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2011-11-25 00:00:00Money & FinanceEnglishCook Your Books Of Account: We all know how the founder of a high-profile IT company fell after cooking up his company’s Books of...’t Cook Your Books Of Accounts | Income Tax Act of India %%sep%% %%sitename%%

Don’t Cook Your Books Of Account

2 min read

We all know how the founder of a high-profile IT company fell after cooking up his company’s Books of Accounts, and has been subsequently charged for cheating, embezzlement and insider trading. Years of dedication to build a world class company came to naught, destroying the faith of many — employees, stakeholders and countrymen. No one benefited in the aftermath. Stringent laws, checks, regulations were imposed. The entire industry, country was eyed with cynicism. Laws-makers have put down strict regulations to ensure that businesses do not falsify their records.

The Income Tax Act of India warns:

(a) Where any person has in his possession or control any books of account or other document relevant to any proceedings under this Act containing any false entry or statement; or

(b) Where any person makes or causes to be made any false entry or statement in such books of account or other documents; or

(c) Where any person willfully omits or causes to be omitted any relevant entry or statement in such books of accounts or other documents; or he is punishable with rigorous imprisonment for a term which cannot be less than three months but which may extend to three year. The trial court at its discretion may also order a fine.” And as per the Companies Act, 1956, “Every company is statutorily required to ensure that the company has not falsified its books of accounts or the company’s funds have not been misappropriated or the management has not misused its fiduciary position for any personal advantage”. Default in this regard is a punishable offence.

Which all records are called Books of Account:

  • Professionals:If engaged in Legal, Medical, Architectural, Engineering, Accountancy, Technical consultancy, Interior decoration, Authorized representative, Film artist, etc, books of accounts and documents can be:

• Cash book

• Journal, if the accounts are maintained as per mercantile system of accounting

• Ledger

• Photocopies of bills, serially numbered and photo copies or counterfoils of receipts issued in respect of sums exceeding Rs 25,

• Original bills for expenses exceeding Rs. 50 and payment vouchers for petty expenses. However in a case where the cash book maintained by the person contains adequate particulars in respect of the expenditure incurred, then vouchers are not necessary in respect of expenses upto Rs 50.

  • Company:Books of accounts for a company include records of:

• All sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place • All sales and purchases of goods by the company • The assets and liabilities of the company ; and • In the case of a company engaged in production, processing, manufacturing or mining activities, particulars relating to utilisation of material or labour or to other items of cost as may be prescribed.  

  • Limited Liability Partnership: The books of account shall contain:

• Particulars of all sums of money received and expended by the limited liability partnership and the matters in respect of which the receipt and expenditure takes place;

• Record of the assets and liabilities of the limited liability partnership

• Statements of cost of goods purchased, inventories, work-in-progress, finished goods and cost of goods sold; and

• Any other particulars which the partners may decide.   Honesty and fairness in maintaining business records is one of the pre-requisite for a business’s success and longevity. Also, it earns the admiration and adulation of many. Infosys’s self- Corporate Governance, being a leading example.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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