Question

5. Imagine you're the Revenue Agent assigned to review Diana’s 2015 income tax return. She was a personal trainer, and has told you that she kept next to no records of her business expenses. When asked how she came up with the numbers listed for her expenses on the Schedule C for her business, she tells you that she just estimated the amounts. You talked to some of Elizabeth's clients and found out that she encourages all her clients to pay her in cash. Finally, a review of Elizabeth's bank account records shows that she deposited was paying personal expenses (like her apartment rent) from the bank account she set up for her personal training business.

You're preparing your report and the 30-day letter. Do you propose the accuracy-related penalty or the fraud penalty given the facts above, or no penalty at all? Explain your choice.

Answer 1

For Non maintaining of records of business expenses , there is penalty and several other prosecutions as

he following professions should maintain accounting records if their gross receipts are more than Rs. 1,50,000 in 3 preceding years for an existing profession. This also applies to a newly set up profession whose gross receipts are expected to be more than Rs. 1,50,000.

he accounting records to be kept have been prescribed in Rule 6F:

• Legal
• Medical
• Engineering
• Architectural
• Accountancy
• Technical consultancy
• Interior decoration
• Authorized representative — A person who represents someone for a fee before a tribunal or any authority constituted under law. It does not include an employee of the person so represented or someone who is carrying on the profession of accountancy.
• Film artist — This includes a producer, editor, actor, director, music director, art director, dance director, cameraman, singer, lyricist, story writer, screen play or dialogue writer and costume designers.
• Company secretary

From AY 18-19, the limit of Rs. 150,000 has been increased to Rs. 250,000.

Specified books of account as per Rule 6F

• Cash book
  A record of day to day cash receipts and payments which shows cash balance at the end of the day or at best at the end of the each month and not later.
• A journal according to mercantile system of accounting
  A journal is a log of all day to day transactions. It is a record, in accounting terms, where total credits equal total debits, when we follow the double entry system of accounting ie each debit has a corresponding credit and vice versa.
• A ledger where all entries flow from the journal, has details of all accounts, this can be used to prepare the financial statements.
• Photocopied of bills or receipts issued by you which are more than Rs 25
• Original bills of expenditure incurred by you which are more than Rs 50

• Failure to maintain books of accounts
• If you fail to maintain books of accounts as prescribed, you may be charged a penalty of Rs 25,000 or in some cases where you may have international transactions and you have failed to maintain information and documents for such transactions – 2% of the value of each international transaction.
• It would be diligent to maintain your books of accounts and keep track of all your expense and income in a methodical way.