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Maintenance of accounts by certain persons carrying on profession or business

44AA. (1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette 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 this Act.

(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 lacs twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds ten lacs 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 lacs 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 lacs rupees, during such previous year; or

Maintenance of Books of Accounts

(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 year; or

(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:

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 lacs twenty thousand rupees", the words "two lacs 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 lacs rupees", the words "twenty-five lacs rupees" had been substituted.

(3) The Board may, having regard to the nature of the business or profession carried on by any class of persons, prescribe5, by rules, the books of account and other documents (including inventories, wherever necessary) to be kept and maintained under sub-section (1) or sub-section (2), 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.

(4) Without prejudice to the provisions of sub-section (3), the Board may prescribe, by rules, the period for which the books of account and other documents to be kept and maintained under sub-section (1) or sub-section (2) shall be retained.

From the perusal of the provisions of sec 44AA of the Act, we can divide the section in following parts:

The provisions of section 44AA can be summarized as under-

Maintenance of books of account by ‘specified (including notified) professionals'

Section 44AA(1) prescribes for compulsory maintenance of such books of accounts and other documents which will enable the Assessing Officer to compute his total income in accordance with the provisions of this Act. sub-section (1) applies to the followings-

  1. A person carrying on a legal profession.
  2. A person carrying on a medical profession.
  3. A person carrying on engineering or architectural profession.
  4. A person carrying on the profession of accountancy.
  5. A person carrying on the profession of technical consultancy.
  6. A person carrying on the profession of interior decoration.
  7. Any other profession as notified by the Board. The CBDT has notified the following professions u/s44AA(1) of the Act.

(1) A person carrying on the profession of an authorized representative or film artist. [Notification No. SO 17(E) dated 12-1-1977]

"Authorized 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 a legal profession or a person carrying on the profession of accountancy.

"Film artist" 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, including an assistant director ;
  • a music director, including an assistant music director ;
  • an art director, including an assistant art director ;
  • a dance director, including an assistant dance director ;
  • an editor ;
  • a singer ;
  • a lyricist ;
  • a story writer ;
  • a screen-play writer ;
  • a dialogue writer; and
  • a dress designer.

2. The profession of company secretary [Notification No. SO 2675 dated 25-9-1992]

"Company Secretary" means a person who is a member of the Institute of Company Secretaries of India in practice within the meaning of sub-section (2) of section 2 of the Company Secretaries Act, 1980 (56 of 1980).

3. The profession of information technology [Notification No. SO 385(E) dated 4-5-2001]

It may be noted that in the case of persons carrying on professions listed above or professions notified by the Board, the requirement of maintenance of accounts is applicable irrespective of the income or gross receipts of the person. In other words, a person carrying on specified or notified profession shall have to compulsorily maintain books of account and other documents. No monetary limit is specified in section 44AA(1). Hence, every person carrying on specified or notified profession has to compulsory maintain books of account and other documents. Certain relaxation is provided in the Rule 6F to professionals specified in the section 44AA itself and for notified persons in the profession of authorized representative and film artists.

In this regard, the Board has prescribed Rule 6F in The Income Tax Rules,1962 which prescribes for books of account and other documents to be kept and maintained under section 44AA(3) by persons carrying on certain professions.

It should be noted that Rule 6F has prescribed books of account and other documents only for specified professionals and certain notified professionals and not for persons carrying business. Hence, the rule does not specify any particular books of account or documents to be kept and maintained by the following persons-

  1. A person carrying on business, or 
  2. Professions not specified under section 44AA(1), or
  3. Notified professions under section 44AA(1) being the profession of company secretary and information technology.

Prescribed books of account and documents to be kept and maintained under section 44AA(3) read with Rule 6F

Rule 6F(1) states that any person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or authorized representative or film artist is required to maintain books of account and documents as prescribed in Rule 6F(2). 

The prescribed books of account and other documents under Rule 6F(2) are as follows: 

  1. a cash book; 
  2. a journal, if the accounts are maintained according to the mercantile system of accounting; 
  3. a ledger; 
  4. 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. However, an exception is provided where the amount of the bill or receipts is less than Rs.25; and 
  5. 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 Rs.50, payment vouchers prepared and signed by the person. However, 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.
 

Section 44AA provides for compulsory maintenance of accounts by certain categories of taxpayers. It provides that all taxpayers carrying on the profession of law, medicine, engineering, architecture, accountancy, technical consultancy or interior decoration or any other profession that may be notified by the Board shall maintain such books of account and other documents as may enable the Income-tax Officer to compute their total income, under the Income-tax Act, 1961.

