TMI Blog2002 (5) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 132 of the Act, carried out in the shop premises of all the appellants after the returns were filed by them. One of such seizure operations was carried out at the residence of partners of the group concern, viz., Shri Madhukar R. Shah, Shri Ramesh R. Shah and Shri Kantilal R. Shah. Simultaneously, there was a survey action under section 133A of the Act at the factory premises of these group concerns: In the course of search and seizure operations, certain documents, papers and records including certain diaries were seized. Subsequently, the seized material was scrutinised and as a result of the scrutiny, the following unaccounted income has been worked out: ------------------------------------------------------------------------- Rs. Rs. ------------------------------------------------------------------------- (i) Pack of loans worked out on the basis of seized material... 40,89,484 (ii) Unexplained jewellery ... 2,91,524 (iii) Unexplained cash ... 39,127 (iv) On money paid i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) of the Act. Aggrieved by the aforesaid orders, the appellants preferred an appeal before the first appellate authority, i.e., the Commissioner of Income-tax (Appeals), who confirmed the levy of penalty vide order dated June 26, 1995, for the respective assessment years. The aforesaid orders were unsuccessfully challenged before the Tribunal. The appeals preferred by all the appellants were disposed of by the common order since identical facts and issues were involved. That is how the present appeals were filed. So this single judgment will dispose of all the three appeals under consideration. Learned counsel Shri Patil, appearing for the appellants, in all the appeals raised a solitary contention that the diaries on the basis of which the income was estimated and offered ought to have been regarded as books of account for the purposes of clause (1) of Explanation 5 to section 271(1)(c) of the Act. In his submission, the appellants were clearly entitled to the benefit of the exception provided in clause (1) of Explanation 5 to section 271(1)(c), since the transactions resulting in such additional income were found to have been recorded in the books of account, as such no p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... j) and went on to contend that in the absence of any definition of "books of account" in the Act, the diaries can constitute books of account, it need not be accurate or correct. learned counsel for the appellants contended that the diaries, which were seized, were regularly maintained as regular books of account which contained all the transactions entered into by the appellants. They formed primary cash books containing particulars of all the transactions of the appellants. From this primary rough cash book, i.e., diaries, fair account books were prepared. While recording these transactions from the rough cash book, namely, diaries to the fair cash book, certain expenses were inflated but not a single transaction was missed out in the final cash book. In his submission, the rough cash book, i.e., diaries, correctly recorded all the transaction and particulars thereof represented the true and correct picture of all the business transactions. In his submission, the diaries, which accurately recorded all the transactions of the appellants, constituted the true books of account and could be regarded as real cash book. In this view of the matter, he contended that the case of the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the mischief of the main provisions of section 271(1)(c) of the Act." Alternatively, Shri Desai contended that the books of account referred to in clause (1) of Explanation 5 to section 271(1)(c) of the Act means the books of account maintained by the assessee meant to determine his income under the Income-tax Act. He further contended that books of account means the account books maintained for the purposes of the Income-tax Act and not concealed account books, such as diaries in the present case, surreptitiously maintained to record concealed and clandestine transactions not meant for the purposes of the Act. He, on this plank of submission, tried to support the order of the authorities below and urged that by no stretch of imagination can the case of the appellants be said to be within the sweep of clause (1) of Explanation 5 to section 271(1)(c) of the Act. He, therefore, prayed for dismissal of the appeals and confirmation of the orders passed by the authorities below. He tried to support the finding recorded by the Tribunal and contended that Explanation 5 to section 271(1)(c) was not at all attracted in this case, as no money, jewellery, bullion, was found during the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or after the date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished in accurate particulars of such income, unless,-- (1) such income is, or the transactions resulting in such income are recorded,- (i) in a case falling under clause (a), before the date of the search; and (ii) in a case falling under clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date; or (2) he, in the course of the search, makes a statement under sub-section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income out of which such assets have been acquired. It has also been provided that if an assessee in such case makes a statement during the course of search admitting that the assets found at his premises or under his control had been acquired out of his income which have not been disclosed so far in his return of income to be furnished before the expiry of the time prescribed in clause (a) or (b) of section 139(1) and specifies in the statement the manner in which such income has been derived and pays the taxes that are due thereon, no penalty shall be leviable. Consideration and findings Having heard the parties, the facts reveal that penalty of concealment is levied under section 271(1)(c) with respect to unsecured loans given, jewellery, cash and purchase of properties. The Assessing Officer on the basis of scrutiny of the seized material worked out unaccounted income in the form of unexplained jewellery and unexplained cash including unsecured loans given and on-money paid for acquiring immovable properties. The exemption for the assessment year 1990-91 has been given to the assessee by the Assessing Officer by virtue of clause (2) of Explanation 5 since the return for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llants. It reflected a true state of accounts constituting the real cash book. As such his case squarely falls within Explanation 5 to section 271(1)(c) of the Act. In order to appreciate the scope of clause (1) to Explanation 5, it would be necessary to understand the words in which they are appearing under the said Explanation. Before concentrating on the specific meaning thereof, in the light of the legislative intent behind clause (1), let us see, what do you mean by "books of account". If "books of account" is considered in isolation, then, it may mean books in which merchants, traders and businessmen generally keep their accounts and are maintained for recording (a) all receipts and expenses with matters relating thereto; (b) all sales and purchases; and (c) the assets and liabilities. They are the documents and ledgers which must be prepared and kept by the business entity including the profit and loss account and the balance-sheet. In traditional terms, books means a collection of sheets of papers bound together with the intention that such binding shall be permanent and papers used are kept collectively in one volume. It may also be assumed that it connotes the intentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In order to appreciate the submissions keeping in view the facts of the present cases, one has to concentrate not only on the bare term "books of account" but also on the words in whose company the said term is appearing. The extracted sub-clause appearing hereinbelow will have to be understood properly and appropriate meaning will have to be assigned keeping in mind the backdrop in which the concept of "books of account" is referred to in sub-clause (1) of clause (b) of Explanation 5. The words used are: "such income is, or the transactions resulting in such income are recorded ... in the books of account, if any, maintained by him for any source of income ... before the said date." The term "books of account" referred to in sub-clause (1) of Explanation 5 to section 271(1)(c) means books of account which have been maintained for determining any source of income. The term "source of income" as understood in the Income-tax Act is to identify or classify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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