Coverage of Books of Accounts under Various Laws

Anil Singhal 
on 19 July 2019


Watch out your Accounting,
It just takes one moment to capsize the boat
And take it down.
So keep accounting.

Come let's Understand Meaning of Books of Accounts under Various Laws.


QUESTIONS

UNDER COMPANIES ACT

UNDER GST

UNDER INCOME TAX ACT

Which section deals with it?

Section 128 of Companies Act, 2013

Section 35 of the Central Goods and Services Tax (CGST) Act, 2017

Section 44AA of Income Tax Act 1961

Who all are required to comply with the above section?

Every Company incorporated in India is required to prepare and keep books of account under Companies Act, 2013.

In Companies, the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person of a Company charged by the Board with the duty of complying with the provisions of this section.

  • All persons registered under GST Act.
  • Every owner or operator of warehouse or godown or any other place used for storage of goods shall maintain records of the consigner, consignee and other relevant details of the goods.
  • If the sale/turnover/gross receipts from the business or specified professions is more than Rs. 25,00,000 or
  • The income from business or specified profession is more than Rs. 2,50,000 in any of the 3 preceding years, then books of account will be compulsorily maintained.

What is required to be maintained?

Books of Account, other relevant books and papers and financial statement for every financial year, including of its branches (if any).

(As per section 2(13) of Companies Act, 2013 "books of account" includes records maintained in respect of— (i) all sums of money received and expended by a Company and matters in relation to which the receipts and expenditure take place; (ii) all sales and purchases of goods and services by the Company; (iii) the assets and liabilities of the Company; and (iv) the items of cost as may be prescribed under section 148).

True and correct account of - (a) Production or manufacture of goods (b) Inward and outward supply of goods or services or both (c) Stock of goods (d) Input tax credit availed (e) Output tax payable and paid (f) books of accounts relating to all additional place of business mentioned in his certificate of registration.

Further the commissioner may notify any class of taxable person to maintain additional books of accounts.

As per Rule 6F of Income Tax Rules, 1962-

  • Cash Book
  • Journal
  • Ledgers
  • Bank book
  • Copies of bills or receipts
  • Details of stock

Which Accounting Method is to be followed?

Accrual basis and according to the double entry system of accounting.

Accrual or cash basis of accounting

As per section 145 of Income Tax Act. (1) Income chargeable under the head "Profits and gains of business shall, be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.

What should be the location of books of account?

It should be kept at its registered office.

Provided that all or any of the books of account may be kept at such other place in India as the Board of Directors may decide shall, within seven days of passing the board resolution, file with the Registrar a notice in writing giving the full address of that other place in form AOC-5.

At his principal place of business, as mentioned in the certificate of registration.

  • Provided that if a registered person having more than one principle place of business as specified in the certificate of registration, the accounts relating to each place shall be kept at such place.

At his principal place of business.

What should be the manner of maintaining books of account?

Company may keep such books of account or other relevant papers physically or in electronic mode,

But if a Company intends to keep Books of account electronically then it will have to give an intimation to ROC at the time of filing of financial statements in form AOC-4 on annual basis and shall indicate the following :

  • Name of Service Provider
  • Internet protocol Address of service provider
  • Location of service provider
  • Address of cloud where such books of account are kept.

The registered person may keep and maintain such account physically or in electronic form.

  • But if it intends to keep books of accounts electronically then it should be authenticated by means of digital signature and should be accessible from every related place of business mentioned on the GST registration certificate.

May keep and maintain such account physically or in electronic form

What is the duration of retaining books of account?

Not less than eight financial years immediately preceding a financial year

(Provided that where an investigation has been ordered in respect of the Company under Chapter XIV, the Central Government may direct that the books of account may be kept for such longer period as it may deem fit).

Until the expiry of 72 months from the due date of furnishing of annual return for

the year pertaining to such account and records.

(Provided for a longer period in case of appeals or investigations).

Books should be maintained for a period of 6 years from the end of the relevant assessment year.

What is Penalty in case of contravention?

Defaulter will be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or with both.

As per section 122(1) of CGST Act 2017, if a person fails to keep, maintain or retain books of account shall be liable for a penalty of Rs 10,000 which may extend to Rs 25,000.

As per Section 271A of Income Tax Act, if any person fails to keep and maintain any such books of account, the Assessing Officer or the Commissioner may direct that such person shall pay a sum of twenty-five thousand rupees.


Now Let's under some other issues relating to the Books of Accounts:

Case Study 1: Prestige Pvt. Ltd. is having its branches in Jodhpur, Udaipur and Bhiwadi. Is maintenance of books required at all the places? What is required by Head office regarding maintenance of Books of Account of branches?

Solution:

UNDER COMPANIES ACT- As per section 128 of Companies Act, 2013, every branch office should maintain proper books of account. Proper summarized returns periodically are sent by the branch office to the Company at its registered office.

UNDER GST- Provided that where more than one place of business is specified in the certificate of registration, the account relating to each place of business shall be kept at such places of business.

Question:  As per Current Scenario almost everyone has a question as Whether Accounts kept in Tally Software, is included under the definition of Books of Accounts or not?

Suggestion:

Since As per "Section 128 of Companies Act, 2013" books of account are those which are kept in such manner in which they were originally generated. As Books of Accounts Maintained under Tally or any other ERP Software can be altered as per the Needs or requirements of Management, Tally cannot be Covered under the definition of Books of Accounts.

Further none of the above mentioned Sections under Various Laws (covering Books of Accounts) do not Include Modified Books of accounts, so we can say that Tally is not Covered under Books of Accounts.

The author can also be reached at anilsinghal134@gmail.com


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