It may be noted that every person carrying on specified or notified profession has to compulsory maintain books of account and other documents. Certain relaxation is provided in the Rule 6F to professionals specified in the section 44AA itself and for notified persons in the profession of authorized representative and film artists.

Sub-section (3) to section 44AA provides that the Board shall prescribe rules regarding the books of account and other documents (including inventories, wherever necessary) to be kept and maintained under sub-section (1) or sub-section (2), 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.

In this regard, the Board has prescribed Rule 6F in the Income Tax Rules, 1962 which prescribes for books of account and other documents to be kept and maintained under section 44AA(3) by persons carrying on certain professions.

Conditions for maintenance of prescribed books of account 

Section 44AA(1) and section 44AA(2) prescribes for conditions when a person carrying business and/or profession is required to maintain the books of accounts and other documents.

Conditions for specified professions u/s 44AA(1)

As stated above, section 44AA(1), which deals with specified professions and notified professions, do not prescribe for any conditions for maintenance of books of account and other documents. Therefore, every person carrying on specified and/or notified profession shall be required to keep and maintain the prescribed books of account and other documents as per Rule 6F(1).

Rule 6F(1) has provided the following exception when the prescribed books of account and other documents are not required to be maintained-

  • Where the profession has been newly set up by a person in the previous year, his total gross receipts in the profession for that year are not likely to exceed Rs.1,50,000.
  • In any other case, if the total gross receipts in the profession do not exceed Rs.1,50,000 in any one of 3 years immediately preceding the previous year.

A plain reading of the proviso to Sub-rule (1) is that a person is not required to maintain books of account if the total gross receipts from the profession did not exceed Rs.150,000 in any one of the three years immediately preceding the previous year . The proviso states that nothing in Sub-rule (1) would apply if the income does not exceed Rs.150,000 in any one of the three years immediately preceding the previous year.

Therefore, if the gross receipts in all the three preceding previous years do not exceed Rs.1,50,000, in that case, no books of accounts and other records shall be required to be kept and maintained by the person carrying on the specified profession.

It should be noted that Rule 6F(1) covers all the specified professions and only authorised representative or film artist notified professions. Hence, the exception of monetary limit from non-maintenance of books of accounts for other notified professions viz. the profession of company secretary and information technology is not applicable. These professionals have to keep and maintain books of accounts and other documents irrespective of their quantum of income.

Conditions for non-specified professions and business u/s 44AA(2)

Section 44AA(2), which deals with non-specified professions and business, prescribes the following conditions for maintenance of books of account and other documents-

If the business or profession is newly set up in the previous year-

In case of Individual or HUF

(i) if income from the business or profession likely to exceed Rs.2,50,000 in the previous year, or

(ii) if total sales, turnover or gross receipts from the business or profession likely to exceed Rs.25,00,000 in the previous year

In case of other persons

(i) if income from the business or profession likely to exceed Rs.1,20,000 in the previous year, or

(ii) iftotal sales, turnover or gross receipts from the business or profession likely to exceed Rs.10,00,000 in the previous year.

In any other case-

In case ofIndividual or HUF

(i) if income from the business or profession exceeds Rs.2,50,000 in any one of 3 years immediately preceding the previous year or

(ii) if total sales or gross receipts from the business or profession exceed Rs.25,00,000 in any one of 3 years immediately preceding the previous year.

In case of other persons

(i) if income from the business or profession exceeds Rs.1,20,000 in any one of 3 years immediately preceding the previous year or

(ii) if total sales or gross receipts from the business or profession exceed Rs.10,00,000 in any one of 3 years immediately preceding the previous year.

Section 44AA(1)/Rule 6F(1) provides that the monetary limit of Rs.1,50,000 do not exceed in any one of 3 years immediately preceding the previous year for the applicability of Rule 6F(1). It means in all the last three years the gross receipts from the profession must exceed Rs.1,50,000.

Section 44AA(2) worded the conditions differently. It provides that the monetary limit of Rs.1,20,000 or Rs.10,00,000, as the case may be, exceeds in any one of 3 years immediately preceding the previous year for the applicability of section 44AA(2). It means if in any one year out of the last three years the income from the business or profession exceeds Rs.1,20,000 or Rs.1,50,000 or total sales, turnover or gross receipts from the business or profession exceeds Rs.10,00,000 or Rs.25,00,000, section 44AA\(2) will apply.

