2002 (5) TMI 39 - HC - Income Tax

Diaries seized in s.132 search: whether private diaries count as 'books of account' for Expln.5 immunity; penalty upheld

The dominant issue was whether diaries seized in a s.132 search qualified as 'books of account' maintained by the assessee for any source of income so as ... Entitlement to the benefit of the exception provided in clause (1) of Explanation 5 to section 271(1)(c) - additional income found to have been recorded in the books of account - concept of books of account - Whether the diaries seized during the search operation under section 132 could be regarded as books of account maintained by the assessee as contemplated under Explanation 5 to section 271(1)(c) of the Act for recording source of income? - HELD THAT:- Since the Assessing Officer himself invoked Explanation 5 and granted immunity to the assessee for the assessment year 1990-91, and the said order having become final and conclusive, for want of further challenge at the instance of the Revenue, we do not think it necessary to dwell upon the question of applicability of Explanation 5 on the facts and in the circumstances of the present case, Assuming it to be applicable even then, in our view, the appellants cannot succeed in these appeals for the reasons recorded herein. If the newly inserted definition of books of account inserted in the Income-tax Act is examined in contrast to the definition given under section 34 of the Evidence Act, it will be clear that the stringent requirements of section 34 are not to be found in the said definition. Obviously, for the simple reason that the purpose of both the legislations are different. So far as the cases at hand are concerned, they relate to the assessment years 1984-85 to 1988-89; much prior to the period of introduction of the definition which was introduced for the first time under the Finance Act, 2001. The words in Explanation 5 'books of account, if any, maintained by him for any source of income' are important words signifying the legislative intent embodied in the Explanation warranting grant of immunity from penalty. The legislative intent is to admit only those books of account maintained by the assessee on his own behalf as by their very nature and circumstances are maintained for the purposes of drawing the source of income. Therefore, when books of account are tendered for claiming the benefit of Explanation 5 to section 271(1)(c) of the Act, it must be shown to be a book, that book must be a book of account, and on the top of it that must be one maintained for the purposes of drawing the source of income under the Income-tax Act. These essential requirements must be carefully observed while implementing tax legislation in the country where secret and parallel accounts based on frauds and forgery are extremely common and responsibility of keeping and maintaining accounts for the purposes of the tax legislation is honoured in the breach rather than the observance. Now, turning to the facts of the cases in hand, private diaries may have been most regularly maintained, it may have been exhibiting record of the factual facts, contemporaneously made but they were never maintained for the purposes of the Income-tax Act to draw the source of income or for the computation of total income to offer income calculated therefrom for the purposes of taxation. Such books or diaries can hardly be designed or accepted as books of account for the purposes of Explanation 5 of section 271(1)(c) of the Act, so as to afford immunity from penalty. None of the cases cited by the appellants were close to the facts found herein, hence no reference thereto in our opinion, is necessary. The Tribunal was perfectly justified in upholding the levy of penalty under section 271(1)(c) of the Act. Issues Involved:1. Whether the diaries seized during the search operation could be regarded as 'books of account' u/s 271(1)(c) of the Income-tax Act, 1961.2. Applicability of Explanation 5 to section 271(1)(c) regarding immunity from penalty.Summary:Issue 1: Whether the diaries seized during the search operation could be regarded as 'books of account' u/s 271(1)(c) of the Income-tax Act, 1961.The appellants contended that the diaries seized during the search operation should be considered as 'books of account' for the purposes of clause (1) of Explanation 5 to section 271(1)(c) of the Act. They argued that these diaries were regularly maintained and contained all transactions, thus qualifying as books of account. The court, however, held that the term 'books of account' refers to those maintained for determining any source of income under the Income-tax Act. The court emphasized that such books must provide credible data for filing tax returns and cannot be mere private records of clandestine transactions. Therefore, the diaries in question did not qualify as 'books of account' for the purposes of the Act.Issue 2: Applicability of Explanation 5 to section 271(1)(c) regarding immunity from penalty.The court examined the legislative intent behind Explanation 5, which aims to plug loopholes allowing assessees to escape penalty by declaring income post-search. The court noted that Explanation 5 provides exceptions where no penalty is leviable if the income or transactions are recorded in the books of account before the date of the search or disclosed to the Commissioner. The court found that the diaries were not maintained for the purposes of the Income-tax Act and thus did not meet the criteria for immunity under Explanation 5. Consequently, the Tribunal's decision to uphold the levy of penalty under section 271(1)(c) was justified.Conclusion:The court concluded that the diaries seized during the search operation could not be regarded as 'books of account' u/s 271(1)(c) of the Income-tax Act, 1961. The appeals were dismissed, and the Tribunal's decision to uphold the penalty was affirmed.