TaxTMI 
TaxTMI 
2002 (5) TMI 39
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.... There was a search and seizure operation under section 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 in respect of the following properties: (a) Office Nos. 14, 15, 16, Malad Shopping Centre, Malad, Bombay 2,51,000 (b) Office No. 607, ....
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....ngle 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 penalty was leviable. Substantial question of law: The substantial question of law sought to be raised in the memo of appeal reads as under: "Whether, on the facts and in circumstances of the case and law, the diaries, on the basis of which the additions were made could be regarded as books of account for the purposes of clause (1) of Explanation 5 to section 271(1)(c) of the Act, so as to provide immunity to the appellants?" Arguments: Learned counsel for the appellants/assessees submitted that the subject-matter of levy....
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....nt 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 appellants is squarely covered within Explanation 5 to section 271(1)(c) of the Act, as such entitled to claim benefit of this Explanation. Learned counsel also sought to place reliance on section 2(12A) of the Act, which defines "books of account" and urged that this definition is brought on the statute book by way of clarification. It being clarificatory the same can be taken into account in the present appeals. Learned counsel for the appellants submitted that the new definition of books of account is nothing but a recognition of the ....
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.... 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 search under section 132 of the Act. He submitted that as a result of scrutiny of the seized material an unaccounted income utilised for purchase of jewellery and investment of cash was worked out by the Assessing Officer as such Explanation 5 did not attract. Reframed question: Having heard rival submissions, the question that needs consideration is can the diaries, in the facts and circumstances of the case, be regarded as books of account. What do you mean by books of account as understood in Explanation 5 of section 271(1)(c) of the A....
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....come 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 respect of such income." Legislative intention: Prior to the insertion of Explanation 5 to section 271 by the Taxation Laws (Amendment) Act, 1984, with effect from October 1, 1984, an assessee, who is found to be the owner of any money, bullion, jewellery, etc., recovered during the course of search, was entitled to explain that such assets were acquired by him by utilising his income relating to any previous year, whether it ended before the date of the search or is to end on or before the date of the search. By doing so, the assessee could have esc....
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....iable. 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 that year had not become due with the result immunity from penalty under section 271(1)(c) was granted to the assessee for the year 1990-91, the year in which a raid took place but denied the same for earlier years. 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 an....
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....n 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 intention that it should serve as a permanent record. At the same time, the term of account, i.e., to account, means to reckon, and it is difficult to conceive of any accounting which does not involve either additions or subtractions or both of these operations of arithmetic. A book which contains successive entries of items may be a good memorandum book; but until those entries are totalled or balanced, or both, as the case may be, there is no reckoning and no accounts. A book which merely contains entries of items of which no account is made at any time, is not a "book of a....
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.... 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 income so as to determine under which head, out of the various heads of income referred to in section 14 of the Act, it would fall for the purposes of computation of the total income for charging income-tax thereon. Thus, the term "books of account" referred to in this relevant sub-clause of Explanation 5 would mean those books of account whose main object is to provide credible data and information to file the tax returns. A credible accounting record provides the best foundation for filing returns of both direct and indirect taxes. Accounting is called a language of busines....