4. A profession not specified or notified under section 44AA(1) is covered under section 44AA(2).

The above rule is illustrated as follows-

  • A "Chartered Accountant" (specified profession u/s 44AA(1) and is covered under Rule 6F(1)) is required to keep and maintain books of accounts and other documents as prescribed in Rule 6F(2) if gross receipts from the profession exceeds Rs.1,50,000/-.
  • A "Doctor" (a notified profession u/s 44AA(1) and is covered under Rule 6F(1)) is required to keep and maintain books of accounts and other documents as prescribed in Rule 6F(2) if gross receipts from the profession exceeds Rs.1,50,000/-.
  • A "Company Secretary" (a notified profession u/s 44AA(1) but is not covered under Rule 6F(1)) is required to keep and maintain books of accounts and other documents as prescribed in Rule 6F(2) for any amount gross receipts from the profession.
  • A "Teacher" (non-specified profession u/s 44AA(1) is covered u/s 44AA(2)) is required to keep and maintain books of accounts and other documents if the income from profession exceeds Rs.2,50,000/- or gross receipts from the profession exceeds Rs.25,00,000/-. Further, no books of accounts or other documents are prescribed but are required to maintain such books of account and other documents as may enable the Assessing Officer to compute his total income. 

5. A person carrying on business is always covered under section 44AA(2). No books of accounts or other documents are prescribed for a person carrying on business but is required to maintain such books of account and other documents as may enable the Assessing Officer to compute his total income.

6. Though no books of accounts and other documents have been prescribed for section 44AA(2), the prescribed books of accounts in Rule 6F(1) are the minimum or basic requirements for any person carrying on business or profession and hence also applies to section 44AA(2). Since books are prescribed for professionals they are not required to maintain any other books or documents over and above the prescribed ones. But for persons carrying on business, the AO may ask for any books or documents which will enable him to compute his total income.

Once the Board in respect of the particular nature of the profession prescribed maintenance of certain books of account, it is not open to the assessing authority to desire some other books of account to be maintained over and above the books of account required by Rule 6F. Any view to the contrary will defeat the very purpose of introducing Section 44AA and Rule 6F. [CIT vs Rajni Kant Dave (2006) 281 ITR 6 (All.-HC)]

This decision was rendered in respect of section 44AA(1) read with Rule 6F(1) for a profession covered u/s 44AA(1). 

Mr. X is an chartered accountant. He gives the details of his gross receipts from profession:

  • FY 2017-18: Rs.1,05,000
  • FY 2018-19: Rs.1,40,000
  • FY 2019-20: Rs.2,00,000

Is he required to maintain any books of account u/s. 44AA in FY 2020-21?

Mr. X is carrying on the profession of chartered accountant which is a profession covered by Rule 6F(1) and the proviso thereto.

Since the gross receipts from the profession does not exceed Rs.1,50,000 in all the three previous years immediately preceding the financial year 2020-21, he is not required to maintain any specified books of accounts in FY 2020-21. However, he has to maintain minimum documents to prove his gross receipts from the profession like copies of bills, bank statements, etc.

Will the answer be the same if Mr. X is a qualified Company Secretary?

Profession of CS & IT are not covered under rule 6F(1), therefore they are not required to maintain books of account as prescribed under rule 6F(2). However, they have to maintain books of Account as prescribed under the definition of "Books or Books of Account u/s 2(12A).

The profession of Company Secretary is notified by CBDT and hence covered under section 44AA(1) but does not find a place in Rule 6F(1). Hence, the proviso to Rule 6F(1) will not apply. The monetary limit of Rs.1,50,000 will not apply to him. In this case, he has to maintain such books of accounts and other documents which will enable AO to compute his total income as stated in section 44AA(1).

7. Certain Sports personnel (Sports Persons, Umpires and Referees, Coaches and Trainers, Team Physicians and Physiotherapists, Event Managers, Commentators, Anchors and Sports Columnists) were notified as professionals by CBDT vide Notification No. 88/2008 dated 21-08-2008. However, this is notified under section 194J of the Income Tax Act, 1961 and not under section 44AA(1). Hence, for the purpose of section 44AA, they will be covered under section 44AAPlace of keeping prescribed books of account and other documents

As per Rule 6F(4) the books of account and other document specified in Rule 6F(2) and (3) (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.

Analysis Of the provisions of Sec 44AA(2) Of The Act

Sec 44AA(2) requires persons carrying on business to maintain books of accounts in certain cases. If a person is carrying on business, he is required to maintain books if his turnover exceeds Rs.10,00,000 or his profits from business exceeds Rs.1,20,000 in any of the three preceding years. Either of the condition satisfied will require person to maintain books because the word ‘or' is used between the conditions. If any condition is satisfied in one or more years out of the three years preceding the previous year shall be required to maintain the books.

