 44AA was required to keep and maintain such books of accounts and documents, as may enable the AO to compute his total income in accordance with the provisions of the IT Act. Sub-s. (3) of s. 44AA authorises the Board to prescribe by rules the books of accounts and other documents to be kept and maintained and the particulars to be contained therein and the form and the manner in which and the place at which such books of accounts shall be kept and maintained. The Board has not yet prescribed any rule so far as persons deriving income from business are concerned. It has only prescribed r. 6F requiring the persons deriving income from profession to maintain the specified books of accounts. Since the Board has not prescribed the necessary rules relating to maintenance of accounts by the persons carrying on business, and as the assessee has furnished adequate information, so as to enable the ITO to compute his total income in accordance with the provisions of this Act, the penalty levied under s. 271A cannot be sustained on the facts and circumstances of the present case. I, therefore, cancel the said penalties for both the years under consideration.

In short, provisions of s. 44AA requires taxpayers to keep and maintain such books of accounts and documents, as may enable the AO to compute his total income in accordance with the provisions of the IT Act. Sub-s. (3) of s. 44AA authorises the Board to prescribe by rules the books of accounts and other documents to be kept and maintained and the particulars to be contained therein and the form and the manner in which and the place at which such books of accounts shall be kept and maintained.

The Board has not yet prescribed any rule so far as persons deriving income from business are concerned. It has only prescribed r. 6F requiring the persons deriving income from profession to maintain the specified books of accounts.

As a result, one may presume that

1. No formal books of accounts as normally presumed are required.

2. If the details furnished by the assessee could enable determination of taxable income in a reasonable manner then it would be sufficient compliance.

3. Since the Board has not prescribed the necessary rules relating to maintenance of accounts by the persons carrying on business, and as the assessee may just furnish adequate information, so as to enable the ITO to compute his total income in accordance with the provisions of this Act.

4. The person who are in doing transactions in Shares and offering income under the head “Business Income” or those taxpayers who are doing transactions in F & O, may file the returns on the basis of Profit & Loss statement from the brokers wherein all the required details are there which may enable the assessing officer to compute the taxable profit. The regular Books of Accounts may not be compulsory in such cases. As far as Audit is concerned, the informal books of accounts compiled on the basis of the statement from the broker may be used for carrying out the tax audit as well. Suitable notes on accounts may be given by the Auditor in “Notes on Accounts” in such case by the tax auditor.

The copy of the above discussed order is as under:

MEHTA PARVESH vs. INCOME TAX OFFICER

ITAT, DELHI ‘SMC’ BENC

B.M. Kothari, A.M.

ITA Nos. 6070 & 6071/Del/1993; Asst. yrs. 1991-92 & 1992-93

21st November, 1996

(1996) 15 CCH 0292 DelTrib

(1998) 60 TTJ 0278

Legislation Referred to

S 44AA, 271A

Penalty under s. 271A—Failure to maintain proper books of accounts—CBDT has not yet prescribed any rule for maintenance of specified books so far as persons deriving income from business are concerned—Assessee furnished adequate information so as to enable the ITO to compute his total income in accordance with provisions of the Act—Penalty under s. 271A cannot be levied

Held:

The details furnished by the assessee could enable determination of taxable income in a reasonable manner. The provisions of s. 44AA required to keep and maintain such books of accounts and documents, as may enable the AO to compute his total income in accordance with the provisions of the IT Act. Sub-s. (3) of s. 44AA authorises the Board to prescribe by rules the books of accounts and other documents to be kept and maintained and the particulars to be contained therein and the form and the manner in which and the place at which such books of accounts shall be kept and maintained. The Board has not yet prescribed any rule so far as persons deriving income from business are concerned. It has only prescribed rule 6F requiring the persons deriving income from profession to maintain the specified books of accounts. Since the Board has not prescribed the necessary rules relating to maintenance of accounts by the persons carrying on business, and as the assessee has furnished adequate information, so as to enable the ITO to compute his total income in accordance with the provisions of this Act, the penalty levied under s. 271A cannot be sustained on the facts and circumstances of the present case.

Conclusion:

Since CBDT has not yet prescribed any rule for maintenance of specified books so far as persons deriving income from business, an assessee who is doing business and who furnished adequate information for computing his income cannot be penalised under s. 271A.

Counsel appeared:

K.R. Manjani, for the Appellant : Smt. Saroj Deswal, for the Respondent

ORDER

B.M. KOTHARI, A.M. : :

These two appeals, by the assessee, are directed against the common order passed by the Dy. CIT(A) on 24th Sept., 1993 confirming the penalty of Rs. 4000 levied under s. 271A for asst. yrs. 1991-92 and 1992-93.

1. The learned counsel for the assessee submitted that the assessee has qualified only upto middle class and was not conversant with the work of writing of books of accounts. He could not engage any accountant in spite of all efforts. The assessee has, however, kept the details of bank account, various investments made by him, his drawings, payment of taxes, contract receipts, credits outstanding on the basis of which he has even drawn his balance sheet from year to year. All these records, maintained by the assessee, enabled the AO to compute the taxable profits. Moreover, the Board has not prescribed any specified type of books of accounts required to be maintained by persons deriving income from business. He, therefore, urged that penalty levied in both the years should be cancelled.

2. The learned Departmental Representative supported the order of the Dy. CIT(A) and relied upon the elaborate reasons mentioned in the penalty order passed by the AO.

3. I have carefully considered the submissions made by the learned representatives of the parties. The assessee submitted the computation of income for both the years under consideration at an income of Rs. 40,000 and Rs. 42,000 respectively. The assessee also enclosed with the returns of income a statement of affairs giving the details of assets and liabilities as at the beginning of the year as well as on the close of the year. The declared income was estimated by taking into consideration the net increase in assets along with the tradings made by the assessee-firm and the household expenses. The details so furnished by the assessee could enable determination of taxable income in a reasonable manner. The provisions of s. 44AA was required to keep and maintain such books of accounts and documents, as may enable the AO to compute his total income in accordance with the provisions of the IT Act. Sub-s. (3) of s. 44AA authorises the Board to prescribe by rules the books of accounts and other documents to be kept and maintained and the particulars to be contained therein and the form and the manner in which and the place at which such books of accounts shall be kept and maintained. The Board has not yet prescribed any rule so far as persons deriving income from business are concerned. It has only prescribed r. 6F requiring the persons deriving income from profession to maintain the specified books of accounts. Since the Board has not prescribed the necessary rules relating to maintenance of accounts by the persons carrying on business, and as the assessee has furnished adequate information, so as to enable the ITO to compute his total income in accordance with the provisions of this Act, the penalty levied under s. 271A cannot be sustained on the facts and circumstances of the present case. I, therefore, cancel the said penalties for both the years under consideration.

4. In the result, both the appeals are allowed.