What we always keep on stressing in all our counselings and start-up advises is what do you do after registering your company? Is it just about obtaining leads and developing your business? Well definitely not. It is very important to develop and expand your business. It is all the same important to keep the business in compliance with the governing laws of the land. Once a company gets registered, it has to maintain its books of accounts, get the same audited by a Chartered Accountant and file its returns with the RoC and Income Tax Department. Now, what do we mean by this maintenance of books of accounts? What happens if you do not do so? In this Article, we plan to give you a trip to this town called maintenance of books of accounts.

As per the old Act (section 209) the books of accounts are required to be maintained to give a true and fair view of the state of affairs of the company or branch office.It is also required to explain its transactions and also specify the place of keeping and period for which such books to be kept by the company. The responsibility for maintenance books of accounts was also fixed by this provision.

The significant changes introduces in this section are as follows by way of the new Act are:

a)Books of accounts may also be kept in electronic form.

b)A director of the Company can inspect the books of accounts of the subsidiary, only with the authority of the Board of Directors.

What do we mean by Maintenance of books of accounts?

Maintenance of books of accounts means records maintained by the company to account for the specified financial transaction. It has been specifically provided that –

1. Every company shall keep proper books of accounts. This clause specifies the main features of proper books of accounts as below :

(i) The company must keep the books of accounts with respect to items specified in clauses (i) to (iv) of sub-section 2(13) which defines books of accounts.

(ii) The books of accounts must show that all money received and expended, sales and purchases of goods and the assets and liabilities of the company.

(iii) The books of accounts must be kept on accrual basis and according to the double entry system of accounting.

(iv)The books of accounts must give a true and fair view of the state of the affairs of the company or its branches.

2.What is required to be prepared and kept are books of accounts, other relevant books and papers and financial statements. Books of accounts are defined in clause 2(13) , “books and papers” in clause 2(12) and “financial statement” in Clause 2(40). Both are required to be prepared and kept.

3.Books of accounts, books and papers and financial statements should explain the transactions effected at company’s registered office and any branch.

4.Records, books, papers and financial statements must relate to any specific financial year only.

5.A company engaged in production, processing, manufacturing or mining activity, is also required to maintain particulars relating to utilization of material, labour or other items of cost as the Central Government may prescribe for such class of companies.

6.The branches of the company, if any, in India or outside India shall also keep the books of accounts in the same manner as specified in sub-section (1), for the transaction effected at the branch office. Further the branch offices are required to send the proper summarized return made up-to-date to the company at its registered office or the other places as decided by the board.

7. Books of accounts of the company shall be kept at the registered office of the company.

8.In case of Books of accounts being maintained at any other place other than registered office in India, as may be decided by resolution of Board of Directors, company shall be required to intimate full address of such place to Registrar of Companies within 7 days.

9.The maintenance of books of accounts and other books and papers in electronic mode is permitted and is optional.

Who is responsible to maintain the books of accounts?

Now, the question arises as to who is to be held accountable for this? The person responsible to take all reasonable steps to secure compliance by the company with the requirement of maintenance of books of accounts etc. shall be:

i)Managing Director,

ii)Whole-Time Director, in charge of finance

iii)Chief Financial Officer

iv) Any other person of a company charged by the Board with duty of complying with provisions of section 128.

Consequences of Non-Compliance:

In case the aforementioned persons referred fail to take reasonable steps to secure compliance of this section and thus, contravene such provisions, they shall in respect of each offence, 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 both.

Hence, we see again the stringent provisions of the new Act pertaining to non-compliance. Many a times it was seen earlier that the concerned persons were not bothered and got away by merely paying the penalty amount. However, the provision of imprisonment is bound to serve as a reality check. Also, it now becomes more and more important for start-ups to gain awareness about these risk areas, which has the potential to make and break a company.So, all we can say is- Maintain your books of accounts and stay in compliance.

 

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For any query, support or feedback, reach us at India Tax & Legal Compliance or Call/WA us at +91-9230033070 for any support/query/feedback.

 

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