In case a new business is started during the previous year, if the turnover is likely to exceed Rs. 10,00,000 or profit is likely to exceed Rs.1,20,000 in such previous year, assessee is required to maintain books of accounts for that previous year. It is to be noted that the limit of Rs.1,20,000/- for Total Income & Rs.10,00,000/- for total sale receipts enhanced to Rs.2,50,000/- & Rs.25,00,000/- respectively in respect of Individuals/ HUF.

In respect of sec 44AA(2)(iv) of the Act, w.e.f. AY 2017-18, the assessee shall keep/maintain such books of account & other documents, if the provisions of Sec. 44AD(4) are applicable It means that if an assessee has declared profits as per sec 44AD(1) in any previous year and in the next 5 years he has failed to opt sec 44AD, then the assessee is not allowed to opt sec 44AD in the subsequent 5 years after the year in which he failed to opt sec 44AD. The assessee will be required to maintain books if sec 44AD(4) is applicable and his income exceeds the basic exemption limit.

From the reading od sec 44AA(2)(iv) of the Act, we draw following two conditions:

  1. The assessee is not eligible for presumptive taxation u/s 44AD for subsequent 5 years, due to opting of presumptive taxation u/s 44AD in any previous year and not opting sec 44AD in any of subsequent 5 consecutive Assessment years.
  2. His income exceeds the basic exemption limit.

Period for which prescribed books of account and other documents needs to be kept

As per Rule 6F(5), the books of account and other documents specified in Rule 6F(2) and Rule 6F(3) shall be kept and maintained for a period of six yearsfrom the end of the relevant assessment year.

Example: For the Financial Year 2018-19, the relevant assessment year is AY 2019-20. Thus, the specified books of account and other documents shall be kept up to March 31, 2026. In other words, the specified books of account and other documents of a financial year shall be kept and maintained for the next 7 financial years.

An exception is provided for the above period of six years rule. 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, 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.

However, one should keep in mind that the above period so specified for retaining the books of accounts and other documents is the maximum statutory period for which one should keep these records. A person may keep the records for a longer period if he so wishes.

Maintenance of books of accounts and other documents, period for which and place where such books are required to be maintained for non-specified profession and business

No books of account and other documents have been prescribed for persons carrying on business or profession covered u/s 44AA(2). This does not mean that they are not required to maintain the books of accounts and other documents. They are also required to maintain the books of accounts and other documents. Actually, the purview for this category of persons is wider than the persons covered by section 44AA(1). In this case, the Assessing Officer can ask for any records which are reasonable for computing the total income of the person.

Penalty for non-maintenance and non-retention of books of accounts

Section 271A provides for penalty for failure to keep, maintain or retain books of account, documents, etc. as required under section 44AA or the rules framed thereunder. The penalty is fixed at Rs.25,000 and shall be imposed by the Assessing Officer or CIT(A).

Nature of Business or profession

Category of Taxpayer

Threshold limit for Income

Threshold limit for Gross Turnover or Receipt

Specified Profession

Any

-

Mandatory in every case except when presumptive taxation scheme under Sec. 44ADA is opted by the assessee.

Non-Specified Professions

Individual or HUF

Rs.2,50,000

Rs.25 Lakh in any of the 3 year immediately preceding the previous year.

Non-Specified Professions

Others

Rs.1,20,000

Rs.10 lakh in any of the of the 3 years immediately preceding the previous year.

Business

Individual or HUF

Rs.2,50,000

Rs.25 lakh in any of the 3 years immediately preceding the previous years.

Business

Other

Rs.1,20,000

Rs.10 lakh in any of the 3 years immediately preceding the previous years.

Presumptive Tax Scheme Under Sec.44AD

Resident Individual or HUF

Rs.2,50,000

Taxpayer opted for scheme in any of last 5 previous year but not opt for in current year.

Presumptive tax scheme under section 44ADA

Resident Assessee

-

Taxpayer claims that his profits computed under Section 44ADA and total income exceeds the maximum exemption limit.

Penalty under Section 271A

Rs.25,000 if the assesseedoes not confirm to the conditions of the said section.

Auditors reporting requirement in Tax Audit Report

Clause No. 11 (a) to (c).

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

(b) List of books of account maintained and the address at which the books of account are kept. (In case books of account are maintained in a computer system, mention the books of account generated by such computer system. If the books of accounts are not kept at one location, please furnish the addresses of locations along with the details of books of accounts maintained at each location.)

 (c) List of books of account and nature of relevant documents examined.

