Section 82 - taxpayer's duty to keep records
Taxpayer (both individual or company) has a duty to keep and retain in a safe custody records of their income and expenses for 7 years of assessment backward from current year of assessment. If you are assessment for tax in year 2022, you need to keep your record minimum backward to year 2015. This is a statutory requirement under section 82 (duty to keep records and give receipts).
Taxpayer is required to keep such accounting and other records to sufficiently explain the transaction and financial position of the company.
In the authoritative Court of Appeal’s judgment of KPHDN v Lai Keng Chong, it was held by Abdul Malik Ishak JCA that:
“by virtue of s. 82(1)(a) of the Income Tax Act 1967, it is the statutory duty of the taxpayers (respondents) to keep all their records in order particularly receipts, payment vouchers, orders and a host of other related documents pertaining to their business enterprise for a period of seven (7) years for tax purposes and this statutory duty cannot be waived.”
In this case, the taxpayer fails to keep proper record of its book keeping as they have been imposed with the tax authority best judgment under section 91(1) of the Income Tax Act 1967.
Best Judgment – s.91(1) & 91(3)
The tax authority has a right to raise what they think is the best assessment of tax to be imposed on the taxpayer if taxpayer did not submit tax return within the first five years. It is the statutory right of the tax authority to do so under section 91 of the Income Tax Act 1967.
The tax authority can raise best judgment on the sixth year under section 91(3) if the taxpayer has found to have committed act of negligence and fraud.
In the case of Ehsan Armada Sdn Bhd v KPHDN [2022], the court held that the assessments and additional assessment raised more than five years from the expiration of the years of assessment were time barred under section 91(1) of the ITA 1967. There was no act of negligence on the part of the taxpayer.
In the Case of New Club Taiping v KPHDN (2022), the tax authority has raised an assessment out of the first 6 years (the current years and subsequent five years) under section 91(1) of ITA 1967 and can only exceed the authorized duration under section 91(3) if the taxpayer has been found to have committed negligence and fraud.
Public Ruling 4/2000 - 01.03.2000
How business(Sdn Bhd/Co-operative) has a duty under the law (Section 82 of the Income Tax Act) to keep records & receipts for at least 6 years.
The type of books account include ledger, sales book.
Supporting documents such as invoices, bank statements, pay in slips, cheque butts, receipts for payment, payroll records, copies of receipt.
A receipt is required to be serially numbered if:
(a) sales exceed RM150,000; or
(b) service exceed RM100,000a valuation of the stock in trade shall be made at the end of the accounting entry.
the records can be in manual or electronic and shall be sufficient to explain the true and fair value of the profit and loss account and balance sheet to be prepared.if computers used - original source documents such as invoices and receipts should be retained.
Records and book of accounts shall be kept at the business office.
this is a mandatory requirement issued on 01.03.2000 under PR 4/2000.
Public Ruling 4/2000 (Revised on 31.06.2001)
Period for keeping records
A . Except where subparagraph B or C below applies, records are to be retained for at least 7 years from the end of the year to which any income from the business or operations relates.Example
The financial year of a company is the year ending 30.06.2002.The records of the company for the financial year ending 30.06.2002 should be retained until 31.12.2009
[i.e. 7 years from the end of 2002 (the year to which the records relate)] .
B. If the return for a year of assessment [Y/A] is not furnished within the time specified under the Act, the relevant records are to be retained for a period of 7 years from the end of the year in which the return is furnished.
ExampleThe financial year of a company is the year ending 31.03.2002. The company fails to furnish its return for the Y/A 2002 by 30.09.2002 as required under the Act. The return is furnished on 23.05.2003. The records of the company for the financial year ending 31.03.2002 should be retained until 31.12.2010
[i.e. 7 years from the end of 2003 (the year in which the return is furnished), and not from the end of 2002 (the year to which the records relate)].
C. Where there is an appeal against an assessment, the relevant records are tobe retained until the appeal is finally determined.
Section 82 being the principal Act cannot be override by legislative law such as the Public Ruling. Section 82 did not state the requirement of 7 years to be furnished return from the date of submission of return. It is the duty of the tax authority to raise a case against taxpayer for undeclared income under section 112 of the Income Tax Act 1967. Taxpayer reserve its right to challenge for limitation imposed for year of assessment raised exceeding the 7 years onward for its business assessment by tax authority.
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