Points for Consideration

  • Under this clause, list of books of account maintained and the address at which the books of account are kept, are to be reported.
  • The tax auditor should obtain from the assessee a complete list of books of account and other documents maintained by him (financial and non- financial records).
  • The tax auditor exercising his due diligence and professional acumen has to verify that the assessee has maintained such books of accounts and documents as may enable the Assessing Officer to compute the total income of the assessee in accordance with the provisions of the Act.
  • Assessee whose accounts of the business or profession have been audited under any other law, the requirement for maintenance of books of account is contained in the relevant statutes.
  • 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.
  • In case of any discrepancy in the maintenance of required books of account is observed, the tax auditor considering the materiality effect and practicality should give particulars in Form No. 3CD.
  • In case books of account are maintained over computer system, the list of books of account so maintained on computer system is to be given. As per section 2(12A) of the Income-tax Act, 1961, "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. Similarly, where the books of accounts are maintained in electronic or digital form and stored in cloud based storage system for the ease of access to them anytime and anywhere, the tax auditor should make a related observation in his report.
  • From AY 2014-15, the address at which the books so maintained are kept is also required to be mentioned under clause (b), ‘address at which the books of account are kept' having been inserted under the said sub-clause vide Notification No.33 dated 25th July, 2014. In case the books of accounts are kept at more than one location, then the auditor is required to furnish the details of address of each such location along with the detail of books of account maintained at such locations.
  • Section 4 of the Information Technology Act, 2000 states that "where any law provides that information or any other matter shall be in writing or in the typewritten or printed form, then notwithstanding, anything contained in such law, such requirement shall be deemed to have been satisfied if such information or matter is – i. rendered or made available in an electronic form; and ii. accessible so as to be usable for a subsequent reference. Issues
  • Whether the tax auditor is required to mention the address

Where books of account were kept during the year or at the time of tax audit?

  • Information in respect of location at which books of account are kept during the year has to be mentioned, however management representation may be taken if at the time of tax audit the books are made available for verification at place other than the one they are normally kept at.
  • Whether the tax auditor is required to visit all the locations wherever books of account are kept by the 155 assessee including where the books of account are maintained in computerized system?
  • Whether the tax auditor should maintain documentary evidence to support/substantiate his visit to location(s) where books of account are kept.
  • Ordinarily, there would be no need to personally visit the premises where books of account are kept, however verification of place/location in existence must be obtained by the Auditor. Further, if and where there arises any caution, the tax auditor may visit such place(s) as well. * In terms of the provisions of Section 128 of the Companies Act, 2013, the books of account are mandatorily required to be kept at the registered office of the company. In case the books of accounts are sought to be maintained at a place other than the registered office, the related resolution of the Board of Director is necessitated and upon passing of such resolution, the full address of such person is required to be intimated to the ROC within 7 days. However, books relating to transactions effected at the level of a branch office, the related books are kept at the branch office itself, subject to summarized returns etc. need to be sent to the registered office or the other place intimated to the ROC, as stated above, at regular inter

Disclosure in tax audit report when Profit including profit on Presumptive basis

To report under clause 12 of tax audit report,the tax auditor keep in mind the following points:

  • In case profits and gains of the business are assessable on presumptive basis under any provision of the Act, reporting has to be of an amount included in Profit & Loss account
  • It is not necessary to indicate whether such amount corresponds to the amount assessable under the relevant section relating to presumptive taxation
  • The tax auditor may clarify by way of a note that the amount mentioned under this clause is not necessarily the actual amount of profits and gains chargeable to tax under the relevant section
 

Where the assessee carries on more than one business, the following 3 situations could arise

  • The assessee maintains separate set of books of accounts – in such a situation there will be no issue whatsoever
  • The assessee maintains same set of books of accounts for more than one businesses – profits of some of which are taxable on presumptive basis and the profits of the others are not covered by presumptive taxation – in such a situation the auditor will have to ask the assessee to provide him and justify the basis on which expenses have been apportioned to various business. The auditor will have to arrive at a fair and reasonable estimate of such expenditure on the basis of evidence in his possession. The basis of apportionment of common expenditure should also be checked. If the auditor is not satisfied with the correctness of such apportionment, he should indicate such fact under this clause by way of a suitable note.
  • The assessee maintains books of accounts for his regular business but does not maintain any books for business covered by presumptive tax provisions. In such cases, the auditor will be unable to satisfy himself about the correctness of the net income from the presumptive business credited to the profit and loss account. He should, state the amount of income appearing in the profit and loss account with a suitable note expressing his inability to verify the said figure. He may have to consider qualifying his report in Form 3CB.
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